Successive drafts of the food security Bill seem to agree on one thing: a greater role for the Food Corporation of India (FCI). FCI buys grains at the minimum support price and distributes them through fair price shops and other food-related schemes like midday meals in schools and children’s nutrition as part of the Integrated Child Development Services. Since its distribution price is lower than its buying price, FCI survives entirely on subsidies. Year after year, FCI budget estimate falls short of what is required. The situation has been aggravated by a bumper harvest this year. This means FCI has to buy more grains since an increasing number of farmers will provide their produce to the government at the minimum support price owing to a downward pressure on market prices. Add to this the fact that the government has announced a bonus on the price to wheat farmers.
This is a vicious circle. The country produces more, support prices are increased, greater amounts are procured and subsidies overshoot estimates. This has a double effect on inflation — bumper crops have a smaller effect on depressing food prices while increased subsidies have a positive effect on overall inflation. And considering that the country has been facing sustained inflation, especially in food, for the past few years, the food security Bill will only add to the current price pressures, since now the government has to ensure that it procures more food than ever.
The government has denied that FCI is facing a cash crunch, claiming that it has not spent its previous quarter’s allocation fully. However, it has not denied that more cash will be required than was originally estimated in the Budget. There is talk that the banks that provide credit to FCI should raise the credit limit, which is Rs 35,000 crore at present. In the meantime, the Reserve Bank of India has increased interest rates 11 times in the past 15 months! This will further add to FCI’s costs and the subsidy bill.
A paper on the public distribution system (PDS), presented at the recently concluded India Policy Forum, highlights the inefficiencies in FCI apart from the leakages in the system. This increases the upward pressure on food prices since this inefficiency also includes the wastage of food. The food security Bill could be an excellent opportunity to consider different options to support farmers and, at the same time, ensure cheaper food for the poor. However, instead of experimenting with cash transfers, the Bill gives the existing distribution system a much greater role. Since the 1980s, there have been various estimates of how inefficient the PDS is. Every decade, the level of inefficiency increases and we have to give the system a greater role to play. We have become masters at employing old solutions to new problems, especially when such solutions have not worked very well in the past.