A Macroeconomic View of
the National Food
Security Bill
Arun Kumar
CESP,SSS,JNU
Mainstream,
Vol Li, No 37, August 31, 2013
The National Food Security Bill (NFSB) has been contentious.
Economic arguments have been presented against it confusing the public. The
rich farmers are worried that farm prices would fall because cheap food would
find its way into the markets. Businessmen argue that the economy would further
slow down with an increase in the burden on the Budget. The elite say that
subsidies and inflation would rise sharply due to profligacy. Unfortunately,
most of these arguments are based on a partial economic perspective which
ignores the full impact of the economic processes that the scheme would set
into motion.
There is legitimate concern about corruption, diversion of food
and the problems associated with the implementation of the provisions of the
Bill. No doubt, given the state of governance in large parts of the country,
the full implementation of the provisions of the Bill would take many years.
Given that the Congress party may lose politically by bringing in the scheme so
close to the next general elections, those whose expectations would remain
unfulfilled by the time the elections are held would be disappointed. The moot
question is: should corruption be the reason for not implementing what may be a
good policy? Should the allotment of spectrum or of coal mines be stopped
because there has been corruption in these cases? Can the baby be thrown out
with the bathwater?
The case for the NFSB is a macroeconomic one. The nation has the
responsibility to feed its citizens. However, due to a lack of incomes and the
choices sometimes made by the individuals because of the social pressures, many
are unable to buy enough food for their family and that is why there is hunger
and malnourishment. Thus, hunger is not an individual problem but has its roots
in the country’s macroeconomics. For instance, it depends on the nature of
employment generation, the distribution of incomes, investment policies, global
factors in an increasingly open economy (including consumerism), production
technology encouraged by policies, position of agriculture in the economy and
the related issue of terms of trade between agriculture and the other sectors.
None of these factors can be changed by individual efforts.
The government, through its policies, deter-mines these
macroeconomic factors. Since the launch of the New Economic Policies in 1991,
the problem of unemployment, distribution of incomes and so on has got
aggravated and worsened the situation of the marginalised in society. Hence in
spite of growth, hunger persists. The government is the only entity that can
provide the correctives and ameliorate hunger. In this sense, the NFSB is only
a corrective to the market-oriented policies currently being pursued and does
not resolve the fundamental economic problem of lack of adequate incomes of the
poor.
Those who would benefit from the cheap foodgrain provided under
the NFSB will get an additional income since they will buy a given amount of
food for less. This would leave some money for buying other goods and services
including more protein and vegetables. This amount could be substantial since
50 per cent-60 per cent of the budget of the poor is spent on food. If it is
assumed that 50 crore people were already benefiting from various State level
schemes under which they were getting cheap food, an additional 30 crore people
would get the cheaper food and buy not only more food but more of other items
of consumption. This would help reduce poverty in the country.
In the present situation of a demand slow-down and a falling rate
of economic growth, there would be a stimulus to the economy. This boost would
be strong since little of the additional demand would leak out of the economy
as happens with the additional incomes of the well-off. Further, there could be
additional requirements of infrastructure for storage and distribution of the
additional food and this would result in more investment and, therefore, spur
growth.
The implication also would be that the rate of inflation for the
poor would fall. The total consumption of food would rise leading to an increase
in the free market price of foodgrains. That would hurt those not covered by
the NFSB and for them the rate of inflation would rise. The lower middle
classes would be hurt but the others with inflation indexation can adjust to
it. However, the immediate rise in inflation would be small since the
government already has huge stocks of foodgrains which, when released in the
market, would moderate the price rise. As of March 1, the food stocks were 62.8
million tonnes and with the procurement in the new season these would have
increased to above 80 million tonnes while the buffer stock norm for July 1 is
only 27 million tonnes. Thus, there is a lot of cushion to keep prices in
check. But, as the extra stocks above the statutory requirement get exhausted
in a few years, the prices would rise. To check this, the government would have
to pursue policies to encourage an increase in output rather than resort to
fire-fighting later on.
The higher free market price would lead to a higher price for the
farmers and this could lead to an increase in supply. This would also mean that
the government would have to give a higher support price to the farmers to be
able to procure additional amount for expanded distribution. This would further
incentivise the farmers to produce more.
Some argue that the poor do not need more foodgrains but require
other items of food. This is only partially correct. Foodgrain availability
(proxy for consumption) in India
This suggests that the consumption pattern may have shifted some
but a lot of people are unable to buy adequate amount of foodgrains when the
prices rise. The well-off consume more of foodgrains indirectly through
consumption of animal protein but their consumption is hardly sensitive to
prices since they have enough income. Thus, the fall in availability of
foodgrains when the prices rise is a reflection of the squeeze of the
consumption of the poor. The NFSB would help the poor by making their
consumption independent of inflation. The implication also is that the current
high foodgrain stocks are not an indication of food self-sufficiency in the
country but of inadequate purchasing power of the poor. Further, as the NFSB
gets implemented, India
It is estimated that the subsidy bill on food would rise to more
than Rs 1,24,000 crores (around one per cent of the GDP). The additional amount
over and above what is being currently spent may be around Rs 35,000 crores.
This is insignificant compared to the Rs 5.5 lakh crores of tax expenditures (a
kind of subsidy) given to the well-off in society or the revenue loss of Rs 20
lakh crores due to the black economy. The question then is: who should be
subsidised? The choice should clearly be in favour of the poor. There will be
additional expenditures on storage and other infrastructure. But, the total
requirement of storage could decline since foodgrains would be distributed
rather than held in the open where they rot adding to the subsidy burden. The
losses of the FCI should decline since the food distributed would get some
revenue, even if small, as opposed to its complete write-off when it rots and
correspondingly the subsidy element could fall.
The real problem would be corruption and identification and
delivery to the additional families to be covered. That is why some suggest
cash transfer using the UIDAI cards. Examples of Brazil
and other countries are mentioned but the recent public demonstrations in Brazil
It is unfortunate that the NFSB was initially brought through an
Ordinance rather than being implemented after approval in Parliament. This
deprived the scheme of a political consensus which would have helped its
implementation. However the politics plays out, in macro-economic terms the
NFSB is highly desirable and reflects the nation’s commitment to its citizens
and that would help in nation building.
arunkumar1000@hotmail.com
[This is an enlarged version of the article on the subject in
Hindustan Times on August 21, 2013. —A.K.]
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