Late night on Monday, India’s parliament passed the Food Security Bill amidst some bitter statements made by the opposition. Though the UPA claimed it to be a “game-changer”, others had less charitable words to describe the bill. Initiating the debate, senior BJP leader Murli Manohar Joshi reminded the UPA government of the announcement made by former president Pratibha Patil on bringing the Bill. Said Joshi, “After four years, you are bringing the Bill when it is time for you to go,” terming it a “vote security Bill.” Pointedly, Samajwadi Party leader Mulayam Singh, a key ally of the UPA government, bluntly asked “Is the Bill for the hungry or for polls?” And to drive home a message, he left the parliament when the Bill was put to vote.
The enormity of the fiscal burden is mind-boggling. As far as additional financial burden of implementing the Bill is concerned, it would add Rs 25,000 crore annually to the currently existing food subsidy. Admittedly, the plan is seen as the biggest in the world with the government expecting to spend Rs 1,25,000 crore annually on supply of 62 million tonnes of rice and wheat and coarse cereals to 67.7% of India’s population. Sonia Gandhi’s assertion that the country will have to raise the resources to meet this colossal commitment is nothing but wishful thinking. She asserted, “The question is not whether we have enough resources or not and whether it would benefit the farmers or not. We have to arrange resources for it. We have to do it.”
There are very serious concerns related to the effective implementation of such a high-profile and critical social agenda of the government. The use of the Public Distribution System (PDS) raises serious questions about the efficacy of the model. Targetting the beneficiaries would be another area that would need special attention.
The government should ensure that it has the checks and balances in place to ensure there is minimum leakage and wastage and severe penalties for people who abuse it. Storing 62 million tonnes of foodgrains is no easy task at all, given the country’s lackadaisical infrastructure of the Food Corporation of India (FCI). Even the 30 million-plus tons that are currently procured is stored so badly that rains and rodents have a field day destroying the stock. Currently, the total food subsidy budget is Rs 90,000 crore of which Rs 10,000 crore is towards implementation of the Food Security Bill. Despite the assurance of food and civil supplies minister K V Thomas that the current foodgrains quota of 18 affected states, including Kerala and Tamil Nadu, would be protected, the MPs from the states have apprehensions that the new Bill is a ploy to slash allocation to states from the central pool. And, there is no dearth of some states already playing spoilsport on food subsidy.
Both the Centre and the states are busy launching welfare schemes, with an eye on retaining power. Punjab has its atta-dal programme. Andhra Pradesh, Tamil Nadu, Chhattisgarh, Madhya Pradesh, Bihar, etc. have enhanced their subsidy schemes, though huge inventories are hoarded in the central pool. Take the example of Karnataka. Instead of taking rice from FCI, the Karnataka Food and Civil Supplies Corporation (KFCSC) has initiated its own convoluted tendering procurement programme of about 1.2 to 1.8 million tonnes for 2013-14, which is about 1-1.5 lakh tonnes per month, equal to the annual import of Indonesia and the Philippines.
My own assessment is that the Indian rupee is going to be battered further because of the inflation that will surge following the passage of the Bill. It has already reached a level of 69 to a US dollar. The country is bound to pay very dearly for this political gamble, no matter, whatever those in the treasury benches say.
A taste of things to come is already in place since August 27, when the Sensex sank, and the Nifty closed at 5,287, down 189 points with the Sensex plunging below 18,000, at 17968, down 590 points. The rupee fell 2.9 per cent in just one day, the highest drop since February 5, 1996, to 66.24 to a US dollar. Currently, it is trading at Rs 69 a dollar. With this, the currency has lost more than 10.3 per cent this quarter, and almost 17 per cent this financial year, and has become the worst-performing Asian currency.
The immediate cause for panic on the bourse is the current fiscal deficit that the food Bill would impose on the national exchequer. The logical extension of this would be a sovereign rating downgrade. According to market men, a few key foreign institutional investors (FIIs) who invest for the longer term (5 years-plus) pressed the panic button. “The Food Security Bill is definitely not a positive from an investor’s perspective,” a common sentiment, eloquently enunciated by Anish Tawakley, managing director, Barclays Securities, who went on to add, “More action on economic reforms is needed, not just announcements.” The question is what options will Chidambaram have?
The most worrying aspect of this Bill is how will the exchequer generate additional Rs 25,000 crore needed to prop up the already inflated subsidy bill? There are no clear answers on how the Centre will finance the food security Bill when grain prices go up due to drought and farmers shift to cash crops and demand for foodgrain mounts from populous states. 2013 has seen more than normal rainfall in kharif, and India can expect a bumper rice and wheat harvest and other coarse cereals, because of plentiful groundwater, good for the succeeding rabi wheat crop as well. But then, one must remember that food security is not a seasonal or annual affair, but, a long-term assurance to the citizens of India. A critical examination of the long-term average Indian rainfall data would show that 2014 will be a less than normal rainfall year, if not a totally drought year, triggering panic on the farm front. And, if the Centre cannot procure enough grain to meet the food Bill, the political dispensation in power in New Delhi will have no other option but to either scrap the whole idea or curtail it to suit its limited means — an important contingency India has to seriously think of, and, mere brave words like what the chairperson of the UPA made, will simply not do.
(The views of the writer are personal. The author is an international agricultural scientist and can be reached at drkppnair@gmail.com)