>FOOD SECURITY BILL: Socially appealing, economically unpalatable

The Union Cabinet has approved the National Food Security Bill (bill), 2011 which provides legal entitlement to food grains at a cheaper price to ~63% of the country’s population. The bill, to be passed by parliament to become law, seeks to cover a much larger proportion of population, leading to a positive social impact. However, besides increasing the burden on the fisc, the bill can potentially lead to higher inflation and pilferages. In sum, the introduction of this bill at the time when economy is facing headwinds from all corners would further worsen already weak sentiments as the negative impact outweighs positives from the social angle.


The Cabinet has given its nod to the National Food Security Bill (bill), 2011 which provides legal entitlement to food grains at a cheaper price to ~63% of India’s population. As per media reports, the Govt is expected to table the bill in the ongoing winter session. Once the law is enacted, as per the Cabinet note, food grain
requirement would go up to 61mn tonnes as compared to present need of 55mn tones which would translate into a subsidy bill of ~INR950bn, much higher than this year’s budgeted ~INR606bn (Edel Estimates at ~INR700bn).


In terms of coverage, the bill deals with ~63% of the country’s population with 75% in rural India (of which 46% is priority) and 50% in urban centres (of which 28% is priority). The bill aims at an entitlement of 7kg of food grains per person per month to priority households at a cost of INR3/kg for wheat, INR2/kg for rice and INR1/kg for coarse grain. For population other than priority category (termed general category), the bill seeks to provide 3kg food grain per person per month at not more than 50% of Minimum Support Price (MSP). The priority households can be defined as those falling below the official poverty line plus additional population equal to 10% of BPL households. As per this definition, 46% of rural and 28% of urban population come under priority households.


Importantly, the bill covers less than 75% of the population, as recommended by the National Advisory Council (NAC). However, the coverage is much larger than the one proposed by an Expert Committee (EC) appointed by the PM. According to EC, the coverage should be restricted to priority households, leaving out the general category. At a time when the domestic economy is facing heavy headwinds, external economy remaining in a fragile state and the fiscal deficit is expected to be way higher than the budgeted, introduction of the food security bill would further worsen the macroeconomic situation in the country. While it would provide food and nutritional security to a large swathe of population, the timing and implementation remain questionable.


To read the full report: FOOD SECURITY BILL
RISH TRADER