In what is the world’s biggest plan for combating hunger, the Indian Government has launched a US$14.3 billion programme for providing cheap foodgrains to two-thirds of the country’s population of 1.25 billion.
India’s National Food Security Act, 2013, that guarantees grossly subsidised foodgrain to two-thirds, or 837.5 million, of the country’s population of 1.25 billion, came into being September 2013. But within weeks of its enactment, the legislation is encountering huge problems. The yearly financial burden in implementing this world’s biggest programme of combating hunger is just one of them.
Of the Rs1.16 trillion (US$18.7 billion) allocated in the Union budget of last week to the Food and Consumer Affairs Ministry for fiscal year 2014-15, as much as Rs885 billion (US$14.3 billion) – or 76.4 percent – will go towards implementation of the food security law. This will include Rs265 billion (US$4.27 billion) for managing the costs and losses of the entire public distribution system. India’s fiscal year is from 1 April to 31 March.
The food subsidy is expected to climb rapidly every year, considering that the 2014-15 allocation for it almost equals the entire funding of Rs920 billion (US$14.84 billion) for the Food and Consumer Affairs Ministry last year (2013-14).
The ambitious food delivery scheme entitles 5 kilograms of rice, wheat and coarse cereals per individual, per month, at a fixed price of Rs3 (US cents 4.84), Rs2 (US cents 3.23) and Re1 (US cents 1.61) a kilo respectively – at the current rate of Rs62 to a US dollar – for the next three years, after which the prices may be revised. It targets 75 percent of the rural and 50 percent of the urban population.
One would imagine that the introduction of a hugely subsidised food programme for a starving population would be widely welcomed. But this landmark scheme has been greeted with high scepticism, not without reason.
For one, it has been brandished at a time the once vaulting Indian economy is in crisis, the budgetary and current account deficits are wide and it is yet unclear how this massive scheme will be funded, and sustained. For another, it is widely perceived to of been a measure of political opportunism, with elections recently held in April-May.
While the Congress-led coalition Government claims its decision will provide a safety net to India’s poorest, it is a tacit admission that 67 years after the country’s Independence from Britain, the majority of the population is yet in a predicament that compels such assistance. India has been ruled by the Congress party for 54 of the last 67 years.
Sure, it is an arduous task to expand the bread basket in a manner commensurate with the surge in numbers. It is nonetheless disturbing that the country has around the same proportion – 24 percent – of undernourished people as it did two decades ago.
The fundamental argument against the food delivery scheme is that it reduces the population to dole and perpetuates the problem, when the Congress Government could instead have used its subsidy funding towards structural reforms during the nine years of its current reign. The additional burden it will impose on the exchequer will drive inflation even higher, hitting hardest the poor it seeks to serve.
Indeed, in its report titled National Food Security Bill – Challenges and Options, the Agriculture ministry’s Commission for Agricultural Costs and Prices (CACP) puts the cost of the food security scheme over a three year period at Rs6.82 trillion (US$110 billion). It points out that this is because the Government has not accounted for additional expenditure needed for the envisaged administrative set-up, scaling up of operations, augmenting production, and investments for storage, transportation, handling and market infrastructure.
The Government has calculated that the coverage and entitlement it has proposed will require 61.23 million tonnes (MT) of foodgrains annually. While foodgrain production had totalled 255.36 MT in 2012-13, the yield estimated for the current fiscal 2013-14 is 263 MT, including 105 MT of rice, 92.5 MT of wheat and 42.5 MT of coarse cereal. This will entail the diversion of 25.5 percent towards the subsidised food programme.
India’s food subsidy plan had rankled the World Trade Organisation (WTO), which had feared that subsidy levels would rise globally as a result and the programme would affect global stocks and commodity prices. When the issue was debated at the 9th WTO Ministerial Conference held in Bali December 2103, India contended that its food inventories were not for trading or for finding markets, but for the safety and security of its people. It pointed to a G-33 proposal that allowed countries with food security laws to procure goods for ensuring food security for their people. WTO eventually relented, agreeing it would not penalise countries like India for providing subsidy on staple food crops. Nations such as India are now allowed to fix a Minimum Support Price (MSP) for farm produce, sell staple grains to the poor at subsidised rates and store foodgrains to meet contingency requirements.
Curiously, the food subsidy programme will hurt India’s agriculture sector the most as the Government attempts to garner maximum foodgrain through MSP to the farmer. Indeed, the farmer will see more worth in receiving food doles himself than in toiling in the fields.
Agriculture is clearly one sector to have fared poorly owing to political neglect, though India is predominantly agrarian and one of the world’s largest agrarian economies. Though its role remains critical as 65 percent of the population has farming as the principal source of work and income security, agriculture has seen its share in GDP decline over the years – from 29.76 percent between 1994 and 1996, 23.15 percent between 2002 and 2003, and 13.7 percent at present.
Malnutrition accounts for nearly half the child deaths in India. Calorie deprivation is widespread, the country’s undernourished subsisting on 260 kilocalories per day, when the minimum dietary energy requirement is for 1,770 and the global average, 2,240. The situation had been better two decades ago, when the daily intake had been 290 kcal per person. Besides, net per capita per day availability of foodgrain has risen only feebly from 394.9 grams in 1951 to 436 grams today.
A weak purchasing power denies nutrition to the masses. While China’s per capita income was US$69 in 1962 compared to India’s US$58, at US$6,091 today, it is four times that of India’s US$1,489. This was primarily owing to heightened attention to agriculture where poverty was located. Thus, while average per hectare yield for cereals in China was 1,500 kg in 1962 compared to 965 kg/ha in India, the respective tallies are 5,705 kg/ha and 2,800 kg/ha today. Beijing thereafter invested in infrastructure for the shift from farm to factory, thereby vitalising manufacturing to improve employment and purchasing power. India lost out on both farming and manufacture.
Compounding India’s problem is poor handling of produce that causes phenomenal post-harvest losses. As much as 10 percent of foodgrains and 25 to 30 percent of perishables rot away owing to primitive harvesting, prolonged transportation and inadequate storage. Besides, nearly 18,000 MT of foodgrain were damaged between 2009 and 2012 in Food Corporation of India godowns. Agriculture Minister Sharad Pawar says insufficient storage infrastructure is leading to losses of fruits, grains and vegetables worth Rs440 billion (US$7.1 billion) every year.
Yet, compared to the Rs885 billion (US$14.3 billion) allocated for the food subsidy, there is an outlay of just Rs300 billion (US$4.84 billion) for the Agriculture Ministry for 2014-15. Similarly, Health and Family Welfare has been allotted Rs384 billion (US$6.19 billion), and Human Resource Development, Rs811 billion (US$13 billion).
Global ratings agency Moody’s assesses the Food Security measure as credit negative as it will weaken Government finances and deteriorate the macro-economic situation.
A collateral damage to the economy from the new legislation will be a reduced supply of foodgrains to the open market, leading to a further rise in prices. This will clearly hurt the flow of bank credit to the private sector.