Thursday, January 22, 2015

Food subsidies in India-New suggestions to make them more rationale

The so called Food Security Act is an anachronism as it was based on a populist policy with the sole aim of collecting votes during election time from an electorate thought to be obliged to the political party that piloted the bill. The then government forgot that it was pledging future earnings of the country in perpetuating this dole out year after year working out to more than 1 lakh crore rupees an year! Revisiting this Act by the new government raised some hope that the senseless commitment of future generations to sustain the program might turn out to be a millstone around the neck of the nation. The Shantakumat committee set up to review the Act has submitted its recommendations recently wasting minimum time as is usually the case with government set up commissions. A perusal of the report gives hope that there would be drastic revision of the Act soon if government is serious about its intentions. A gist of the report is reproduced below which gives an insight into the thoughts of the experts who did a commendable job in record time. 

The government should reduce coverage under the National Food Security Act (NFSA) to 40% of the population from 67% and defer implementation of the scheme in states which have not complied with the rollout conditions, a panel appointed by Prime Minister Narendra Modi has recommended. The panel headed by former food minister Shanta Kumar submitted the report to the PM on Wednesday. Reforming the subsidy regime is a key plan of Modi's economic reforms. It has recommended far reaching changes in the functioning of the state-run Food Corporation of India (FCI) and the minimum support price (MSP) regime. It has suggested that the food grain under NFSA for those under the below poverty line should be raised to 7kg per person from the current norm of 5 kg. It has also called for moving to a direct cast transfer regime for food subsidy and estimates that the savings on food subsidy could be as much as Rs 30,000 crore per year. "Move to cash transfer and start with 53 million-plus cities. The states which are deficit in grains should be given the option of either grain or cash," said a source. The panel has also suggested that fertilizer subsidy should be paid to farmers directly on per hectare basis which comes to around Rs 7,000 per hectare. "This will result in saving nearly Rs 10,000 to Rs 15,000 crore annually in fertilizer subsidy," the source said. There should be a liquidation policy which will kick in immediately when the stocks go beyond the buffer stock limit. At present, FCI sells in open market or exports after approval cabinet which some experts say raises its carrying cost. "FCI should get a free hand," the source said. The panel has recommended that the name of FCI be changed. "The new of FCI will be akin to an Agency for Innovations in Food Management System with a primary focus to create competition in every segment of food grain supply chain, some procurement to stocking to movement and finally distribution in public distribution system so that the overall costs of the system are substantially reduced, leakages plugged and it serves large no of consumers and farmers," the source said. The panel has said that FCI should move its procurement move to eastern states. "If any state is giving bonus, the payment for the extra procurement should be borne by that state and not FCI," the source said. It has also suggested that there should be an upper limit on taxes imposed by states for procurement. For example, Punjab has 14.5% tax while Gujarat has less than 2%. "The upper limit should be 4%," the source said. The FCI should revamp its grain handling and stocking operations, the committee has recommended. It should move to bulk handling and mechanize the operations to reduce its dependence on so called "labour gangs." Temporary storage should be done away with gradually with no grain stock remaining for more than three months. The agency should run "grain trains" for moving food grains. The stocking operations should be handed over to the Central Warehousing Corporation, state warehousing corporations. The private sector should also be encouraged to build silos. All existing silos of FCI should be revamped, the panel has recommended. The country needs 10 million tones capacity of storage."Government needs to revisit its MSP policy. Currently, MSPs are announced for 23 commodities, but effectively price support operates primarily in what and rice and that too in selected states," the source said.

Suggestions like reducing the coverage to include only deserving population, reforming Food Corporation of India, reducing taxes on grains, moving to cash transfer mode for delivery, increasing the quantum receivable by a person by 40%, revising the norms for distribution of fertilizer subsidy to farmers, changing the minimum support price system etc will have far reaching benefits if implemented sincerely. There is one area where the Panel did not seem to have bestowed its attention and that pertains to integrating food security with nutrition security. Instead of a cereal only policy under NFSA, probably pulses at least could have been included in the benefit basket. The Andhra Pradesh model implemented recently under a new scheme provides 9 commodities including pulses, oil, salt etc though the coverage is comparatively small targeting certain poor segments of the population. Probably as a socially responsible country India must aim to improve the nutritional status of the poor people through supply of such a balanced food basket. 


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