Security leakages….Ashok Kotwal, Bharat Ramaswami, Milind Murugkar
The food security bill should serve to transfer resources to states, not bind them into failing policies
The food security bill should serve to transfer resources to states, not bind them into failing policies
Who are the poor? Who should the government assist? These are the questions at the heart of the recent debate about the use of poverty lines to define subsidy-worthy populations. After much outrage, a defensive government clarified that a new expert committee will answer these questions in a way that is consistent with the provisions of the forthcoming food security bill. However, thorny questions await this committee as well.
The draft bill of the government proposes differential subsidy entitlement to what they call priority and general households. Together these would account for 75 per cent of rural households and 50 per cent of urban households. Priority households are entitled to 7 kg per person per month while general households can claim 3 kg per person per month. The subsidy rate is also higher for priority households. As a result, priority households would receive subsidies that are about three times higher than that of general households.
Though the coverage proposed in the bill is an improvement over the existing PDS, it is lower than what was proposed in the original version put forward by the National Advisory Council (NAC). This is unfortunate because the argument for near-universal coverage is compelling. Most poor get excluded from the lists of below poverty line (BPL) households. A similar exclusion error might happen in distinguishing priority from general households. This will be the challenge for the new expert committee of the government. After all, the poor, unlike the rich, are difficult to identify. It is much easier to identify the obviously non-poor (those who pay income tax, own cars etc) and to exclude them from eligibility. Once the use of UID becomes widespread, the task of identifying the rich will become even easier.
The obvious limit to higher coverage is finances. The PDS part of the food security bill will cost about 1.5 per cent of GDP. By comparison, government spending (by the Centre and all states) on health is just about 1 per cent of GDP. Public expenditure on education is in the range of 3-4 per cent of GDP. Therefore, in relation to government spending on other worthwhile social sector programmes, the expenditure on food subsidies will be significant. From the perspective of future development, it is beyond dispute that human beings constitute the main wealth of nations. What can we say about our national wealth and the future of this country when a huge multitude of its citizens are malnourished and under-educated? Can we afford to waste such enormous human resource?
There are two ways in which the compromise on coverage can be made to hurt less. First, the food security bill also has a non-PDS component which is about special nutrition and health programmes for pregnant or nursing women and young children, and school-meal programmes for older children. The importance of these provisions has been overshadowed by the debates about the PDS component of the bill. Yet the value of these programmes is uncontested (even as there are institutional failures in the provision of these services) and here is where the government would do well to not stingy. For instance, the government version of the bill dropped a provision for cash supplements of Rs 6,000 (spread over six months) to pregnant and nursing women a programme that will cost about Rs 12,000 crore annually. It is understandable if the government would want to try out such programmes on a limited scale but surely the commitment to food security has to start with young mothers and children.
Second, cash transfers could provide a way to harness the wasted resources in the existing PDS. For some time now, the governments cost of distributing grain has been higher than that of the private sector. In 2004-05, the government would have saved about Rs 5,700 crore if its cost matched that of the private sector. Firm figures for later years are not available. However, tentative calculations suggest that these savings might now be to the order of Rs 10,000 crore or more. Therefore, even if the Central government sticks to the lower coverage figure and allocates funds accordingly, a state government might well be able to extend coverage by shifting partially or wholly to cash transfers (and thereby economising on distribution costs).
Cash transfers could also help in increasing effective coverage. In several states, the actual coverage of PDS is much lower than what exists on paper because of the illegal diversion of grain to the open market. For instance, under the government proposal of reduced coverage, the subsidy to priority- and general category households works out to Rs 1,344 and Rs 417 per person per year. This assumes that there are no illegal diversions (about 40 per cent or so in 2009-10). On the other hand, if the subsidy bill of Rs 95,000 crore was distributed as an equal cash transfer to households under the near universal scheme of the NAC, the per person transfer is Rs 1036 to all, whether priority or general.
Given the infirmities of targeting and the realities of grain blackmarketing, the second option seems to be better to us. If there are state governments that also come to this conclusion, the food security bill should allow for such flexible restructuring. Here the coverage parameters of the food security bill would serve only as a formula to transfer resources to state governments but would not be binding on them. Of course, our proposal reduces the subsidy to priority households. Critics should weigh this against the benefits of higher and uniform coverage both of which ought to improve the access of the poor to subsidies. Critics might also ponder that the much lauded universal PDS programme of Tamil Nadu provides 20 kg of grain to households which is substantially less than the proposed grain entitlement of 35 kg for priority households.
*Ashok Kotwal is a professor at the University of British Columbia.
*Bharat Ramaswami is a professor at the Indian Statistical Institute, New Delhi.
*Milind Murugkar is a Nashik-based food and agriculture policy economist