The National Food Security Bill (NFSB) led to an uproar in the Lok Sabha when it was tabled on May 6. True, it doesn’t take much for our esteemed parliamentary members to get agitated but this time, they have a point. With NREGA and similar “empower the poor” schemes failing to deliver owing to rampant corruption, is another scheme really required? Worse, if the NFSB is passed, India’s fiscal deficit will get worse, a fact that’s already impacting India’s allure as an investment destination.
Opposition parties believe that the NFSB is a smokescreen for UPA to divert attention from the corruption charges levied at the party. They also claim it’s a move to gratify voters as the 2014 elections come close. Whether that’s true or not, the NFSB has holes that make it flawed from the start.
Food Security Bill
First, the NFSB is not new. It’s been dug out of its grave by the UPA government after a spell of 4 years. It was passed by the Cabinet in March 2013 but faced flak from opposition in the Lok Sabha.
If the NFSB is passed, India’s poor amounting to 800 million people (two thirds of the country’s population) will have the legal right to receive 5 kilograms of food grain per person at fixed rates of ₹3 (rice), ₹2 (wheat) and ₹1 (coarse grains) per kilogram. Meanwhile, the Antodaya Anna Yojana (AAY) meant to protect 2.43 crore poorest of poor families will continue with the supply of 35 kg food grains per month per family.
Economic implications of National Food Security Bill
NFSB has not received a favorable response from any quarter – media, corporate, or business. That’s not over a disinclination to help the poor but over the practicality of implementing a scheme that relies on the same flawed infrastructure that has stalled previous schemes.
Secondly, the NFSB was proposed at a time when India’s growth rate was almost 9%. Today it’s struggling to touch the 5.2% mark promised by finance minister, P Chidambaram. If it falls any lower, India’s status in the investment market would be rated “junk.” For 2013-14, the food security bill will cost the exchequer Rs. 1,24,502 crore, an extra expenditure of Rs. 44,711 crore after deducting existing food subsidies and adding infrastructure, transportation and other costs allied to the NFSB. NREGA’s annual cost is only a little less.
Thirdly, the government’s involvement via NFSB could drastically raise the amount of food grain procured from the market, leading to distortion of agriculture prices. The Bill will add to the total subsidy burden that’s already about 2.4% of the GDP. Chidambaram hopes to cut the fiscal deficit to under 4.8% of GDP in 2013-14 from around 5% in 2012-13. NFSB will certainly not help.
Can India afford to decelerate its growth rate any further? As S.A. Aiyer’s calculated in his 2009 paper Socialism Kills: The Human Cost of Delayed Economic Reform in India, India has already failed to prevent 14.5 million infant mortalities, produce 261 million literates and empower 109 million poor because of delayed economic reform. The need of the hour is not NFSB but reform that drives growth – the only factor that effectively helps move above the poverty line.
A scheme to feed the poor does not address the core problem. It will only end up making greedy middlemen, politicians and bureaucrats richer. The UPA knows this too. Then why focus on a scheme rather than the root cause of implementation failure? Why not focus on preventing stored food from going to rot? Why not optimize distribution channels to bring what is already available to the poor instead of creating new administrative burdens? Without fundamental changes at the ground level, NFSB is doomed.