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Food security law could push up world prices, widen subsidy bill by Surojit Gupta & Sidhartha
The proposed Food Security Act has the potential to stoke global food prices and significantly increase the country's food subsidy bill, officials and experts say.

The government plans to introduce a legislation which aims to ensure food security for 75% of the rural households and 50% of the urban areas and includes both below poverty line and above poverty line families.

Experts say that in case there is a drought in future and procurement drops below the desired level, the government may have to resort to imports to meet the commitment under the proposed Act and this is bound to trigger a sharp increase in global prices, given the likely scale of the imports.

"Historically we have exported at low prices and imported at high prices. The global market keeps a close watch on production around the world and India is not a regular importer or exporter. So whenever India enters the global market, for example as they did in 2008, we had to import at high prices," said Vinod Kapoor, an independent trade expert.

Officials say the costs involved for running the scheme could also pose a serious challenge. They say monitoring and implementing the provisions of this gigantic plan would also prove to be a huge obstacle for the government machinery and put a huge strain on the procurement agencies.

This year the government has procured record amount of grains but in the past 10 years there have been times when the procurement was below expectation. While the option to mop up grains from the open market is available, it would put a huge strain and lead to market distortions. According to government estimates, the total requirement to implement the plan would be around 61 million tonnes.

"In 1972-73 , there was a complete takeover of the wholesale market for grains and had to be reversed within weeks. That danger is there now," a senior official, who did not wish to be identified, told TOI. Then prime minister Indira Gandhi nationalized the wholesale trade in foodgrain but had to reverse the decision after the decision led to market chaos and bumped up prices.

Some experts suggest that providing cash compensation should be made an upfront provision in the legislation. Too much emphasis on wheat and rice may also hurt the process of diversification of agriculture, they argue.

"Why only wheat and rice. There should be a choice that the household can purchase eggs, maize, etc. This will reduce the burden on wheat and rice," said an official. Another worry which has emerged is the fiscal burden that the move will impose. Officials do not expect any major burden this year as the implementation could take place by around December or January, after the legislation is approved by Parliament . But things would be different from next year.

"For the full year the foodsubsidy bill next year could touch Rs 90,000 crore if not Rs 100,000 crore," said another senior official, closely linked to the discussion, who did not wish to be identified. Economists said while such a programme was desirable, the government would have to restructure its spending to cushion the impact on finances.