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Resource centre on India's rural distress
 
 

Fundamental flaw
-The Indian Express

In all its versions, the food security bill places an unbearable fiscal burden, further distorts agriculture

The design of policy in the revised version of the food security law proposed by the food ministry — cabinet approval for which was deferred on Monday — will make a bad idea worse. It is even less concerned about the imperatives of fiscal sustainability and the needs of the Indian population. Providing foodgrain for 75 per cent of the rural population and 50 per cent of the urban population at fixed subsidised prices will not only place a huge burden of expenditure on the government, as pointed out by the finance ministry, it will also distort Indian agriculture even further. The government will be required to procure more foodgrain at a huge cost, which would require pushing procurement prices even higher, creating storage facilities, and distributing the partly rotted foodgrain through a dysfunctional public distribution system.

With GDP growth, household incomes will rise and demand will shift away, as has been happening in recent years, from cereals to non-cereals. The production of fruit, vegetable, pulses, fish, meat and eggs will continue to stagnate, however, as more resources will need to be allocated to push up the production of foodgrain. Instead of land, labour, capital, fertilisers and infrastructure being devoted towards meeting the needs of the population as determined by households that choose what they wish to eat, the country will be diverting resources to producing what the state decides the population must consume.

On the food security legislation, therefore, while the concerns of the finance ministry can be partly addressed by solutions offered by the ministry, such as raising the price at which grain will be provided every year, the larger concern will not go away — the enduring distortion this law will introduce in agriculture. Even today, the government's pro-cereal policy has created supply shortages in non-cereal food production. This has resulted in rising food prices as the consumption baskets of people change. Essentially, the food security bill ignores an elementary principle of economics — that the demand for cereals falls as a country becomes richer. With an economist as prime minister, surely it cannot be hard for the government to forecast the composition of food consumption in the country as it changes in the next 50 years, and to compare that with the implications for the composition of food production as a consequence of the food security act. Even a cursory exercise will be adequate to understand what a colossal mistake will be made if this law is enacted.