The Food Security Ordinance passed by the Union Cabinet earlier this month highlights one critical point. Lack of visible opposition to an issue does not mean full support for it either. Given the laudable goal of eliminating malnutrition in India, it is both politically incorrect and unbecoming of a citizen to openly oppose an act that saves human lives. Despite this, muted concerns do exist on multiple facets: its desirability, viability and practicality.
At an annual estimated cost of Rs.125,000 crore, the desirability of providing food security definitely needs to be rationally evaluated despite the emotional support it may have garnered. Since it is a matter of cost, economic evaluation seems a good place to start. GDP and per capita income are barometers of measuring economic affluence. Since they only consider goods purchased and not actual consumption, classification of goods into economic and non-economic goods plays a large role in this measure.
At one point in human history, food, clothing and shelter were freely available to every human being, with the only cost being collection effort. With time, these goods became economic goods bought and sold for a price. Soon thereafter other goods followed, some of them essential for life, such as medicine, and many more belonging to the class of comfort and luxury goods, making human life flourish. As the standard of living in an economy increased, a strange phenomenon occurred. Basic economic goods in quite a few societies soon became non-economic goods, or public goods provided free for all its members, immunization against diseases and elementary education being the most prominent among these.
Pic: McKay Savage via Wikimedia
Advanced economies provide a high standard of living only for those who can afford it. As the scarcity fear receded in these economies, many of them evolved into responsible societies by turning basic economic goods into public goods. This move took a consistent path across countries. Initially goods needed for episodic events such as immunization for polio and relief after natural disasters became non-economic goods. Gradually this extended to providing continuing support as in elementary education, education for disease prevention like AIDs and the like, before finally addressing the issue of day-to-day sustenance with programmes like food security and healthcare.
Free toffees and candies kept at the reception desk for visitors in five star hotels are not seen as costs. These hotels do not incur a loss on account of this generosity. Rather they command a premium by creating the right ambience. Their evaluation horizon has shifted from transactional measurement to a longer timeframe. The case for an economy providing food security is no different. A well-fed and healthy population is the basic prerequisite for a resilient and prosperous economy and more than compensates its cost.
Even if we concede the desirability for food security, is it viable considering the annual cost estimated of Rs.125,000 crore? Translated as a percentage of GDP, it comes to a little more than 1 per cent. To put this in perspective, the Union government’s annual interest payments cost Rs.370,684 crore and the expenditure on defense services is Rs.116,931 crore. Viewed differently, it represents 15 per cent of our tax collections. It is a cost no doubt, but what would we do in our personal budgeting if we had to additionally incur 1 per cent of our total expenditure to eradicate malnutrition in the family? So seen this way, viability also does not seem to be an issue.
Now, having established the desirability and viability of providing food security, how can we be sure that our money is well spent, especially when it is common knowledge that only around 20 per cent of the cash subsidy money reaches the targeted population. This overall perception of leakage needs to be scaled down as leakage in the public distribution system is estimated at a level of around 40 per cent. Given this sorry state of affairs how can it pass the test of practicality?
Looking around at the various subsidies being administered, the fuel subsidy, i.e. subsidy on petrol and diesel seems to be an exception in one way. Even though its desirability is questioned, leakage is not an issue. The reason for it is obvious - as fuel subsidy is a universal subsidy and not targeted at any specific section of the population, there is zero misappropriation. Since all users are eligible, the scope for leakage itself is curbed. In addition as the most vociferous and vocal, the rich and middle class, are included among its beneficiaries, its administration is also fine-tuned and availability ensured. This is in sharp contrast to all other targeted subsidies, where large amounts are spent first on segregating the population and then an equally large amount is spent on policing the ‘fence’ to prevent leakage. Given this, what is the cost of expanding the food security programme and making it universal?
The current Food Security Ordinance is expected to cover 67 per cent of the population who are below the specified economic criteria. If we extend the coverage to all, i.e. universalize it, the pro-rata cost works out to Rs.187,000 crore, an increase of about Rs.62,000 crore. This increase will be for the benefit of the middle class and the rich who are today paying taxes. The additional cost can be recovered by increasing the tax rates, which will not be an additional tax burden for taxpayers as they also get food at lower prices. Incremental cost of tax collection is also likely to be marginal as tax-payer groups remain the same, with only tax collection going up. Further, we would save substantial amounts earmarked for identifying and segregating the target population for administering the scheme, in addition to eliminating the cost of preventing leakage of course.
If the rich in India, including billionaires, can get subsidized fuel for driving their BMWs and SUVs, should we grudge the ‘poor’ middle class for getting subsidized food? Given the widely reported instances of rotting foodgrains in India, can we take a leaf out of the Eskimos who believe that the best place to store surplus food is your neighbour’s stomach, and practise the same?
These thoughts prompt me to support the food security ordinance. If they make it universal I will even root for it. Will you join me?