THE National Advisory Council (NAC) which was entrusted with the task of formulating the first draft of the proposed National Food Security Act (NFSA) finally came out with its recommendations. In short, the proposal is to provide subsidised foodgrains to 75% of total population of country, covering 90% of the rural population and 50% of the urban population.

These proposals are not only disappointing but are also a retrograde step for a country where half of its population is malnourished. This is because the NAC in one stroke made one fourth of the country ineligible for any food security.¹ The NAC proposals are also retrograde because they go against its earlier proposal of experimenting with universal entitlements in the poorest 150 districts of the country.² In the final proposals, even this minimum effort to experiment with universalization was given up. The issue is why the NAC went against universal NFSA, something which a large majority of members had approved in public.³

A universal PDS is not only the best possible option from the perspective of a rights based approach, it is also far more realistic in its commitment to ensure food security for the poor.⁴ It would also be in line with the larger agenda of the UPA government of changing the architecture of social service programmes to make them more inclusive. It is by now well known and well documented that the BPL (Below Poverty Line) census, which is the primary means of targeting public services and subsidies to the poor, has failed to serve the purpose. In fact, it is now considered to be the biggest stumbling block for effective delivery of public goods.

The process of targeting is inherently problematic, since any such effort is not only administratively costly but also discriminatory to the poor; limiting food security to BPL necessarily involves the exclusion of families who are very similar to other families that have been included. Historically, limiting food security to BPL families has severely impaired the effective access to food for poor families. In particular, (i) large numbers of poor families did not have BPL cards, (ii) even when they had cards, access to PDS was not automatic and, (iii) even if they had access to Public Distribution System (PDS), they did not receive the full entitlement of food. But does it mean that universalization is not feasible or is it just another case of scaremongers having a field day? It is in this context that one must evaluate the reality as it exists today. That is, do we have enough foodgrains to procure for a universal system and do we have enough storage space to store the foodgrains? But before looking at these issues, we must first figure out how much we actually need to procure and store.

 

Assuming the population to be 115 crore and a per capita entitlement of 7 kgs, the total requirement for a universal PDS would be around 96.60 million tonnes.⁵ This incidentally is the maximum amount of foodgrain requirement. However, this requirement is conditional on the fact that the entire population lifts its foodgrain quota. Therefore, this in a sense is the upper boundary. But such an assumption will be highly unrealistic for two reasons. First, there will be some sections of the population who will not take their quota of foodgrain. This could be because they are well off and therefore do not need the ration food.⁶ It could also be a matter of taste and preference and they may not like the PDS foodgrain which is generally of inferior quality. These will largely be the rich and well off in urban areas. But in rural areas there is also the additional category which produces food, not for subsistence but for sale. This category of households will be the large and medium farmers.

Second, there will also be the category of households who will not get their foodgrains simply because of the inefficiencies of the system of foodgrain delivery, particularly in northern states such as Bihar, Jharkhand and Uttar Pradesh where the PDS system has not worked historically.

 

While it is obvious that there will not be 100% offtake of foodgrains, it is not easy to get a concrete idea of what percentage of the population will voluntarily opt out of the PDS assuming that the problem of delivery mechanism is fully taken care of. Unfortunately, while there is scant data, there is some information available from the National Sample Survey data on Consumption Expenditure Surveys (CES) which gives the offtake of foodgrains from the PDS. To get an idea about what the offtake might be in a scenario of a universal PDS, an analysis of data related to Tamil Nadu can be useful.

First, Tamil Nadu is the only state in the country which has a universal PDS, without making a distinction between APL and BPL.⁷ Second, Tamil Nadu has been recognized as the state with least leakages (Planning Commission 2005) in the PDS.⁸ It is also a state with the lowest foodgrain prices in the PDS. Although the current price at Rs 1/kg is lower than the proposed price of NAC, the price in 2004-05 was Rs 3.5 per kg. All the PDS shops in the state are run by cooperatives/government. 99% of taluks have their own godowns. The quality of foodgrain delivered is good and along with cereals, it also gives other food items such as pulses and edible oil. Tamil Nadu also uses an online monitoring system, GPS and so on to track foodgrain movement.⁹

 

State level estimates of offtake from the PDS for Tamil Nadu are available from the NSSO 2004-05 surveys. According to the NSSO, 81% of the rural households, 51% of urban house-holds and 70% for the state as a whole purchased cereals from the PDS. Going by these figures, we can estimate that in the best case scenario, with universal entitlements, the offtake would be around 70%. An interesting aspect of the offtake of food from PDS in Tamil Nadu is the access by income deciles. There is a clear pattern in Tamil Nadu where among the bottom deciles there is a 100% offtake from the PDS. The percentage of population purchasing in the upper quintiles gradually declines and is almost nil for the top two deciles. The element of self-selection is clearly visible.

However, there are two aspects which must be noted which are peculiar to Tamil Nadu. First, it is a food deficit state and like other such states of southern India – Kerala, Andhra and Karnataka – is heavily dependent on the PDS. The four top most states in terms of households purchasing foodgrains from the PDS are Tamil Nadu, followed by Andhra Pradesh (57%), Karnataka (49%) and Kerala (38%). The offtake is very low in some of the northern states which are not only food surplus, but also contribute a significant share of the total procurement of central government. For example, the percentage of households purchasing cereal from PDS is as low as 2% in Bihar, 6% in Uttar Pradesh, 0% in Punjab, 4% in Haryana, 6% in Jharkhand and 10% in Rajasthan.

 

Nonetheless, given that the current state of affairs in terms of delivery systems is unlikely to change dramatically in the near future (at least next 2-3 years), despite the best intentions of reforming the system, it is unlikely that the actual offtake in case of a universal PDS will be anywhere close to 70% (the benchmark case of Tamil Nadu). The second best guess on this count would be that the actual offtake would be 60% of the total households.¹⁰ These are based on the assumption that leakages in PDS will take some time to improve, but also that the actual demand and dependence on PDS in some of the food surplus states would be lower than the best case scenario of Tamil Nadu. Based on these assumptions, the upper bound of the foodgrain requirement is 67.6 million tonnes and the lower bound is 58 million tones.¹¹

However, the real question being asked is whether the demand for so much foodgrains can be met in the existing system. Three kinds of questions have been asked in this regard. First, is it possible to procure 67.6 million tonnes of foodgrains given current production? Second, even if the government manages to procure the foodgrains, does it have sufficient storage space? And finally, what impact will it have on prices paid by consumers and received by farmers?

 

On an average, foodgrain production in our country has been growing at 3.5-4 million tonnes per year since the last three decades.¹² The year 2008-09 saw the highest production of foodgrains at 235 million tonnes. The following year (2009-10) saw a severe drought, but foodgrain production only declined marginally to 218 million tonnes. Along with increased production, procurement of foodgrains has also increased, particularly in the last two years. The procurement during 2008-09 was 60 million tonnes. But even during the drought year of 2009-10, procurement was 55 million tonnes. Based on projections of foodgrain demand in 2010-11, this suggests that production may not be a constraint as far as procurement is concerned.¹³ The foodgrain requirement at 67 million tonnes is only 10% higher than the actual procurement in 2008-09.

The obvious question is: does increase in production also imply increase in procurement? Is it that the government will have to raid the farmers’ houses to get that 10% extra? Not exactly. Last year, the market arrival for wheat was 25.9 million tonnes but the government procured only 22.52 million tonnes, which is 87% of the total market arrival for procurement. In case of rice, as against total market arrival of 51.22 million tonnes, only 30.47 million tonnes was procured. That is, only 60% of the total market arrival was procured. Just in terms of rice and wheat the total foodgrain available for procurement was 77.1 million tonnes.¹⁴ It must be made clear that the 77.1 million tonnes referred here is the market arrival for procurement purpose and not the total marketed surplus. Total marketed surplus would be far higher than the market arrival only for procurement. Further, there is little procurement of coarse cereals; its increased procurement could easily add to the total pool of foodgrains that the government needs to procure. Clearly, the government could procure the 67 million tonnes required for a universal PDS.

 

However, recent procurements have been blamed for an increase in food prices.¹⁵ The excess stocks also led to wastage and rotting of foodgrains, raising questions on the storage and management capacity of the government. While this aspect has come in for criticism from various quarters such as the Supreme Court and Parliament, little attention has been paid to stock build-up in the system which led to wastage and storage problems. The question that needs to be asked is why stocks accumulated in the first place. The issue of storage is secondary.

Procurement and distribution are two sides of foodgrain management. Stocks build-up when procurement is higher than the distribution. So, some coordination in inflow and outflow of foodgrains is required. The problem that happened in the first case when food stocks went up to 60 million tonnes in 2001 was that the distribution channel was clogged. This was partly a result of the introduction of TPDS which led to a reduction in offtake of foodgrains from the PDS.

The excess procurement in 2008-09 was primarily to appease rural farmers for the ensuing May 2009 general elections. This was followed by another procurement spree when there was drought in the country and food stocks were already very high. The build-up of stocks was also aided and abetted by the government’s inefficiency in distribution of foodgrains which did not increase correspondingly despite an urgent need.

 

But if we leave out these policy-made stock build-ups, is there cause for worry? Over the years, the FCI has reduced its storage capacity from 31.7 million tonnes on 1 April 2003 to 25.28 million tonnes on 1 April 2009. FCI is in the process of acquiring more storage space, and storage capacity is expected to go up to 45 million tonnes. The amount of storage space with FCI at 45 million tonnes is more than enough for grain storage even with 70 million tonnes of procurement and the existing buffer norms. This is based on the simple assumption that whatever is procured should also be distributed except for some provision of buffer norms. As long as FCI follows this simple adage of foodgrain management, there cannot be a problem of stocks building up. But essentially, the problem of stocks build-up is not one of storage as the government’s inability to offload stocks through the PDS.

 

The third issue is of impact on prices. In general, the argument is that if the government increases procurement to 67 million tonnes from 60 million tonnes, which it procured in 2008-09, it will lead to an upward pressure on prices. However, the reasoning is completely flawed. An increase in procurement will lead to upward pressure on prices if the excess procurement is hoarded, which leads to artificial scarcity of foodgrains in the market. And this is what happened in the last two years. But instead, if the government were to release all the foodgrain that it procured, it will not lead to an increase in prices; in fact, it will result in a sharp reduction in prices since the PDS prices would be lower than the market prices. Moreover, such a strategy of offloading foodgrains will check the tendency of hoarding and speculation by private traders. In nutshell, even assuming that the actual demand of foodgrains will be 67 million tonnes, which is a reasonable one based on the Tamil Nadu experience, it is not only feasible in light of production and storage, it will also see a small increase compared to the last peak in 2008-09.

That brings us to the final issue of financial implications of a universal PDS. The weighted economic cost of foodgrains would be around Rs 18 per kg. It implies a monthly expenditure of Rs 126 per person per month if 7 kgs of foodgrain were to be delivered to every individual. However, a part of this total cost to the government would be recovered through pricing at nominal rates. At Rs 3 per kg, the government would recover Rs 21 of the Rs 126 spent.¹⁶ Assuming 70% offtake, the financial requirement would be 101430 crore and assuming 60% offtake, it would be 86940 crore. The present food subsidy of the central government is Rs 56000 crore. Incidentally, it does not include the carrying cost of excess stocks.

Moreover, it must be noted that this does not include the subsidy that some state governments give for the PDS in their state to provide cheaper food grains or to extend the coverage of beneficiaries. In 2010-11, the budgeted subsidy of the following state governments (Tamil Nadu (4000), Andhra (3000), Karnataka (1250), Chhattisgarh (1000), Orissa (910), West Bengal (700)) was close to 11000 crore. In case of a universal PDS, this additional subsidy will be absorbed by the central government leaving the state governments with funds to spend on other welfare programmes. But the real problem with the existing system is that it is disadvantageous to the poorer states such as Bihar and Uttar Pradesh which suffer twice. First, due to poor functioning of PDS and second, due to their inability to rectify the anomalies due to paucity of resources at state level.

 

The actual subsidy in a universal system would be higher than the present subsidy of the central government, but very close to the total subsidy including state government subsidies. But these estimates are not as alarming as they may seem. First, there is ample scope to reduce the economic cost of acquisition of foodgrains.¹⁷ These could simply be through a tax waiver on procurement, which adds to the economic cost. It could also be brought down by reducing commissions, improving efficiency of transportation and storage through proper reform of the FCI. But even if the subsidy is higher at Rs 86940 crore as against Rs 56000 crore the government currently spends, it will be worth it.

 

Incidentally, the food grain requirement in case of a universal PDS and 60% offtake is similar to that of the NAC proposals with targeted approach. Even the financial implications are very similar. This may sound like squaring a circle. But in fact, the requirements in both cases are the same due to the following reasons. The NAC proposals are effectively giving food subsidy to 85% of rural population and 40% of urban population to begin with. This is equivalent to 71.5% of total population (assuming 70:30 break-up of rural-urban population). On this they assume 95% offtake by the eligible population, which brings it down to effective offtake by 68% of the population, which is marginally lower than the 70% offtake assumed in case of a universal PDS.

However, the major difference in the NAC approach which involves a mandatory exclusion of the top 30% of the population, is that the proposals require an administrative machinery (the efficiency of which is still doubtful) to achieve something that will equally be met through self-selection in the case of universal PDS. But the biggest lacunae in NAC proposals is the absence of a road-map of reforming the institutional mechanism of procurement, storage and delivery on which rests the entire burden of achieving the objective of food security for all. While the drawbacks of these are implicit in the statistical calculations of the NAC, the approach to dealing with them is status quoist at best. This is despite the explicit recognition in almost all policy documents that these reforms are a sine-qua-non for effective food security for all, whether in a targeted system or in a universal PDS.

 

Based on past trends and available evidence on foodgrain requirement, availability, procurement and offtake, it appears that universal food security legislation is both feasible and desirable in the interest of the larger objective of providing food security. However, this has not found favour with the government machinery. This is despite the fact that all available evidence based on credible statistics points to the contrary. The same government which treats other subsidies such as diesel, petrol, fertilizer, mobile phones and LPG (not used by the majority of the poor) worthy of universal access, feels threatened by universal access to food security in a country where half the population is malnourished. So much so that within three months the NAC was forced to withdraw even its suggestion to experiment with a universal food security programme in the poorest one fourth of the country. Needless to say, universal food security legislation may not see the light of day not because of lack of foodgrains, storage and finances but because of a lack of vision and political will.

 

Footnotes:

1. In practice, PDS entitlements are only ensured for below poverty line population in most states, the above poverty line population also has access to reduced entitlements in most states. At present there is no such category which is completely excluded from the PDS.

2. Accepted in 14 July 2010 meeting of the NAC. See http://www.nac.nic.in/press_ releases/14_july_2010.pdf

3. Most members of the food security working group of NAC have expressed desirability of universalization in public forums. Jean Dreze has also written a dissent note against the existing NAC proposals.

4. For an exposition of some of the arguments for universalization, see ‘Food Entitlements Should be Universal’, Himanshu, Mint, 28 April 2010.

5. I am purposely using the individual entitlements proposed by the NAC. However, these are the same as 35 kgs of foodgrain for a normal family of five.

6. This has been the rationale used by the NAC to exclude 25% of population from food security.

7. Although the quantity of foodgrains received is different based on family size, and that a small percent of the households which are the poorest get a higher allocation, the price paid by all is the same.

8. See http://www.planningcommission. nic.in/reports/peoreport/peo/peo_ tpdsmarch 05.pdf

9. Details on working of the PDS in Tamil Nadu are available at http://www.tncsc.tn. gov.in/

10. There is no justification for this assumption other than empirical evidence that a targeted BPL system contributes to approximately 30% of the leakages. See Jha and Ramaswami, 2010.

11. This is excluding offtake for other welfare schemes such as ICDS and MDM, for which an additional three million tonnes are required given present trends.

12. See High Level Committee Report on Long Term Grain Policy, Ministry of Food and Consumer Affairs, available at www.fcamin.nic.in

13. The total demand for foodgrains in 2011-12 (including direct and indirect demand taking into account feed, seed and wastage is projected at 212.6 million tonnes (Mittal, 2008), 235 million tonnes (Ramesh Chand, 2007), 223.7 million tonnes (Kumar, 1998). IFPRI projected the demand for foodgrains at 237.3 million tonnes in 2020. As against these, the actual production of foodgrains was already 235 million tonnes in 2008-09.

14. Media also reported that in many states farmers protested FCI not lifting grains for procurement. Clearly, the farmers are willing to offer more than what the government can procure.

15. Himanshu, ‘Of Food Inflation, Farmer Interest and Policy Failure’, Mint, 1 April 2010.

16. This subsidy of Rs 100 per person per month is just about the minimum wage for a day’s work under NREGA.

17. On the extent of reduction that can be made possible in economic cost, see Jha and Ramaswami (2010).

References:

Ramesh Chand, ‘Demand for Foodgrains’, Economic and Political Weekly, 29 December 2007.

Shikha Jha and Bharat Ramaswami, How Can Food Subsidies Work Better: Answers From India and the Philippines. Mimeo, 2010.

Praduman Kumar, Food Demand and Supply Projections for India. Agricultural Economics Policy Series 98-01. Indian Agricultural Research Institute, New Delhi, 1998.

Ministry of Food and Consumer Affairs, Report of the High Level Committee on Long Term Grain Policy, 2002. Available at www.fcamin.nic.in

Surbhi Mittal, Demand-Supply Trends and Projections of Food in India. ICRIER Working Paper 209. ICREIR, New Delhi, 2008.