The real problem with the National Food Security Bill (NFSB), shortly set to become law, is not that it will considerably worsen the fiscal deficit. An almost $2-trillion economy should be able to comfortably set aside enough money to provide affordable grain for the hungry and economically vulnerable. The trouble with the NFSB lies in its flawed design which, by distorting grain markets, will end up making food security even more elusive. We are seeing it happen even today with open market prices of rice and wheat 15 to 20 per cent higher than what they were around this time last year. And this, ironically, despite the Food Corporation of India (FCI) and State agencies holding two-and-a-half times more grain in their godowns than the required minimum buffer and strategic reserve. By procuring a third or more of the country’s entire rice and wheat output, the Government has denuded the market of supplies, pushing up prices.
The NFSB will make this problem worse by providing a monthly quota of 5 kg of wheat or rice per person at Rs 2 and 3 per kg as a legal entitlement for two-thirds of the population. Such a right would automatically raise the number of claimants for grain from the public distribution system (PDS). By the Government’s own estimate, the PDS today covers just 27 per cent of the country’s population. If that goes up to two-thirds — as legally required — it means that considerably more grain must be procured. This is not counting the PDS grain that is diverted, the quantum of which is likely to go up if the open market price for the same wheat or rice is many times higher. Taking both ‘legal’ as well as ‘illegal’ demand (a function of the gap between PDS and open market prices) into account, this translates into a huge jump in procurement. The end-result: A further reduction in open market availability, making grain unaffordable for most poor families, whose consumption requirements are typically twice what the PDS can at best supply.
The more sensible approach to food security is cash transfers, with the FCI/State agencies stocking just enough grain at strategic locations to carry out open market operations. Such operations should be aimed at curbing excessive price volatility and not supplanting or killing the grain market, as the NFSB will end up doing. The poor and vulnerable have a right to subsidy in any humanitarian society. But the best way to do it is by empowering them through direct benefit transfers so that they can make normal market purchases. We tend to forget much too easily that the poor have as much stake in a growing and well-functioning market as those who are better off.