National Food Security Bill – a critique from EAC

PM’s Economic Advisory Council was asked to review the proposed National Food Security Bill. Here is the Final Report and here are the Highlights of the report. It was released last week but I completed it only now.

NFSB has been proposed to address the huge health deficiency in the country.

India’s high economic growth rate in the past decade has not been fully reflected in the health status of its people, with 22 per cent of its population undernourished1. According to the National Family Health Survey 2005-06, 40.4 per cent of children under the age of three are underweight, 33 per cent of women in the age group of 15-49 have a body mass index below normal and 78.9 per cent of children in the age group of 6-35 months are anaemic. These are disturbing statistics which point to nutritional deficiencies. The NAC proposal for a National Food Security Bill is perhaps the most important national effort yet to address these deficiencies in India.

It is at times assumed that the relationship between economic growth and health is unidirectional with improving  economic conditions leading to better health. In reality, and as confirmed by recent research, the reverse is equally true and health is an ‘economic engine.’ That is, better health which is an important end in itself leads to and may, in certain cases, be a necessary prerequisite for economic development. Hence besides being an end in itself, the economic role of health and nutrition thus provides an additional and compelling rationale for public policy to support well targeted nutrition improving interventions in ways directly analogous to the support given for increasing other forms of capital investments.

Hence NFSB proposes following:

• Legal entitlement to subsidized foodgrains to be extended to at least 75% of the country’s population – 90% in Rural areas and 50% in urban areas
• The priority households (46% in rural areas and 28% in urban areas) to have a monthly entitlement of 35 Kgs (equivalent to 7 Kgs per person) at a subsidized price of Rs. 1 per Kg for millets, Rs. 2 per Kg for wheat and Rs. 3 per Kg for rice
• The general households (39% rural and 12% urban in phase 1 and 44% rural and 22% urban in final phase) to have a monthly entitlement of 20Kgs (equivalent to 4 Kgs per person) at a price not exceeding 50% of the current Minimum Support  Price for millets, wheat and rice
• The minimum coverage, entitlement and price to remain unchanged until the end of the XII five year plan
• Government of India to specify the criteria for categorization of population into priority and general households
• In the first phase, food entitlement to be extended to 72 per cent of the population. In the final phase, to be completed before March 31, 2014, full coverage of food entitlement (to 75 per cent of the population) to be ensured
• Legal entitlements for child and maternal nutrition, destitute and other vulnerable groups
• Reform of the Public Distribution System

 Not surprisingly, EAC finds:

  • Govt underestimates foodgrains needed to fulfil the NFSB mandate
  • Based on current trends, India’s production is going to fall short to meet the mandate. (read this for more details)
  • Per capital availability of foodgrains has been falling every year pointing to serious issues on food security
  • Govt underestimates the subsidy burden

EAC  recalculates the numbers based on two scenarios. NAc calculates the foodgrain demand for Oct-10 population projection. Whereas the program is to start in 2011 and 2011 projections should have been taken. This is simplistic stuff and NAC should not have made the mistake at the first place. NAC also uses lower offtake ratios.

We have the following numbers:

  NAC (offtake: 85% for Ph 1 and 90% for Ph 2) EAC Scenario I (Priority 95%; Gen -85%) EAC Scenario II (Offtake – 100%)
  Phase 1 Phase 2 Phase 1 Phase 2 Phase 1 Phase 2
(in million tonnes) 2011-12 2013-14 2011-12 2013-14 2011-12 2013-14
Priority HH 34.4 36.42 38.91 39.83 40.96 41.93
General HH 14.96 19.17 15.13 18.75 17.8 22.05
Sub Total 49.36 55.59 54.04 58.58 58.76 63.98
Other welfare schemes 8 8 8 8 8 8
Buffer Stock     2 2 2 2
Total 57.36 63.59 64.04 68.58 68.76 73.98
Estimated Production 56.35 57.61 56.35 57.61 56.35 57.61
Shortfall 1.01 5.98 7.69 10.97 12.41 16.37
             
             
  •  The shortfall widens substantially in both scenarios. Moreover, the production is estimated based on normal monsson. In case of a worse monsoon. the shortfall just gets larger.
  NAC   EAC Scenario I   EAC Scenario II  
Subsidy (in Rs cr) Phase 1 Phase 2 Phase 1 Phase 2 Phase 1 Phase 2
Priority HH 54449 57652 61636 63093 64880 66414
General HH 17388 22279 17598 21799 20704 25646
Total Subsidy Required 71837 79931 79234 84892 85584 92060
Current Subsidy 56700 56700 56700 56700 56700 56700
Additional Subsidy 15137 23231 22534 28192 28884 35360
  • The subsidy burden based on two scenarios will also be higher if we account for total logistics of providing these grains.

 Hence, implementing NFSB in its current form will lead to problems for the govt. First, it then mandates the govt to fulfil its obligations as it becomes a legal right of citizens. Second, the supply of foodgrains is likely to fall short leading to further problems.

But then as food security and healthcare is important EAC proposes two options:

Option 1 – accept the NAC recommendations of 7kg per capita entitlement to the ‘priority’ households and restrict the per capita grain entitlement to 2kgs for the ‘general’ households. This option difficult to implement in view of the projected food availability. Covering the general households under a mandated regime feasible only if the entitlement of the priority is less than 7kg per person.

Option 2, which is favoured by the EC, recommends the assured delivery of foodgrains at Rs 2 per Kg for wheat and Rs 3 per kg for rice, to the really needy households and the coverage of the rest through an executive order with a varying quantum depending on the availability of foodgrains. The legally entitled population may be   defined as the percentage of population below the official poverty line + 10 per cent of the BPL population i.e. 46 per cent rural and 28 per cent urban population as of now. These percentages are the same as NAC recommended ‘priority’ households. This captures not only the poor but also some at the margin.

Bases on option 2 we have following  numbers:

 (in MT) Ph 1 Ph 2
Rural (46%) 32.44 33.06
Urban (28%) 8.52 8.87
All India (41%) 40.96 41.93
Other welfare schemes 8 8
Buffer Stock 2 2
Total 50.96 51.93
Estimated Production 56.35 57.61
surplus 5.39 5.68
     
Subsidy – food 68539  
logistics 14461  
  83000  

Looks much better now. Subsidies still remain high.

Though, again identifying people under BPL, TPL (Tendulkar Poverty Line) will always be a q-mark. See Well Done Abba for a primer on how people classify themselves as BPL/TPL. The report does highlight this concern and says Centre should come out on a common criteria and States should implement the same. Well, if states implement it, we know with much certainty that it will be another scheme of social waste.

In all likelihood, the scheme has noble intentions like many other such development programs. But will be well off the mark in its implementation.

Overall, a nice report from EAC. Gives you a sense of the numbers involved as we hardly get such kind of information.Infact, EAC could be asked to work on many of such proposals/programs.

Addendum:

There is a lot of controversy over 2-G loss figures and has become quite comical and alarming at the same time. I was wondering whether the projected subsidies under NFSB meet the same fate with different people giving different projections?

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8 Responses to “National Food Security Bill – a critique from EAC”

  1. South Asian economies – a depressing paradox « Mostly Economics Says:

    […] India has been trying to alleviate poverty/disparity by many a measures with NREGA the most famous. Food security bill is another one. All these measures have led to widening of the fiscal deficit without creating any […]

  2. » Food Series I – A tribute to my love for food. Chotu! do chai.. Says:

    […] 15 % of the national income was traced to agriculture. Needless to say, it is high time that the food security bill needed some amendments. Here is a fantastic paper, which gives an idea of the happenings in the […]

  3. Food Security Bill is UPA-2′s NREGA – costlier and riskier | Firstpost Says:

    […] A small problem: the subsidy provided in the 2011-12 budget is just Rs 56,700 crore – over Rs 22,534 crore short of needs even if everyone didn’t take up their entitlements. In future years, the shortfall would rise to Rs 28,192 crore, said the PMEAC. If people take up all their entitlements, the shortfall rises to Rs 28,884 crore immediately, and to Rs 35,360 crore in later years (See here for the full details). […]

  4. For just 15% more we get food security? Or are sums wrong? | Firstpost Says:

    […] PMEAC found the NAC’s calculations to be wide off the mark. Here are the figures as recomputed by it. For a less charitable interpretation of the Food Security Bill, read […]

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  6. Food Series I – A tribute to my love for food « Gayatri Rane's Blog Says:

    […] 15 % of the national income was traced to agriculture. Needless to say, it is high time that the food security bill needed some amendments. Here is a fantastic paper, which gives an idea of the happenings in the […]

  7. Harsh Mander links with Ghulam Nabi Fai, ISI, SoniaG, NAC members gallery « From barmaid to empress of India Sonia is our curse and lament Says:

    […] Guarantee Act [NREGA] – Repercussion1 || Repercussion 2 National Food Security Bill [FSB] – Repercussion1 || Repercussion2 Limit number of food items served in a wedding ceremony to one – status: not […]

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