Food security bill - Benefits beyond food provision: CRISIL

CRISIL Research report on food security bill

CRISIL Research believes that the proper implementation of the food security bill (FSB) will lower spending on foodgrains by below poverty line (BPL) households, and free up resources for spending on other goods and services, in particular health, education, and nutritious food.

CRISIL Research's estimates suggest that the FSB could generate additional savings of around Rs. 4,400 this year for each BPL household which begins to purchase subsidised food. This savings equals around 8 per cent and 5 per cent of the annual expenditure of a rural and urban household, respectively.

For rural households the savings amount exceeds their current annual medical and educational spends.  Higher disposable income would also allow BPL households to spend more on protein rich food, thereby improving their nutritional intake.

While the benefits of the Bill could go well beyond just the provision of food, the success of the scheme.

Raghuvir works at a construction site in rural Bihar. Despite being below the poverty line, he does not have a ration card and therefore, cannot purchase subsidised foodgrains from the public distribution system (PDS) at present. Perforce, he buys foodgrains from the village grocery at market rates, which are far higher than the PDS prices. That leaves him with little money to purchase nutritious food such as milk and eggs or pay for his children's education. He often has to compromise on purchase of clothing and basic household consumables as well.

Raghuvir's case is not an isolated one. At present, while all BPL households are entitled to purchase subsidised foodgrains from PDS, a significant proportion of them are being denied their entitlement. Only around 16 per cent of rural BPL households in Bihar purchased rice under PDS in 2009-10. In Jharkhand and Uttar Pradesh less than 35 per cent of rural BPL households have access to rice from PDS. Similarly, in Rajasthan only 27 per cent of rural BPL households have access to wheat from PDS. At an all-India level, less than half (around 43.5 per cent) of all BPL households purchase rice under PDS and only around one third of them purchase subsidised wheat.

But things may soon be different for Raghuvir if the government's national food security bill (FSB) is implemented in a systematic and efficient manner. Last week, Raghuvir was told by his village panchayat that under the provisions of the FSB he would be entitled to purchase 25 kg of subsidised foodgrains per month for his family of five (5 kg per person per month). He would be able to purchase this quantity from the PDS at the subsidised price of Rs 3/kg for rice, Rs 2/kg for wheat and Rs 1/kg for millet. Whether or not Raghuvir is actually able to avail the benefits intended in the food security bill will depend the government's ability to identify poor households and ensure that they are able to receive the food subsidy.

If the identification exercise is carried out correctly, several BPL households, similar to Raghuvir's, which currently do not have access to the PDS, will be given some form of identity proof that will, for the first time, make them eligible for purchasing foodgrains at the subsidised rate from the PDS.

Purchasing subsidised foodgrains from PDS will free up part of their earnings that is currently being spent on buying foodgrains at higher prices from the market. Rural households that consume their home-grown produce could alternatively sell it at the market price to earn additional income and consume foodgrains purchased at subsidised prices from the PDS. In effect, food subsidy will leave households with more money to spend on other goods and services. As the foodgrain requirement of a household is higher than what it would be entitled to under the FSB, the household may spend part of this resultant saving on buying its remaining food grain requirement from the market. However, a part this money would also be spent on buying more nutritious food such as proteins as well as other necessary goods and services.

The key questions from a broader perspective that may have implications for the corporate sector and rural consumption are: How much would be the income benefit per household due to the FSB? And which goods and services would households spend this additional income on?

Disclaimer: CRISIL Research, a division of CRISIL Limited (CRISIL), has taken due care and caution in preparing this Report based on the information
obtained by CRISIL from sources which it considers reliable (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. This Report is not a recommendation to invest / disinvest in any company covered in the Report. CRISIL especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this Report. CRISIL Research operates independently of, and does not have access to information obtained by CRISIL’s Ratings Division / CRISIL Risk and Infrastructure Solutions Limited (CRIS), which may, in their regular operations, obtain information of a confidential nature. The views expressed in this Report are that of CRISIL Research and not of CRISIL’s Ratings Division / CRIS. No part of this Report may be published / reproduced in any form without CRISIL’s prior written approval.

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