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Hunger must go by Jean Dreze

The recent Cabinet nod to the National Food Security Bill triggered a flurry of criticism in the mainstream media, focusing mainly on the financial implications. The cost of the Bill obviously needs careful scrutiny and public debate, but it’s a little sad to see so much concern with the cost, and so little interest in what the Bill can do to improve people’s lives.

The barrage of attacks was predictable — almost a replay of what happened in December 2004, when the National Rural Employment Guarantee Bill was tabled in Parliament and some critics claimed that it would cost Rs 200,000 crore a year. Even then, one admires the pyrotechnic skills behind the recent fireworks. The Cabinet note’s estimate of Rs 27,000 crore for the Bill’s price tag somehow ballooned to several lakh crore in a series of misleading comments. Some reports linked the finalisation of the Bill to an alleged stock market crash (‘who will feed the sensex?’ lamented one of them), and one headline even held it responsible for huge jumps in the cost of insuring against default risks (‘credit default swaps’) not only in India but also in China, Brazil and Russia! Other headlines of interest include ‘Reckless food security largesse could bust the bank’ and ‘Will the food bill be the last straw that breaks the Indian economy?’.

This alarmism is bound to astonish anyone who has actually read the Bill. For instance, an impression has been created that the additional subsidy of Rs 27,000 crore is going to materialise right away, in the coming financial year. This is incorrect. Even under the highly optimistic assumption that the Bill is passed in the budget session of Parliament, and comes into force around mid-2012, the additional subsidy in 2012-13 is likely to be well below that figure. This is not only because of the time lag, but also because the Act is unlikely to come into force in the entire country in one go. Indeed, the notification of the Act is not time-bound, and can be done in stages. Even after the Act comes into force, the entitlements of ‘General’ (as opposed to ‘Priority’) households are supposed to be linked to public distribution system (PDS) reforms, and to apply “from such dates as may be prescribed by the Central Government”. Further, the current food stocks are so large that the additional requirements of the Bill can be absorbed at little extra cost for quite a while.
What is at stake, therefore, is not an immediate financial blow, but the ability of the Indian economy and public finances to accommodate this Bill over a period of time, in the light of economic trends. These trends include rapid economic growth, even faster growth of public revenue, sustained increases in foodgrain procurement, and, more recently, major improvements in the PDS in many states. This is a favourable environment for a food security initiative.

Incidentally, even if the Act were to be implemented full-scale at the beginning of the next financial year, without using excess food stocks, so that the additional subsidy is actually Rs 27,000 crore in 2012-13, there would still be ways of meeting the costs. Abolishing exemptions on customs duties for “diamond and gold” alone would generate nearly Rs 50,000 crore a year, according to the finance ministry’s “revenue foregone statement” — and this is just one of the exemptions that account for a total revenue foregone of Rs 511,000 crore in 2010-11. Taking a longer view, there is much room for increasing the country’s tax-GDP ratio, as many expert reports have noted, aside from pruning subsidies for the rich.

It should be mentioned that the estimate of Rs 27,000 crore refers mainly to the PDS. There are other major provisions in the Bill, such as those for child nutrition and maternity entitlements. However, most of these provisions are already mandatory under Supreme Court orders (maternity entitlements are the main exception). As the new initiatives consolidate over time, the costs may rise, but if the money is well used, this would not be a bad thing.

Similar remarks apply to the foodgrain requirements of the Bill. Whoever said (or allegedly said) that the Bill requires additional public investments of Rs 350,000 crore “in improving grain yield and bumping up government procurement” apparently forgot that foodgrain procurement is already around 60 million tonnes — this is sufficient for full-scale implementation of the Bill across the country. Incidentally, foodgrain procurement has been going up steadily in the last 20 years, at about 5% per year, and there is no reason for this upward trend to stop abruptly. As mentioned earlier, the country’s gigantic food stocks provide a further, comfortable margin.

Last but not least, there are many loopholes and escape routes in the Bill. The central government retains the power not only to set the time frame but also to modify most entitlements and specify the sharing of costs with state governments. Also, there are several provisions for replacement of food entitlements with cash transfers, on the central government’s own terms. With so many escape routes in place, the recent alarmism is quite inexplicable.

This alarmism should give way to informed debate about the content of the Bill. Indeed, there are serious flaws in the Bill including excessive powers for the central government, limited provisions for children, and a problematic division of the population into three groups (priority, general and excluded). The Bill needs to be simpler and more flexible.

I seem to have fallen into the trap I warned against earlier — focusing mainly on the costs of the Bill and not on how it can improve people’s lives. Since space has run out, let me put it in three words: Hunger must go. There are important questions to discuss about the details of the Bill and how to implement it. But shelving it on grounds of fiscal prudence would be a case of distorted priorities.

(Jean Dreze is visiting professor, department of Economics, Allahabad University )

The views expressed by the author are personal