Food Security Bill may go up to Rs 1.25 lakh cr: Expert

Ashok Gulati, Chairman, Commission for Agricultural Costs and Prices, feels that the government will go ahead with the revised Food Security Bill in the upcoming Budget. Talking to CNBC TV18, he said the cost of implementing the Bill is not going to be less than Rs 1.20-1.25 lakh crore, as 62-63 million tonnes of grain have to be distributed, so the Finance Minister would have to factor that in.

These funds would be needed for investment in infrastructure, whether in railways for transportation of grains or putting up stocking facilities etc. Another challenge would be to plug the loopholes in the system, strengthen Public Distribution System (PDS) and the problem of a substantial amount of grains not reaching target groups
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Below is the edited transcript of his interview with CNBC TV18 Q: You have written extensively about the Food Security Bill and there has been some talk that the president of the Congress Party favours greater inclusion in this Budget. Do you think the number could then go up to Rs 1.25 lakh crore plus as you have suggested the entire cost could be?
A: That is very much on the cards. If they want greater inclusion at prices that they have indicated that is, rice at Rs 3/kg and wheat at Rs 2/kg, then I do not think there is any escape, but the minimum figure will be Rs 125,000 crore.
However, the real cost is going to be much greater, because you do not have infrastructure to keep that, or to move that grain from one state to another. The railways are choked. So you need to invest in railways, in stocking facilities and in the basics of logistics. So, that is going to cost quite a bit. Q: Do you think given these constraints, the Finance Minister might just move to move in an incremental fashion? That is, maybe start off with a pilot, not go the whole hog, and extend it step by step. Therefore the cost may not move from Rs 75,000 crore in terms of food subsidies to the number that you are suggesting right away?
A: I would say that at this time the promise to the nation is that the government will go ahead with the Food Security Bill, but it will have certain provisions. The biggest challenge is how to plug the loopholes in the system. It is well-known that about 40 percent of the grain that is distributed through the Public Distribution System (PDS) does not reach the target groups. If we can somehow plug that loophole, then you can straightaway save a huge amount of money.
One way to do that is to experiment on making cash transfers directly to the target groups, bypassing the entire paraphernalia of first physically procuring, storing and then distributing the grains. That experiment is happening in six union territories. I think that can be expanded.
Our submission to the Finance Ministry was that we should start this cash transfer for food in at least 33 cities of India, which is a population of more than 1 million. Technology through Adhaar can allow you to plug the huge diversion that takes place from the PDS and cut down on the subsidies. Q: Do the details of the Food Security Bill mechanism seem more efficient than what is currently happening with the PDS? In the sense can economists look a couple of years ahead and expect this to actually decrease the cost on the government?

A: We feel there is a little bit of mismatch between the objectives and the instruments that are being used to attain this. There are poor people who need to be helped by augmenting their income, and the best instrument would be to use a policy which gives them direct income support and lets them choose what sort of food they want.
One school of thought says that they will go and consume liquor, but there are studies which already show that they are going to be consuming much better and more nutritious food. You can give that money to the female head in the family.
The moment you try to achieve equity ends through price policy by subsidising grain, you are putting a whole incentive in the system to divert that grain in the open market at a different price. We will then be continuously chasing this big loophole in the system, but that is because the design of the policy itself has some mismatch between objectives and instruments. Q: In your opinion, what is a realistic implementation target? What does the timeline look like?
A: This is speculative. Ultimately, the Finance Minister has to look into his Budget in entirety and see how much they can afford.
But the magnitude of the bill is that 62-63 million tonnes of grains have to be distributed and the cost of that is not going to be less than Rs 120,000-125,000 crore, so he will have to budget for that if they want it in shape.