FOOD SECURITY REPORT

8/7/2019 FOOD SECURITY REPORT

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JBIMS

Food Security in India

Economics

Abdullah Hamid

Vaibhav Bhagat

Swami Kambli

Vikas Pande

Vrushali Guthe


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Abstract

The paper identifies problems of poor offtake and leakages in the PDS as major cause of Food Insecurity

in India and analyses the Food Security Bill. The Paper concludes that expenditure on food for the poor

will increase with the passage of the aforementioned bill.

Introduction

The paper identifies the job of the government as the provider of food security. With this premise it

analyses the PDS system and brings out two main reasons for failure of the PDS namely low offtake and

leakage. The paper then goes on to analyze the Food Security Bill which for the first time makes the

government guarantee Food Security. The paper after going through the draft bill, the NAC

recommendations and the C. Rangarajan committee report raises questions whether the Bills intentions

to provide Food Security. The paper then goes on to analyze the effect of passage of the Bill on the

expenditure of households to show that the passage of the Bill would actually raise the expenditure on

food. Finally the paper suggests a way to Finance the extra expenditure the Government will incur due

the passage of the bill noting that the passage of the Bill in its current form as fate accompli.


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Contents

Abdullahs Part ........................................................................................................................................ 4

Leakage in PDS......................................................................................................................................... 5

Food Security Bill ................................................................................................................................... 11

Effect of the passage of the Food Security Bill on Individual Households ............................. ................... 14

Conclusion ............................................................................................................................................. 21

Recommendations ............................... ......................... .............................. ............................. .............. 22


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Abdullahs Part


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Leakage in PDS

The Public Distribution System which is supposed to provide food security to vulnerable sections of the

society has failed to carry out its mandate. This has been due to predominantly due to reasons

1. Targeting ErrorsThese errors are due to errors in targeting i.e. proper identification of the beneficiaries

2. MalpracticesThese are essentially malpractices like corruption or diversion of the food that is meant to reach the

poor

The Planning Commission report on the implementation of PDS explains the targeting errors in detail.

These errors can be classified as

1. Exclusion ErrorThe proportion of BPL households left out of the system

2. Inclusion ErrorThe proportion of APL households identified as BPL

3. Double Counting ErrorThe proportion of excess ration cards issued

4. Missing Household ErrorThe proportion of households left out of the system

5. Shadow Ownership ErrorThe proportion of ration cards held in the name of real beneficiaries by non beneficiaries


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Estimates ofErrors

States Exclusion

Error (EE)

Inclusion

Error (IE)

Double

Counting

Error

(DE)

Missing

HH

Error

(ME)

Shadow Share of BPL

Cards Issued

Poverty

Ratio (PC

1999-

2000)

Owner

1 2 3 4 5 6 7 8

Andhra Pradesh 3.20 36.39 - 0.55 0.0 67.42 15.77

Assam 47.29 17.16 - 5.86 12.30 38.14 35.09

Bihar 29.81 12.20 - 4.17 13.55 51.88 42.60

Gujarat 45.84 9.78 9.50 11.87 35.12 14.70

Haryana 27.90 14.16 22.01 - 0.42 15.98 6.74

Himachal

Pradesh

8.86 20.39 - 2.58 7.01 24.01 7.83

Karnataka 23.38 42.43 9.21 - 20.58 63.17 20.04

Kerala 16.28 21.04 8.10 - 4.05 36.00 12.72

Madhya Pradesh 19.61 12.49 28.65 - 5.27 43.86 37.43

Maharashtra 32.69 11.11 2.64 - 4.34 29.91 25.02

Orissa 26.56 16.78 2.86 - 8.37 52.31 47.15

Punjab 7.75 12.33 - 7.57 0.0 14.94 6.16

Rajasthan 16.73 5.22 11.40 - 0.0 25.41 15.28

Tamil Nadu - 49.65 10.20 - 10.20 NR 21.12

Uttar Pradesh 26.75 13.25 20.00 - 10.50 30.88 31.15

West Bengal 31.74 10.23 - 4.43 4.69 33.28 27.02

Errors due to Malpractices include malpractices, as documented by the planning commission,

1. Distortion of schemes and information2. Distortion of incentives3. Raising cost of participation of some BPL Households4. Denying ration cards to BPL households5. Diversion of Food Grains from reaching the ration card holders

The table below shows the total leakage and leakage due to ghost cards in various states.


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Leakage and Diversion of Food Grains in PDS

State APL

Households

share in

subsidizedfood grains

from TPDS

Total food

grains

leakage

(Col. 4 +Col.5)

Food grains

Leakage

through

Ghost Cards

Food grains

leakage at

FPS

Share of the poor

households in

Distribution

1 2 3 4 5 6

Andhra Pradesh 37.00 20.60 Neg. 20.60 42.40 (9)

Assam 12.00 41.68 33.35 8.33 46.32 (8)

Bihar 9.60 81.54 26.13 55.41 8.86 (16)

Gujarat 5.02 42.06 28.29 13.77 52.92 (7)

Haryana 11.00 55.65 Neg. 55.65 33.35 (12)

Himachal Pradesh 14.48 31.44 31.03 0.41 54.07 (6)

Karnataka 27.50 43.40 25.67 17.73 29.10 (14)

Kerala 17.30 21.71 3.91 17.80 60.99 (5)

Madhya Pradesh 3.64 62.42 54.48 7.94 33.93 (11)

Maharashtra 8.03 26.53 10.78 15.75 65.44 (2)

Orissa 12.98 23.39 13.49 9.90 63.64 (4)

Punjab 13.00 76.50 Neg. 76.50 10.50 (15)

Rajasthan 3.00 31.95 Neg. 31.95 65.05 (3)

Tamil Nadu 49.91 15.66 9.26 6.40 34.44 (10)

Uttar Pradesh 6.22 61.27 22.30 38.97 32.52 (13)

West Bengal 7.75 19.15 13.85 5.30 73.10 (1)

All India 21.45 36.38 16.67 19.71 42.17


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Along with the leakage due ghost cards, leakage due to diversion to unintended Beneficiaries is another

major reason of leakage. This happens due to APL cardholders getting the subsidized food grains

earmarked for BPL households. This can be seen from the next table.

State Allocation

fromCentral

Pool

2003-04

Off-

take byStates

Govt.

2003-04

Off-take by

APLhouseholds

Holding BPL

Cards (IE)

Leakage of

BPL

Off-take

bygenuine

poor

Earmarked

Food grainsnot reaching

the poor

households

1 2 3 4 5 6 7

Andhra Pradesh 483.54 466.16 172.48 96.03 197.65 268.51

Assam 533.03 490.76 58.89 204.55 227.32 263.44

Bihar 488.81 138.13 13.26 112.62 12.24 125.88

Gujarat 509.43 320.24 16.08 134.69 169.47 150.77

Haryana 498.18 416.16 45.78 231.60 138.79 277.38

Himachal Pradesh 544.08 492.22 71.27 154.75 266.14 226.02

Karnataka 502.75 480.80 132.22 208.67 139.91 340.89

Kerala 494.95 407.58 70.51 88.49 248.58 159.00

Madhya Pradesh 426.95 365.57 13.31 228.19 124.04 241.50

Maharashtra 504.00 347.29 27.89 92.14 227.27 120.03

Orissa 648.20 276.37 35.87 64.62 175.88 100.49

Punjab 504.30 364.24 47.35 278.65 38.25 326.00

Rajasthan 448.23 366.53 11.00 117.11 238.43 128.11

Tamilnadu 513.97 525.95 262.50 82.31 181.14 344.81

Uttar Pradesh 491.17 285.16 17.74 174.72 92.73 192.46

West Bengal 471.68 336.78 26.10 64.49 246.19 90.59

All States (Avg.) 503.95 380.00 81.51 138.24 160.25 219.75


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The sum total of these leakages is the increased delivery cost that the government has to bear to make

sure that the benefit reaches the intended beneficiaries. The monetary effect of these leakages can be

seen from the following table.

Central Unit Subsidy for BPL

State Total Central Subsidy

for Off-take by Genuine

BPL

Intended Subsidy Unintended Subsidy/

Additional Delivery Cost

1 2 3 4

Andhra Pradesh 13.75 5.83 7.92

Assam 12.59 5.83 6.76

Bihar 50.98 4.52 46.46

Gujarat 8.77 4.64 4.13

Haryana 12.44 4.15 8.29

Himachal Pradesh 9.19 4.97 4.22

Karnataka 18.78 5.46 13.32

Kerala 9.56 5.83 3.73

Madhya Pradesh 14.53 4.93 9.60

Maharashtra 7.32 4.79 2.53

Orissa 9.16 5.83 3.33

Punjab 40.15 4.22 35.93

Rajasthan 6.39 4.16 2.23

Tamil Nadu 16.93 5.83 11.10

Uttar Pradesh 14.13 4.60 9.53

West Bengal 6.63 4.84 1.79

All States 12.24 5.16 7.08


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From these we see that there is substantial leakage in the PDS. The reasons for these leakages are both

due to both human malpractices and deficiencies in the system. The leakages not only have an adverse

effect on food security but also cause excess government expenditure.

Thus we conclude for effective functioning of PDS these faults must be addressed. One of the optionsthat can be considered is the Universal PDS which can resolve targeting errors.

Refrences

1. Performance & Impact of TPDS An Assessment, Performance Evaluation of Targeted PublicDistribution System (TPDS). Planning Commission


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Food Security Bill

The food security bill has been proposed to provide a statutory framework to entitle families

living below the poverty line to certain minimum quantities of food grains per month through targeted

public distribution system.

According to bill Every identified BPL family within the number fixed under section 4(2) of the

Act will be entitled to receive every month from the Government 25 kg food grains which is 35 Kg

currently at subsidized issue prices fixed from time to time in a manner as may be provided under the

Rules.

Guidelines for identification of BPL families would be issued by the Central Government. The

Central Government shall fix the number of the identified BPL families for each State. Identification of

eligible BPL families shall be done by the concerned State Governments through Gram Sabhas and

Urban Local Bodies. To keep vigilance the validity period of ration card will be kept only 5 years. After

every 5 years, the entitled BPL families/individuals will be issued ration cards afresh based on revised

survey and identification of such families/individuals

The allocation of grain for each state will be fixed by Central government and, in an event of

inability to deliver the required allocation for any State, shall compensate by funds to the State

equivalent to the shortfall. A dedicated Central Food Security Fund will be set up for this purpose.

The information and technology will play a major role in efficient implementation of TPDS. the

all the fair prize shops will be computerized to keep effective check on them.

In entire Bill there is no mention of APL which does not clarifies whether government will

continue the entitlement to APL card holders or not.

Recommendations of National Advisory Council on Food security Bill:

On the subject of Food security bill NAC recommended following:

y NAC recommended that the 75% of total population should be covered under this act and 90% ofthe total rural population and 50% of the total urban population will be covered in that.

y NAC has mentioned Priority households and General households instead of BPL and APL.y It says that priority households which comprises of 46% of rural and 28% of urban population should

get food grains as Rs. 2/Kg of wheat and Rs. 3/Kg of rice where as general households also should


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also get food at price not exceeding more than 50% of minimum support price. Also the general

households will get only 20 Kgs of grains per month.

y It recommends that in first phase of implementation 85% of rural and 40% of urban populationshould be entitled.

Critique on NAC report:

y NAC recommendations do not specify the eligibility criteria of priority and general householdsmentioned by it. It leaves it to central government to decide criteria for it.

y The targeting errors will still remain in the PDS reducing the effectiveness of food security Bill.

Rangarajan committee report:

An expert committee constituted by the government under the head of Mr.Rangarajan has

recommended sharply diluted implementation of the food security bill proposed by the National

Advisory Council (NAC).

The Rangarajan committee found many flaws in NAC estimation. The NAC had estimated its

proposal would require 55.59 million tonne which the committee found to be an underestimation and

found it actually to be 73.98 million tonne.

As per current production and procurement trends, the committee said the government will be

able to procure only 56.35 million tones only so its actually not possible for government to procure

required amount of food grains. Also report says that Such an procurement will have a detrimental

impact on food prices by lowering availability in the open market which is opposed by Mr.Jean Dreze in

his article of The Hindu as he says that it wont have an much adverse impact on prices.

It also suggested that APL allotment should be done once BPL allotment is done but this

suggestion by Rangarajan report is actually reducing the reach of PDS.

The effective implementation Food security act depends on whether the government merely

seeks to gain political capital from it, or whether it is truly guided by its responsibility to the people of

India & The governments commitment to the aam aadmi goes beyond electoral rhetoric.


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References

1. Draft of the Food Security Bill circulated by the empowered group of Ministers2. Concept note on the Food Security Bil l circulated by the Department of Food, GOI3. Recommendations of the National Advisory Council4. Various Newspapers , for the report by C. Rangarajan Panel


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Effect of the passage of the Food Security

Bill on Individual Households

Having considered the considered the Food Security Bill and its broad implications including the

expenditure incurred by the government let us now try and understand its economic impact on

individual households.

Per Capita Cereal Consumption in Rural Areas

Decile Group Rice Wheat Coarse cereals Total

0-10 6.10 3.00 1.32 10.41

10-20 6.33 3.56 1.46 11.35

20-30 6.37 3.97 1.39 11.7330-40 6.41 4.08 1.52 12.00

40-50 6.59 4.14 1.45 12.18

50-60 6.59 4.46 1.36 12.41

60-70 6.72 4.55 1.38 12.65

70-80 7.00 4.65 1.16 12.81

80-90 6.66 5.00 1.10 12.76

90-100 6.72 5.54 0.94 13.20

All 6.55 4.29 1.31 12.15

Per Capita Cereal Consumption in Urban Areas

Decile Group Rice Wheat Coarse cereals Total

0-10 4.52 4.40 0.74 9.66

10-20 5.08 4.36 0.67 10.11

20-30 5.06 4.63 0.57 10.26

30-40 5.18 4.43 0.54 10.16

40-50 4.95 4.81 0.53 10.28

50-60 4.91 4.81 0.41 10.13

60-70 4.84 4.90 0.40 10.13

70-80 4.94 4.69 0.39 10.03

80-90 4.72 4.65 0.32 9.6990-100 4.34 4.78 0.25 9.37

'All 4.85 4.65 0.48 9.98


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The above tables[1]

plot the cereal Consumption in India against Income, the population being divided in

deciles to give a clearer picture about the consumption habits of people in various segments.

Distribution of Ration Cards[2]


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Considering that 5.51,as seen from the table, is the average size of an Indian household and the

per capita consumption of rice and wheat is 6.55kg and 4.29 kg respectively, we conclude that a rural

household requires 36 kg and 24kg of rice and wheat respectively. Similarly, an urban household

requires 27 kg of rice and 26 kg of wheat. The entitlement of BPL and AAY families under PDS is 35 kg. So

a rural AAY/BPL must buy 25 kg food grains in open market whereas the AAY/BPL families in urban areas

must buy 18 kg food grains in the open market

The table below shows the issue prices at Fair Price Shops in different states. The average price

of rice and wheat for AAY families is Rs 3.27 and Rs 2.87 per kg respectively, while those for BPL are Rs.

5.27 and Rs 4.85 kg per kg respectively. So AAY households will spend Rs 105 to get 35 kg food grains

from PDS whereas a BPL will spend Rs 175 to buy same amount of food grains from the PDS. The

remainder will be brought in the open market.

For sake of Discussion we will assume that the households can buy at MSP from the openmarket. This is the bare minimum price they will have to pay anyway so we are erring on the side of

safety as their buying price will always be greater than MSP. Thus, the total expenditure on rice and

wheat of an AAY household will be Rs 355 and that of a BPL family will be Rs. 425.

After passage of the Food Security bil l the entitlement will be reduced from current 35 kg per

household to 25 kg[3]

. This will mean that the AAY and BPL households will have to now buy 35 kg from

open market (we are considering rural households). The concept note circulated by Department of Food

and Public Distribution argues for single BPL category[4]

(no AAY subcategory under BPL) whereas the

draft Food Security Bill does not even mention the words AAY. Thus, we assume that the AAY too will

have to buy rice and wheat from FPS at the same prices as those applicable to the BPL. Thus the total

expenditure of AAY and BPL on rice and wheat will rise to Rs 475 per month.

This translates to an expenditure of Rs 5700 per annum on rice and wheat alone. This

expenditure is further amplified by 37.2 % of income spent on non cereal food items. The true

magnitude of this expenditure can be understood when we consider the income limit of Rs 15,000 for

AAY households and Rs 30,000 income limit for BPL households (in the state of Maharashtra).

On similar lines the current expenditure of the APL households is Rs 523 per month. After

passage of the Food Security Bill the entitlement of the APL households may be discontinued [5]. Hence

the expenditure on food grains will rise to Rs 600 per month which translates to Rs 7200 per annum.


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Issue prices at FPS across the country[6]


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This will adversely affect the lower segment of the APL (APL is defined as households having an

income between Rs 30,000 to Rs 1,00,000 per annum) but a reduced impact on the upper segments of

APL households.

However even this does not give the true picture of the effect of the passage of the bill on the

poor .

Percentage of AAY/BPL by MPCE Class[7]

Rural

Sector

Urban

Sector

MPCE

class

% ofA/BPL

hhs

% of consumption fromPDS byA/ BPL hhs

MPCE

class

% ofA/BPL hhs

% of consumption fromPDS byA/ BPL hhs

Wheat Rice Wheat Rice0-235 48.8 30.27 35.84 0 335 33.4 41.94 31.25

235-270 44.3 27.90 28.43335 395 28.3 38.79 30.61

270-320 40.8 27.97 29.51395 485 26.4 33.34 32.18

320-365 38.3 26.95 26.44

485

580 19.9 37.04 33.34

365-410 33.9 26.40 30.39580 675 17.8 35.25 28.67

410-455 33.1 25.51 28.01

675

790 11.6 32.56 22.98

455-510 31.0 27.91 27.99

790

930 10.1 34.28 20.84

510-580 25.7 27.28 27.65930 1100 6.9 32.35 14.57

580-690 23.8 28.54 29.271100 1380 4.1 23.20 22.89

690-890 19.8 28.13 23.90

1380

1880 2.2 26.79 5.22

890-1155 15.2 27.43 18.07

1880 2540 1.5 17.36 8.91

1155 &

more 12.0 21.85 24.03

2540 &

more 0.9 25.35 30.27All

classes 29.4 27.40 28.16

All

classes 11.3 34.95 28.08

As can be clearly seen from the above table the percentage of AAY and BPL families covered

currently is less than 50% across all the classes (all classes except the bottommost classes fall under BPL

criteria). The reasons for this have already been discussed. The households who have been left out of


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the food security apparatus have no recourse but to buy food from the open market, which eats away

most of their income.

Here we must note that we believe that prices in the open market will rise due to decreased

supply in open market from increased procurement by the government as noted by the C. Rangarajan

Committee report [8]. This will be further amplified by the governments readiness to procure at prices

greater than MSP if it cannot procure its entire requirement at MSP as noted in the concept note of the

Food Security Bill circulated by the Department of Food and Public Distribution[9]

.

So, the passage of the Food Security Bill will raise the expenditure on food of the households

that are currently covered by the PDS (as explained above) and households that are not covered by the

PDS due to increased food prices.

However it can reduce the expenditure of the deserving households not covered by the PDS, if

they are brought under the food security net, though we are skeptical about this happening as the GOIsees the total households under BPL decreasing with the passage of the Food Security Bill

[10].

So we conclude that the expenditure of people on Food will increase with the passage of the

Food Security Bill and the prices of food in open market will increase strongly affecting those not

covered by the food security net.

References

1. Table 4.4 Nutritional Norms for Poverty : Issues and Implications M.H. Suryanarayan2. Annexure 1 - Concept note of the National Food Security Bill Department of Food and Public

Distribution GOI

3. Chapter 2 of the draft Food Security Bill formulated by the Empowered Group of Ministers GOI4. Sections 8 & 10.1- Concept note of the National Food Security Bill Department of Food and

Public Distribution GOI

5. Section 8 - Concept note of the National Food Security Bill Department of Food and PublicDistribution GOI

6. Annexure 3 - Concept note of the National Food Security Bill Department of Food and PublicDistribution GOI

7. Table 3.2 - Nutritional Norms for Poverty : Issues and Implications M.H. Suryanarayan8. Rangarajan panel wants APL out of Food Security Bill - Business Standard Jan 18,20119. Section 12.2 - Concept note of the National Food Security Bill Department of Food and Public

Distribution GOI


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10.Section 6.5 - Concept note of the National Food Security Bill Department of Food and PublicDistribution GOI


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Conclusion


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Recommendations

The Rangarajan Committees dilution of the NAC s recommendations stem mainly from the rise

in the food subsidy that would be required to implement the recommendations, as noted earlier.

The food Subsidy in the financial year 2009-10 stood at Rs. 58,204.75 Crore. The Ranjarajan

report estimates that the total food subsidy required to implement the NAC proposal would be Rs.

92,000 croe which it believes is excessive. The quantum increase in the food subsidy if the Food Security

Bill were to be passed with NAC proposals would be about Rs 34,000 crore. The Rangarajan report finds

this a too big an amount.

Total FII inflows[1]

for the year 2010

Type in Rs. Crore

Stock Exchange 725092.81

Equity

Primary market &

others 41188.5

Sub-total 766281.38

Stock Exchange 176610.41

Debt

Primary market &

others 29761.6Sub-total 206371.91

Index Futures 638481.5

Index Options 1363436.38

Stock Futures 736714.12

Stock Options 69567.8

Total 3780853.09

The above table shows the total FII inflows. If a tax at a nominal rate of 1% is levied on the FII

inflows it would generate revenue well above Rs 37,000 crore which would be more than enough to

fund the increased food subsidy.

The government should also try to tackle the root cause of food insecurity which is poverty. As

already seen that the government has to spend about Rs. 12 to ensure a benefit of Rs 5 to poor .The

government, hence, should also try and figure out ways to prevent the leakages in the system which


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would do a lot of good towards ensuring that people get what they deserve. Use of modern

technologies like Information and Communication Technologies to combat leakage, as enshrined in the

Food Security Bill seems a good step forward in this direction.

FOOD SECURITY REPORT

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