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Posts Tagged ‘food’

Does the financing of “Rights” laws impinge on the rights of states

August 20th, 2013 2 comments

In the last decade, some schemes have been recast as statutory entitlements – right to employment, right to education and right to food.  Whereas schemes were dependent on annual budgetary allocations, there rights are now justiciable, and it would be obligatory for Parliament to allocate sufficient resources in the budget.  Some of these rights also entail expenditure by state governments, with the implication that state legislatures will have to provide sufficient funds in their budgets.  Importantly, the amounts required are a significant proportion of the total budget.

There has been little debate on the core constitutional issue of whether any Parliament can pre-empt the role of resource allocation by future Parliaments.  Whereas a future Parliament can address this issue by amending the Act, such power is not available to state legislatures.  Through these Acts, Parliament is effectively constraining the spending preferences of states as expressed through their budgets passed by their respective legislative assemblies.  I have discussed these issues in my column in Pragati published on August 16, 2013.

More food for thought – the Food Security Bill

May 9th, 2013 3 comments

The 15th Lok Sabha is close to the end of its tenure. A key legislation that proposes major reforms in food security was listed for discussion in Parliament. The National Food Security Bill, 2011 has been scrutinised by a Standing Committee. In January, we compared the Standing Committee’s recommendations with the provisions of the Bill. Since then, amendments to the Bill have been introduced in Parliament. Debates on the Bill have revolved around the method of delivering food security, the identification of beneficiaries and the financial implications of the Bill.

Method of delivery

The Bill aims to make the right to food a statutory right. It proposes to use the existing Public Distribution System (PDS) to deliver foodgrain to 75% of the rural and 50% of the urban population. However, the Bill also allows for cash transfers and food coupons in lieu of grains as mechanisms to deliver food security. While the PDS is known to suffer from leakages as high as 40%, cash transfers and food coupons are known to expose recipients to volatility and price inflation. Each method of delivery would have its own implications, financial and otherwise.  The table below compares these methods of delivery.[i]

Advantages and disadvantages of PDS and other delivery mechanisms

MechanismAdvantagesDisadvantages
PDS
Insulates beneficiaries from inflation and price volatilityPoor identification and targeting of beneficiaries
Ensures entitlement is used for foodgrains onlyLow offtake of foodgrain from each household
Well-developed network of FPS ensures access to foodgrain even in remote areasLarge leakages and diversions of subsidised foodgrain
Adulteration of foodgrain
Lack of viability of FPSs due to low margins
Cash transfersCash in the hands of poor expands their choices Vulnerable to targeting errors
Cash may relieve financial constraints faced by the poor, make it possible to form thrift societies and access creditCash can be used to buy non- food items
Administrative costs of cash transfer programmes may be much less than that of centrally sponsored schemesMay expose recipients to price volatility and inflation
Potential for fully electronic transferThere is poor access to banks and post offices in some areas
Food couponsHousehold is given the freedom to choose where it buys food Vulnerable to targeting errors
Increases incentive for competitive prices and assured quality of foodgrain among PDS storesFood coupons are not indexed for inflation; may expose recipients to inflation
PDS stores get full price for foodgrains from the poor; no incentive to turn the poor awayDifficult to administer; known to have delays in issuing food coupons and reimbursing shops

Identification

The Bill does not universalise food entitlements. It classifies the population into two categories of beneficiaries, who shall be identified by the centre and states. Mechanisms that aim to target benefits to certain sections of the population have been prone to large inclusion and exclusion errors. A 2009 expert group study headed by N.C. Saxena that evaluated PDS, estimated that about 61% of the eligible population was excluded from the BPL list while 25% of APL households were included in the BPL list. Beneficiaries under the Food Security Bill will be identified through a similar process. It is unclear how these errors in identification of beneficiaries under the PDS will be addressed by the Bill.

Financial implications – cost sharing between the centre and states

A Bill that aims to deliver food security to a large section of the country would have significant financial implications. Costs shall be shared between the centre and states. Costs imposed on states (partial or full) include: nutritional support to pregnant women and lactating mothers, mid-day meals, anganwadi infrastructure, meals for children suffering from malnutrition, transport and delivery of foodgrains, creating and maintaining storage facilities, and costs associated with District Grievance Redressal Officers and State Food Commissions.  Although the centre shall provide some assistance, states will have to bear a significant financial burden on account of implementation.

It is unclear whether Parliament can require states to allocate funds without encroaching on the powers of state legislative assemblies. If a state chooses not to allocate the necessary funds or does not possess the funds to do so, implementation of the Bill could be seriously affected. The Standing Committee examining the Bill had recommended that an independent body, such as the Finance Commission, should be consulted regarding additional funds to be borne by states. The Right to Education Act with similar centre-state sharing of funds provides for such a consultation with the Finance Commission.

Cost of implementation of the Bill

Another contentious issue is the cost of implementing the Bill. The Bill estimates the cost at Rs 95,000 crore. However, experts have made varying estimates on the costs ranging from Rs 2 lakh crore to Rs 3.5 lakh crore. Ashok Gulati, Chairman of the Commission for Agricultural Costs and Prices, estimated the cost at 2 lakh crore per year whereas the Minister of Food, K.V. Thomas was reported to have estimated the cost at Rs 3.5 lakh crore.

The passage of the food security Bill in Parliament will depend on the ability of the government to build consensus on these issues. It remains to be seen how the Bill is debated next Parliament session.

 


[i] Kapur D., Mukhopadhyay P., and A.  Subramanian.  “The Case for Direct Cash Transfers to the Poor.” Economic and Political Weekly. Vol 43, No 15 (Apr 12-18, 2008). Khera, R. “Revival of the Public Distribution System: Evidence and Explanations.” Economic and Political Weekly. Vol XLVI, Nos 44 & 45 (Nov 5, 2011). Shah, M. “Direct Cash Transfers: No Magic Bullet.” Economic and Political Weekly. Vol 43, No 34, pp. 77-79 (Aug 23-29, 2008).

Alternate proposal to the National Food Security Bill

July 31st, 2012 1 comment

According to news reports, the Prime Minister recently chaired a meeting with ministers to discuss an alternative plan (“Plan B”) for the National Food Security Bill, 2011 (hereinafter “Bill”).  The Bill is currently pending with the Standing Committee of Food, Consumer Affairs and Public Distribution.  It seeks to deliver food and nutritional security by providing specific entitlements to certain groups.  The alternative proposal aims to give greater flexibility to states and may bind the centre to a higher food subsidy burden than estimates provided in the Bill.  It suggests changes to the classification of beneficiaries and the percentage of the national population to be covered by the Bill, among others.

Classification of beneficiaries

The Bill classifies the population into three groups: priority, general and excluded.  Individuals in the priority and general groups would receive 7 kg and 3 kg of foodgrain per person per month respectively at subsidized prices.

Plan B suggests doing away with the priority-general distinction.  It classifies the population on the basis of 2 categories: included and excluded.  Those entitled to benefits under the included category will receive a uniform entitlement of 5 kg per person per month.

Coverage of population

Experts have suggested that the Bill will extend entitlements to roughly 64% of the total population.  Under the Bill, the central government is responsible for determining the percentage of people in each state who will be entitled to benefits under priority and general groups.

Plan B suggests extending benefits to 67% of the total population (33% excluded), up from 64% in the Bill.  The Ministry has outlined two options to figure out the number of people in each state that should be included within this 67%.  The first option envisages a uniform exclusion of 33% in each state irrespective of their poverty level.  The second option envisages exclusion of 33% of the national population, which would imply a different proportion excluded in each state depending on their level of prosperity.

The Ministry has worked out a criterion to determine the proportion of the population to be included in each state.  The criterion is pegged to a monthly per capita expenditure of Rs 1,215 in rural areas and Rs 1,502 in urban areas based on the 2009-10 NSSO survey. Thus, persons spending less than Rs 40 in rural areas and Rs 50 in urban areas per day will be entitled to foodgrains under the alternative being considered now.

Financial estimates

Newspaper reports have indicated that the revised proposal will add Rs 7,000 to Rs 10,000 crore per year to the current food subsidy estimate of Rs 1.1 lakh crore.  According to some experts, the total cost of the Bill could range anywhere between Rs 2 lakh crore to Rs 3.5 lakh crore (see here and here).