As India votes in the world’s largest elections, the incumbent government will have some serious issues at hand. One of the biggest challenges will be the implementing of the National Food Security Bill, 2013. The law if implemented successfully, will be the world’s largest food security program ever. It aims to provide subsidized Rice, Wheat and Millets (coarse grains) to 2/3rds (approximately 67%) of a population of 1.2 billion. This includes free meals to pregnant and lactating mothers and certain categories of children.
Opposition to the Bill
There has been fierce opposition to this Bill lead by none other than the next potential Prime ministerial candidate, Narendra Modi. In a letter dated August 13, 2013 and addressed to the Prime Minister, he has raised several pertinent points. His major opposition to this Bill was:
The fact that the central government had first fixed the nationwide number of beneficiaries of the subsidy and then left it to the states to decide who were eligible for the same. His take was that the reverse should have been done. The eligible persons should have been identified state wise, in consultation with the state government and then the national figure should have been decided on how many were food insecure and needed to be brought under this program. His contention was that this would lead to states creating their own eligibility criteria on who were eligible for the subsidies, in order to reach the centrally defined numbers. This would lead to disparities in eligibility criteria and thus lead to judicial scrutiny and confusion.
Another point of objection was that the quantum of grain available to a BPL family (Below Poverty Line) under this Bill was actually less than the earlier scheme of the government. According to him, the earlier quota of subsidized food grain entitlement for an average family of five was 35 kg per month. Whereas, under this Bill, each family would now get 25 kg per month. He stated that each family would have to actually pay an additional Rs 85 per month to get the 35 kgs of food grains that they were getting earlier.
His other objection was related to the calories per person. At 25 kg per family of five, meant that that 5 kg per person was inadequate to provide the minimum necessary calories that a person carrying out physical labour, required on a daily basis.
However, the government has stated that those covered under the Antyodaya Anna Yojana would continue to get the earlier stated amount of 35 kg per family per month.
According to the Ministry of Agriculture’s Commission on Agricultural Costs and Prices (CACP), final cost of implementation of the bill could be anywhere between Rs 1.25 lakh crore to 1.50 lakh crore! The commission has warned that the implementation of the Bill can give rise to higher focus on food grains resulting in several imbalances in agricultural production and leading to a shift away from oilseeds and pulses. It has warned that the cost of implementation will raise the fiscal deficit and add to the macro level inflationary pressures.
The Bill has been passed through an Ordinance and now the incumbent government faces the daunting task of raising the required amount for implementing the program in FY14-15.
Without doubt, there will be centre–state conflict over the implementation and the new government is going to have to balance the overall target implementation with state level pressure. The challenge to implement this Bill will force the new government to raise funds from sectors which could well be in conflict with their own program priorities.
So what happens if we have a weak coalition government at the centre? That would be disastrous. The markets have already assumed that Narendra Modi is going to head the next BJP lead Government. If the election results in a weak coalition, the markets will react badly and the current euphoria that the FIIs have shown in anticipation of a new regime could well backfire in the short to medium term.
We have just had a major crop damage due to late rainfall in March and this is going to impact the inflation figures in Q2. Furthermore, if there is a weak monsoon this year, all gains of a control on fiscal deficit will get wiped out. India has recently had its way at the WTO, where it has vehemently resisted opposition to India’s Food Security program, led by the United States. The developed nations fear that India’s procurement of food grains at Minimum Support Prices (MSP) could have an impact on their domestic markets. Their major concern is that over stock piling of food grains by India can cause leakages that will result in subsidized food grains being exported to their countries and thereby hitting the local producer’s business.
While a strong and stable government, will help Narendra Modi carry forward the positive sentiment that the markets have shown and if he is able to implement GST and back it up with bringing in labour reforms (and that’s not going to be easy), then we can expect the next government to manage a balance between a growth-led development agenda and a challenging food security program.