Skim Off Creamy Layer For Food Security

Just before the Union Budget on 16th March, 36 top development economists from across the world have written a joint letter to the Prime Minister Manmohan Singh suggesting significant changes in the proposed National Food Security Bill (NFSB). This is the latest attempt by the economists to push for extensive food entitlement legislation.

The group includes various leading researchers from renowned universities within India and abroad with names like Abhijit Banerjee (Massachusetts Institute of Technology), Pranab Bardhan (University of California Berkeley), Debraj Ray (New York University), and Jean Drèze (Allahabad University).

The letter urges the PM to simplify the proposed changes in the Public Distribution System (PDS) and allow for a greater number of households to be covered under NFSB. However, appreciating the financial limitations in the light of the fiscal deficit overshooting by almost 100 basis points, the group of economists have tried to strike a compromise by suggesting scaling down the household level entitlement from 35kgs (as was the demand in the past) to 25 kgs.

According to the economists, the government should discard the proposed three tier division of population in to “priority” (those households who will get major entitlements), “general” (those households who would get token entitlements) and “excluded” (those households who will not get any entitlements). Reason: “There is no clarity as to how these different groups are to be identified, and we have serious doubts about the possibility of devising a practical, fair and effective method of doing it,” states the letter. It is fact that in the past India has largely failed in identifying the poor. Moreover, often the criteria used to identify the poor are too rigid to make sense across the country. For example, having a pucca house may be a good indicator of well being in a state like Bihar or Chhattisgarh where not many can afford one. However, it is not as good an indicator in Himachal Pradesh. This is because even poor people in Himachal have greater access to a pucca house.

The alternative proposed by the economists is to simply divide the population between “aam log” (or common people) and the “excluded”. Instead of identifying the poor, the economists suggest, identify the rich. This could be done more easily and effectively by keeping out, say, the income tax payers, owners of motor vehicles etc.

To make their suggestions more palatable to the government, the economists have worked out a compromise by scaling down the entitlement for each individual household. Thus, according to the economists, while the total subsidy bill under the proposed NFSB is around Rs 77,000 cr , the alternative will cost about Rs 4,000 cr extra i.e. Rs 81,000 cr. But the real benefit of the new suggestion lies in the greater efficacy of PDS.

“This would dispense with the need for a complicated identification process, except for the use of exclusion criteria, which is relatively straightforward. The risk of exclusion errors would be small. And everyone would be able to understand this framework, making it much more likely to succeed,” the letter argues.

UPA chairperson and Congress party president Sonia Gandhi has been in favour of a extensive food security bill for long time now. According to one of the economists in the group, Gandhi largely agrees with the new suggestions. Gandhi would perhaps be right in viewing the NFSB as a political tool to win back the masses who snubbed Congress in the recent state assembly elections.

However, the PM’s worries are more economic than political. The country’s fiscal deficit is likely to overshoot the budgeted figure by over a percentage point. The combined deficit of the centre and states is close to 9% of the GDP. The fear among the PM’s advisors is that if fiscal restraint is not exercised then it is only a matter of time that the key economic variables will start looking similar to what they were during the troubled days of 1991. As such the PM and the Finance Minister are unlikely to opt for an expansive food subsidy regime.

As the B-day draws near, the battle lines are getting sharper and there seems to be little scope for anyone to sit on the fence.