A lot has been written and debated about Food Security Bill [FSB], here is my small and hopefully non-controversial take on it.
Why FSB?
We got to first try understand, whats the motivations of this bill? Apart from the aspect of the timing, the bill is an harbinger of hope to eradicate hunger and starvation, which unfortunately for India even after six decades of independence, is a stark reality. The Bill will help provide subsidised food to about 2/3rds of the Indian population.
Its a lofty commendable goal but a wrong one. Not only is it wrong from the perspective of further weakening the resolve to completely and sustainably eradicate poverty, but it perpetuates the evils that a subsidised socialist state carries. And what most supporters seem to forget is simply the fact, attacking the symptioms will not cure the cause of the desease.
Attacking the symptoms
FSB's very core of the reasoning is so errant and its extistence so lopsided, it doesn't even tackle the correct side of the equaion.
With FSB brought in ostensibly to fight the food inflation, after years of rather high food inflation, Government hopes the subsidies will make the food articles cheaper for the end consumers, especially the most-deserving and need-based categories. A noble goal but not the answer we require.
The problem of higher prices and therefore affordability, has two sides of coin - demand and supply. Increasing the purchasing power through subsidies, and therefore demand, without doing anything on the other side of the equation - the supply, is merely a temporary solution. A very expensive one and a social ill-transformer at that.
The first and the foremost question a citizen should ask this present government is: if you are ready to pay lakhs of crores of rupees to subsiside the affordability, how mcuh money are you spending to increase the supply?
The sad fact is there is no attention being given to the cheapest and the most efficient way to solve the food inflation aka affordability situation viz. increase the supply exponentially.
Why is it easy? Why is it efficient?
The answer to that is very simple: majority of the our farmers are still on subsistence level farming and with many farming below the economical level of land-holdings. The mis-infornation and ignorance of modern practices and possibilities abound. The problems are not just in reliance of rains or irrigation, its also in lack of soil testing, total neglect of agricultural research, lack of scientific cropping, cropping unsuitable or less efficient varieties, lack of access to markets and storage, lack of access to timely labor and machinery, lack of accessible farm loans and frequent mis-representations by the seed, fertilizers and pesticide companies, lack of access to peer forums to share best practices etc. The list can go on and on.
To tackle all of these, on a mass scale i.e. across India will have a permanent impact and at a much lesser costs. Does the Ministry of Agriculture (and Animal Husbandry) even consider these possibilities. unfortuantely its not so.
We can estimate almost all of these can be achieved, except for new irrigation projects and further subsidies like fertilizers, MSPs and power, for a one time cost not exceeding say, Rs50,000Crores in any scenario. Does, investing 50000crores for a permanent solution better than having to subsidize triple the number every year for the rest of the future?
Sustainable Future
It is clear the only way forward to have a robust agricultural sector, backed by solid agri-research and enabled by efficient irrigation and credit systems, feeding accessible domestic and international markets though transparent marketing co-operatives, warehouses, buyers and processors.
Sustainable farming is the only sustainable solution to ensure the affordability of the food articles of all social strata.
Now, lets look at some facts before we debunk the utility and advantages of FSB.
Lets look at the food inflation at WPI level for past few years and see how they have fared. For ease of comparison all prices have been rebased to 100. So, if the ending value is 140, then it means the price has increased by 40% over that period of time.
Above chart depicts the price rise on the composite of agricultural products from 2004-05 to 2011-12. We will highlight the breakdowns of the composite below.
The price trends in all the 3+1 charts are very clear, there is a definite price inflation. Whats also uncanny is that the price of the products that are most supported and bought by the government (thourgh its Minimum Support Prices and for its welfare programs) have the lowest price increases. Wherever, the quantum if lower, the prices have increased rapidly. This is probably due to the converting of the hectareare to satisfy the MSP-based crops than non-supported crops.
Not only have the government interventions affected the equilibrium, it has skewed it towards few specific crops. Unfortunately, this is not going to change. With this mono-cultural food regimes also comes the dying out of the geographical restricted pulse productions which have no national-level takers. Not only does it affects the dietary patterns, the requirement of which is different for different geographies, but it also breeds within it the 'price shock' in the event of failures of these main crops.
Therefore, looking at main crops whose hectarage has increased with governmetn sops, will further increase from now on since the FSB's outtake will be much higher.
This means,further hectarage will be migrated from equally necessary food articles like pulses, vegatables and fruits to government-subsidised / government-demanded crops, that the inflation in these outlier crop prices will be at the same rate or at much higher rate, that it will offer the end-consumer any respite from food-inflation.
Lets have a look at some acreage patterns
The hectarage for the vegetables has grown at the rate of less than 4% CAGR over past decade. This is not even modest compared to the population growth rate of 1.4%. This is certainly not sufffiencnt for the rapidly urbanising, prospering population demand more and more good food.
And no wonder we have a spiraling vegetable prices every season, every year.
Looking at the vegetable productivity: (below) the situation is a little better but not sufficiently good.
[Note: There is a strange blip in the data of 2008-09, the reasons for which I do not know. However, the 2009 drop can be attributed to the massive drought.]
[Note 2: Since it coincides with the stock market peaks, we may guess that the growth rates in this particular year was above extraordinary.
Big Picture
If you look at the big picture, you will see that agriculture has steadily underperformed, this has to be due to neglect of the government than anything else. Because, improving agriculture, if there is really a good political will, is child's play. However, the catch is political will, because most of the reforms are not going to be vote-bank friendly. Here is how agriculture has deteriorated over the decades.
And the primary reason for low productivity is below. Rectifying that needs really bold voter unfriendly reforms.
Government's apathy
Nothing gives a more clear picture of government's apathy to the sector than the stats for irrigation. Actually the data is very clear, there has been no new addition in irrigation and water managed resources in the country for more than a decade.
With billions siphoned off from the budget for irrigation and water management projects, its shocking that none of them is actually reflected in the data. Probably there are thousands of kilometers of canals and hundreds of reservoirs buried in the books of politicians.
There is shockingly clear dip in the charts. This is surely due to the lack of groundwater management, droughts and no new canal lengths added!
And government expects to control the food inflation!!!
Compare this to the growth in the pipelines for the use of petroleum (below chart)
Definetely government has the capability to layout the pipelines and execute the project if it intends to, but stragenly the apathy towards the arguculture - willful or negligence - is a matter of shock.
Conculsion
The food inflation that we have seen over past few years is due to the stagnating agriculture, both in hectarage and productivity, compounded by rise in input costs and virtually no new resources to rely on, and steady urban-migration. Until these fundamental factors are addressed, you can pour few trillions in the name of FSB or other welfare schemes, with not a dent made in the actual life of Indians.
As we said earlier, you cannot create affordability by subsidizing affordability. The politically motivated bills like Food Security Bill is purely a waste of tax-payers money, and it doesn't even address the correct side of the equation. Such socilaist schemes will only burden the country with utterly wasteful and dire financial consequences.
There is a simplest, guranteed way to resolve the food inflation problem, it first starts by tackling the supply side and not the demand side.
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