Policy Brief India Food Security Act

8/9/2019 Policy Brief India Food Security Act

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Indias National

Food Security A

Jagabanta Ningthoujam

Agricultural development, poverty

reduction and food security

Prof. Jonathan Brooks


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Jagabanta Ningthoujam !

Indias National Food Security Act

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SUMMARY

In Sept of 2013, the government of India passed the National Food Security Act (NFSA),

designed to ensure food security by providing adequate food (cereals) at subsidized prices.

While it is by far the largest such rights based approach to food security, critics have called it

a product of political calculation with deep fiscal implication rather than a proactive action.

Regardless, execution bottleneck remains, most glaringly in the public distribution system

(PDS), which will likely limit the efficacy of the act. NFSA must be augmented with the right

technology and policy measures if the goal of ensuring food security is to be achieved.

INTRODUCTION THE NEED FOR FOOD SECURITY IN INDIA

Despite rapid economic growth (average of 7.6% in the previous decade) and major reduction

in its poverty rate, India suffers from among the highest levels of hunger and malnutrition in

the world. Under the latest Global Hunger Index (GHI) India ranks a dismally low at 63 (out

of 78 countries ranked) below even the republic of Congo. Under-5 malnutrition remains

unreasonably high for a country of its level of GDP growth putting into question the state of

not only the food security but also the nutritional security in the country. It is in this context

that the need has emerged for expansion of the current food security paradigm in order to

encompass a greater share of the population and provide a more inclusive blanket.

Figure 1: Hunger & Nutrition Snapshot of India

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2

CURRENT FOOD SECURITY FRAMEWORK IN INDIA

India already operates one of the largest food safety and subsidy programs in the world. Food

subsidies is meant to ensure

a price floor for producers of rice and wheat,

stable rice and wheat prices for consumers through buffer stock management and

open-market sales operations, and

food security for poor households through the public distribution system.

The existing system has achieved only modest success on all three counts, all while bleeding

resources due to enormous leakages and spiraling administrative costs.

On the supply side it is through a combination of input

subsidy and price support. Fertilizer and electricity for

pumping are particularly subsidized. In some states the

electricity to farmers are provided for free. Price

support is achieved through the Food Corporation of

India (FCI)s procurement of nearly one-third of all rice

and wheat production at a minimum support price

(MSP) to maintain a central pool of grains. The design

of current system and the concentration of agriculture in

a few states mean that the major benefactors on the

supply side are the major agricultural states.

On the consumption end, price stabilization and a public distribution system have been

employed. FCI maintains a buffer stock of rice and wheat to help achieve price stabilization.

The Targeted Public Distribution System (TDPS) underpins the food safety framework at the

household level and is designed to guarantee highly subsidized food grain at a centrally

issued price (CIP) through a network of fair price shops (FPSs) to targeted population based

on their income level. Families are grouped into those Below Poverty Line (BPL) and the

Antyodaya Anna Yojana (AAY) 250 million of the poorest of the poor.

THE FOOD SECURITY ACT 2013 WHAT IT ASPIRES TO DO?

provide for food and nutritional security by ensuring access to

quantity of quality food at affordable prices to people NFSA, 2013

The National Food Security Act (NFSA) 2013 expands the coverage of the TPDS program to

include almost two-third of the population (820 million people, 75% of rural and 50% of

urban population) and guarantees them to 5 kg of rice, wheat, or coarse cereals per person per

month, at a highly subsidized price of 1- 3 Rs per kg (US$ 1.6 cents 5.0 cents per kg)

through the existing public distribution system. Table 1 compares TDPS to NFSA 2013.

Supply Side

Input Subsidy

Price Support

Demand Side

PriceStabilization

PublicDistributionSystem

Figure 2: Food Subsidy Framework


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Table 1: Comparison of TDPS Program & NFSA Program

Compared with the current TPDS, NFSA does not provide any additional improvements for

the AAY families, except for legally protecting their rights to receive 35 kg of food grains per

month. It also eliminates the distinction between BPL and general household. For the non-AYY BPL families, it has mixed outcomes legal entitlement to 5 kg food grains per month

compared to 35 kg under the TPDS but at lower prices. The real benefactor the new act will

be the new families covered under the act.

Special provision is also made for pregnant women and lactating mothers by entitling them to

nutritious meals as per prescribed nutritional norms, along with a monetary maternity benefit

of Rs 6,000. Children aged 6 month to 14 years have also been provided additional benefit of

a take home ration or a mid-day school meal. Since the design of this act stems from a rights

based approach to food security, there are additional provisions for provision of food

allowance in the event of non-supply of as well of a grievance redress mechanism.

There is very little change in the operational framework however, with strong reliance on

existing TDPS framework including the role of the FCI as the chief procurer of food grains

and the FPS as the distribution shops for the subsided grains. However, potential future

reforms have been listed with respect to doorstep delivery of food rains, application of

information and communication technology, including end-to-end computerization,

leveraging the universal identification (aadhaar) for unique identification of beneficiaries,

and diversification of commodities under the Public Distribution System.

COST CONSIDERATION FISCAL IMPLICATIONS

Size, however, doesnt necessarily guarantee the efficacy of the program. Even under the

current scheme, the economic cost of production and procurement has gradually been rising

while the CIP has remained constant since 2002. Part of the reason is the rise in the buffer

stock of grain to unsustainable level of 80.5 mn tons, compared with the estimated

requirement of 31.9 mn tons distorting food-grain markets and imposing huge storage cost.


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Structural and operational issues remain which

is increasing the cost. Increase in procurement

of grains from farmers combined with the slow

release of those grains into the market by the

Food Corporation of India, is also thought to

have contributed to a rise in the average price of

grain in the domestic market. These factors have

largely meant that with rising cost, subsidy

burden is also rising.

When combined with fertilizer subsidy,

agricultural and food subsidy account for

almost 11% of government expenditure.

The subsidy burden has been gradually

rising. With fiscal deficit hovering at 7%,

any question of increasing subsidy bill has

become all the more challenging.

In light of this, the problem is only

expected to increase with the NFSA. With

CIP dropping and cost expected to

gradually increase, the gap will only widen. Despite provision to gradually link CIP to MSP

after the first three years of implementation, increase in cost is inevitable. The overall cost of

the food subsidy is projected to increase rapidly from its current estimate of almost Rs 920

billion to Rs 1,401.92 billion to around Rs 1,812.29 billion in 20162017, as per the Working

Committee Report for the 12thFive Year Plan. These estimates do not include the costs of

setting up new institutions stipulated by the law, strengthening the existing institutions that

manage food procurement and civil supplies, or of carrying out new household surveys to

identify the new beneficiaries.

The act will inevitably increase the food subsidies. The increment is estimated to be Rs

239.51 billion, or 0.2 percent of GDP, in 2013 2014. With nonfood subsidy costs, total

incremental cost of implementation is estimated at Rs 447.11 bn for 20132014 and is

expected to increase to Rs 473.92 bn in 2014 2015 and then to Rs 505.91 bn in 20152016.

Further, there is potential affect on long-term agriculture if subsidies crowd out investment.

All this comes in time of a period of high inflation triggered by food price increase making

rating agencies, analysts and economists severely criticized the timing of the act calling it

opportunists and populist and with the national election in mind. There is also the risk of food

Figure 4: Cost & Price of Subsidized Food Grain

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price aggravating, as it will tilt supply towards cereals and away from other farm produce.

Additionally rise in procurement for the subsidy will also distort the market further. Yet,

other economists such as Amartya Sen and Jean Dreze have termed the act as much needed

on the ground of human capital development. The benefit, the say, justifies the cost. While

the absolute need for human capital development is needed

THE PUBLIC DISTRIBUTION SYSTEM WILL IT BE THE BOTTLENECK?

Even if the policy is prudent on paper, it still relies on a highly inefficient public distribution

system for its implementation. The system suffers greatly from multiple problems including

large exclusion and inclusion errors, high leakage, high costs and high inefficiency.

The TDPS segments the poor population into three consumption class but assessment of the

68th National Sample Survey (NSS) alludes to the fact that more than half of all the poor

households did not have a Below Poverty Line (BPL) card which allows them to purchase the

subsidized food grains and worse still only about half of the poor households in the bottomthree deciles of the consumption expenditure received rice or wheat from fair price shops. On

the other hand 16percent of the population in the top decile of consumption had a BPL cards.

Consequently, large exclusion and inclusion errors are likely to stay if the NFSA still relies

on the TDPS system for execution. Additionally the poor people in the Scheduled Caste and

Scheduled Tribe minority need additional safeguards against the discrimination they face in

obtaining food and employment.

Leakages and diversion are also very common. Estimates are that almost 40 percent of grains

gets channeled through the TDPS to the open market and doesnt reach the intended target.

The incentive to divert will only get worse with rising difference between CIP and MSP. Onthe contrary widening price difference can also result in higher demand for subsidized grains

resulting in pressure to reform the TDPS system to reduce systemic loss.

Additionally, cost and efficiency considerations are also substantial. Estimates are that it cost

Rs 8.5 to transfer Rs 1.0 to the consumer. Only 10.5 percent of a given subsidy reaches the

poor. Thus at the current mode of implementation, the actual contribution and cost-

effectiveness of the act will obviously depend on the extent to which its implementation can

overcome the deficiencies of the current PDS.

Having said that the PDS system is gradually improving losses have gradual decreased andsome states have started implementing measures to curbed diversion. The NFSA has already

taken some feedback from pilot projects in more advance states like Tamil Nadu and

Chhattisgarh into consideration. The decisions to expand the targeted household and make

grain cheaper for them were lessons from these pilot projects. Further, lessons about

administrative and technological efforts to control diversion and monitor performance needs

to be taken into account if NFSAs utility is to be maximized.


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OTHER CRITICISMS WILL IT TRULY ENSURE FOOD SECURITY?

Other major point of contention is whether too much focus on rice and wheat will be at the

expense of higher value agriculture. Additionally there has been no-marked reduction in

malnutrition despite high growth in subsidy driven by food price increase. This is at a time

when growing prosperity is resulting in diversion in preference from cereals to more value

added food. Thus it raises the question of what food security really means in the context on

India and what role nutrition plays. While there are provisions for nutritional security for

children, pregnant women and lactating mother, the larger population isnt benefiting from it.

Thus, policymakers should consider the trade-offs between increasing the quantity of food

available and improving the quality of peoples diets.

DIRECT CASH TRANSFER AS AN OPTION FOR DELIVERING FOOD SUBSIDIES

Cash transfer has been actively employed in some developing countries. Mexicos PROGRESAand PROCAMPO, Brazils Bolsa Famlia, Philippines Pantawid Pamilyang Pilipino Program

etc. are the more well known ones.

The benefits of cash transfer over subsidies are manifold. Firstly, there is a higher satisfaction

associated with cash transfers than in-kind transfers due to the increased flexibility. Secondly,

cash transfers can be more effective by reducing operational, transportation and associated costs

without creating unnecessary distortion in the market. Thirdly, cash transfers help create demand

for goods and services which helps stimulate economic activity. In rural areas, cash distribution

may stimulate agricultural production and nonagricultural activities by facilitating investment in

agriculture and allied activities and by relieving credit constraints. Experience from a range ofcountries demonstrates that distributing cash can be cheaper than distributing food or other

commodities.

However, cash transfer also comes with risks. There is a major risk that it may not be used for

only food limiting its utility for food security. Additionally the capacity to deliver cash transfers

regularly is a prerequisite for implementing a successful cash transfer system. Low access to bank

account in rural India therefore is a limiting factor at one count only 250 million bank accounts

were reported in existence in India.

A second requirement is well-functioning local food markets. Cash is less effective when markets

are weak and food prices are volatile. Lack of market coverage in rural areas will be another

limiting factor.

Design of the cash transfer system, even though cost saving on paper, does face implementation

constrains. However, the government has shown intention and has implemented programs like the

ongoing Aadhar Program, designed to provide every India citizen, a biometric identity, which can

be used to automatically open bank accounts where such cash transfers could be implemented.


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POLICY RECOMMENDATION

In light of these arguments, it is imperative that the NFSA is augment with correct policy and

technology measures to help it become more efficient.

Indias general food security strategy be supplemented by safeguards againstdiscrimination-induced low access, which we believe is the reason for more persistent

poverty among the excluded groups.

Firstly the PDS system needs improvement, regardless and lessons more advances

states like Tamil Nadu and Chhattisgarh needs to be taken into account.

Work is ongoing on the universal identification scheme (Aadhar) could eventually aid

transition to a direct cash transfer or food stamp type of a system. In the meantime

access to market needs to be improved. Also transition to a direct cash transfer or

similar mechanism should be piloted on the side wherever possible.

However technology alone is never the solution and issue of identification and

exclusion will always remain unless governance is improve. Focusing on

universalizing entitlements, bringing in a robust system of greater inclusion of

marginalized communities, putting in place an appropriate financial architecture,

ensuring greater transparency and accountability and, above all, having the political

will to see through the reforms are the most critical elements of reform.

To reduce risk of market distortion in the open market as well diversion due to bulk

procurement of grains, use of technology as well as stringent mechanism to ensure

minimal market distortion as well as illegal trade, needs to be in place. Further CIP

needs to be gradually improved over time to reduce the widening gap between MSP

and CIP. One way to do it is to make CIP be index-linked to MSP. Experimentation and analysis of alternate food subsidy to rice and wheat needs to be

conducted particularly with a view at improving nutrition as well as keeping in mind

the changing the preference for consumers.

CONCLUSION

The National Food Security Act 2013 is a landmark act and one of its kinds in the world in

terms of the sheer scale of its reach. Yet the lofty goals of the act comes in an environment of

a food safety framework which has been proven to be highly inefficient and ineffective with

growing risk to the fiscal situation in the country emanating from rising subsidy. Although theact tries to improve on the current system and reduce leakages and inefficiency, it is unlikely

to achieve it unless both technological and governance frameworks are improved. In the

meantime experiments must be made in alternative way to transfer subsidy such as direct cash

transfers and food stamps, in order to suggest better alternatives or ways to augment the

current structure.


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REFERENCE:

Avinash Kishore, P.K.Joshi, and John Hoddinott, Indias Rightto Food Act: A NovelApproach to Food Security in 2013 Global Food Policy Report, International Food

Policy Research Institute, 2014.

Allan Mustard, National Food Security Bill Becomes Law, Global AgricultureInformation Net Work, Sept 2013.

Biraj Patnaik, Indias Direct Benefit Transfer and Public Distribution System: CanThey Work Together?, International Policy Centre for Inclusive Growth (IPC - IG),May 2013.

IFPRI, Concern Worldwide, Welthungerhilfe, Institute of Development Studies,2013 Global Hunger Index The Challenge of Hunger: Building Resilience ToAchieve Food and Nutrition Security, October 2013.

Amitendu Palit, Indias Food Security Bill: Grave Digger or Game Changer?,Institute of South Asian Studies, National University of Singapore, Sept 2013.

Policy Brief India Food Security Act

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