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Resource centre on India's rural distress
 
 

Why the food security Bill will not boost foodgrain consumption for the poor -Arvind Panagariya
-The Times of India


So much has already been written on the food security Bill that there would seem to be no justification for another column on it. Yet, a recent look at some consumption data has convinced me otherwise.

How the food security Bill impacts people's lives ultimately depends on the effect it will have on the consumption basket of the beneficiaries. If you believe in serious analysis over flag waving, assessing this effect turns out to require careful detective work.

The Bill proposes to give 810 million citizens 5 kg of cereals (rice, wheat, bajara or other grain) per person per month at the subsidised price of Rs 3 per kg or less. Commentators have already reminded that this will have minimal or no effect in Chhattisgarh and Tamil Nadu since these states already provide households more grain at even lower prices. Surprisingly, there are good reasons to believe that the same is also likely to turn out true in other states.

To see why, consider first the urban households. Based on the large-scale expenditure survey of 2004-05, the poorest 30% of the urban households nationwide consume 10 kg of cereals per person per month. The quantity rises to 10.1 kg for the middle 40% households and drops to 9.6 kg for the top 30%.

We can reasonably assume that the top 30% urban households are not income constrained and therefore not opting for what the proponents of the Bill call "low" consumption quantity for reasons of deprivation. Indeed, the argument substantially extends to the bottom and middle groups as well once we recognise that over the past two decades, even their consumption of cereals has been declining despite rising purchasing power. Given this pattern of change over time and little variation in cereal consumption across different income groups currently, the proposition that the Bill will boost cereal consumption of the bottom 810 million citizens is a very long leap of faith.

What is far more likely, indeed near certain, is that the households will substitute kg-for-kg subsidised grain from the public distribution system (PDS) for their open-market purchases. That is to say, they will simply cut their purchases of grains in the open market by 5 kg. Assuming the difference between the market and PDS price is Rs 15 per kg of cereal, this will release Rs 75 per person per month in expenditure in each beneficiary household. It is as if the government transferred Rs 75 per person per month in cash to each beneficiary household.

The million-dollar question then is: On what will the households spend these extra Rs 75 per person per month? If the opponents of direct cash transfers were consistent, they would rhetorically answer: liquor. But they will be wrong. To rise above rhetoric and search for what is likely to be a more accurate answer, we must once again look at the consumption patterns of different income classes.

It turns out that after cereals, the next major item in the consumption basket is milk. The bottom 30% of the urban households consume just 2.3 kg of milk per person per month compared with 4.8 kg and 8.3 kg for the middle and top groups, respectively. It is in milk consumption that deprivation is hitting the poorer households the hardest. So the extra Rs 75 will dominantly fuel the demand for milk and if our government continues to be hostage to the milk lobby and refuses to allow duty-free milk imports, given low domestic-supply response in the short run, you can count on another bout of spiralling milk prices.

How different is the consumption pattern in rural areas? Not much. In 2004-05, the bottom 30% of the households consumed 11.1 kg of cereal compared with the 12.3 kg and 12.9 kg consumed by the middle and top groups, res-pectively. So perhaps there is a small margin - 2 kg per person per month - for higher consumption by the bottom group. Beyond this, the data suggest that the rural households too will predominantly spend the cash released by subsidised grain on milk. Milk consumption in rural areas averages 1.2 kg, 3.4 kg and 7.2 kg per person per month among the bottom, middle and top income groups.

This analysis has convinced me that if PDS had not been subject to massive leakages and inefficiencies, the food security Bill would work just like cash transfers. Unfortunately, this is a very big if since giving Rs 75 per person per month to 810 million individuals would cost only Rs 729 billion per year compared with the grossly underestimated official cost of the Bill at Rs 1,245 billion. Cash transfers would also reach the beneficiaries with greater certainty and empower them rather than leak out along the massive PDS chain and empower the shopkeepers.

If our best medical experts are convinced that citizens will benefit from increased cereal consumption, giving them subsidised grain will not do the trick. Instead, the government needs a massive campaign to inform and persuade the people of those benefits. A recent paper by economist Nisha Malhotra shows that lack of knowledge on nutrition and not just access to food plays a vital role in keeping children malnourished. The same also applies to adult malnutrition.

The writer is professor of Indian political economy at Columbia University.