This document provides an overview and analysis of India's proposed National Food Security Bill from 2013. Key points include: - The bill aims to guarantee subsidized food grains to 75% of the population through the Public Distribution System to address food insecurity. - It proposes monthly entitlements of cereal grains at subsidized prices for priority and general households. However, there are concerns about the massive scale of procurement, storage, and distribution required. - Other issues discussed include the centralized approach, lack of state customization, reliance on the existing ineffective PDS framework, production and storage capacity constraints, and identification of beneficiaries. - Suggestions are provided around decentralizing procurement, reforming the PDS through

1. National Food Security Bill, 2013
Yash Ladha
Report Submitted to Hon’ble A.V. Swamy, M.P. Rajya Sabha
on June 2013

2. Introduction
India’s high economic growth in the past decade is not reflected in the
health status of its people. With 22% population undernourished, India is
ranked at 67th in total 122 countries in terms of the Global Hunger index.
Food insecurity at the micro-level has always remained a formidable prob-
lem for the Indian Government. National Food Security Bill, 2013(called
NFSB henceforth) is a tool that can address this food-insecurity problem by
a paradigm shift from Welfare based approach to a Rights-based approach.
NFSB is perhaps the world’s greatest experiment for providing food secu-
rity to the entire population of a country by subsidizing grains to achieve
food and nutritional security. If executed efficiently and effectively it can
change the lives of millions of people. A carefully analyzed debate on NFSB
is required in Nation’s interest to understand its long-term feasibility as it
implies massive procurement, heavy investment in storage infrastructure,
and establishing a very large distributive network.
The salient features of the NFSB proposed by the NAC are:
• Legal entitlement to subsidized food grains to be extended to at least
75% of the country’s population - 90% in rural areas and 50% in urban
areas
• The priority households (46% in rural areas and 28% in urban areas)
to have a monthly entitlement of 35 Kgs (equivalent to 7 Kgs per
person) at a subsidized price of |1 per Kg for millets, |2 per Kg for
wheat and |3 per Kg for rice
• The general households (39% rural and 12% urban in phase 1 and 44%
rural and 22% urban in final phase) to have a monthly entitlement of
20 Kgs (equivalent to 4Kgs per person) at a price not exceeding 50%
of the current minimum support price for millets, wheat, and rice
• The minimum coverage, entitlement, and price to remain unchanged
until the end of the XII five year plan
• Government of India to specify the criteria for categorization of the
population into priority and general households
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3. • Legal entitlements for child and maternal nutrition, destitute and other
vulnerable groups
• Reform of the Public Distribution System (called PDS henceforth).
It is essential to understand that food security doesn’t necessarily imply
nutritional security. Making food available is an important aspect but others
like economic access to food, its nourishment value, and its adsorption by
people are equally important.
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4. Policy Issues
2.1. Force Majeure Clause
The Bill provides for a Force Majeure clause (Clause 52) that “the Cen-
tral Government, or the State Governments, shall not be liable for any
claim by persons belonging to the priority households or general households
or other groups entitled under this Act for loss/damage/compensation, aris-
ing out of the failure of supply of food grains or meals when such failure
of supply is due to conditions such as war, flood, drought, fire, cyclone,
earthquake or any act of God.” It provides immunity to both the Centre
and the States against any claim by beneficiaries entitled under this Act for
loss, damage, or compensation arising out of the failure of supply of food
grains or meals in force majeure conditions which have been defined widely,
including droughts and floods, etc. It is worthwhile to note that precisely
in these conditions a failure of market forces, volatility in prices, and re-
sultant distress is expected and at times like this the poor and vulnerable
would depend on the government to ensure their food security. While there
can be exceptional cases in which any transport by Government is barred,
but drought and flood do not qualify under these conditions and should be
removed from the clause.
2.2. No State-level Customization
The draft bill in the current shape gives a legal sanction to a highly
centralized procurement and distribution model. It leaves no room for ex-
perimentation/customization for the States suited to their specific choices,
institutional strengths, and weakness. Once the Act comes into effect the
existing schemes pursued by the states will suffer considerably. For exam-
ple, Tamil Nadu (TN) follows a ”Universal PDS” system with no BPL/APL
classifications – which is different from TPDS. But under NFSB, TN would
have to put an end to this system.
Section 40 of the NFSB allows State Governments to design their own
schemes but it is rendered practically ineffective as it essentially imposes
an obligation on the State Government to procure food grains from FCI
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5. only for TPDS and procure for its own system separately- for which literally
there would be not much grain left. It would also additionally impose a
financial burden on the states. India is a diverse country and one size fit all
approach may not work here.
2.3. Centralized Procurement
NFSB mandates Central Government to procure for the Central Pool.
State Governments are responsible for further distribution. Decentralized
Procurement System (DCP) was introduced in 1997-98 in view of the prac-
tical difficulties faced by the Central Government/FCI to procure on its
own. Under DCP, States were invited to assist in the procurement and dis-
tribution of food grains under the TPDS. This experiment has been quite
successful in Madhya Pradesh
Chhattisgarh as far as augmenting the level of procurement is concerned.
NFSB seems to be suggesting a retrogressive step of going back to the cen-
tralized procurement model which was found unsustainable in the first place.
2.4. Reinforcing Ineffective Framework
For fulfilling its goal of food security, NFSB heavily relies on the current
institutions which already have had a chequered history of failure. The
estimated leakages from the TPDS go as high as 40.4%.
2.5. Food Security Allowance (FSA)
In case of non-supply of the entitled quantities of foodgrains or meals to
entitled persons under the bill, such persons shall be entitled to receive such
food security allowance from the concerned State Government in such time
and manner as stipulated by the Central Government. The amount payable
would depend entirely on the rules framed in respect of the same. The
statute does not mandate that the allowance has to be suitable to enable
the relevant entitled persons to obtain the food grains from the market.
Since the entitlement is essential to obtain the identified food grains at
the subsidized prices specified in Schedule–I if FSA is according to these
prices (much lower than market prices) the person will be grossly unable to
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6. purchase an adequate amount of food grains from the market.
2.6. Cereal-Centric Approach
Though cereals are central to the issue of food security, diversifying de-
mand patterns to protein-rich items also needs to be appreciated. NFSB
deals only with the supply of cereals ignoring the demand side of food con-
sumption.
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7. Operational Issues
3.1. Production, Procurement & Storage
Indian Agriculture is highly dependent on climatic conditions. Near
about 60% of production is dependent on monsoon. According to projec-
tions made by the Department of Agriculture Net production of wheat and
rice for the year 2013-14 is about 192 million tonnes. The food grain re-
quirement for NFSB as calculated by Expert Committee is 83.98 million
tonnes1. The government has been procuring around 26.6% of total food
grain production but after enacting the NFSB the procurement works out
to be 38.5%. Such a huge procurement will have a distorting effect on the
market price of food grains. Since the entitled groups will be purchasing
25-30 % 2 of their food requirement from the market, market prices are also
extremely relevant.
Current storage capacities are about 42.5 million tonnes providing 83.98
million tonnes will be implying extensive scaling up of procurement centers,
warehousing, and supply chains. The central pool stores around 80 million
tonnes of food grain compared to 32 million tonnes as the norms dictate,
which leads to spoilage.
As Indian agriculture is highly monsoon-dependent, less production is pos-
sible. Import clearly is not an option as market expectations about India’s
huge demand will have a price raising effect. So India has to depend on
Domestic production only.
1
NAC estimated the food grain requirement to be 55.59 million tonnes taking into
consideration the population projection of the National Commission of Population for
October 2010 and an assumption of 90 % offtake of food grains. If we use the population
projection for October 2013 and also the off-take is likely to be 100% at this price, the
final food grain requirement works out to be 73.98 million tonnes. Also, we must add 8
million tonnes for other welfare programs like midday meals, ICDS, etc. A buffer of 2
million tonnes must also be maintained in case of an emergency.
2
According to the 2004-05 NSSO consumption expenditure survey, the average monthly
per capita rural consumption of wheat and rice for the lowest MPCE classes constituting
49.9% of the rural population was 10.11 kgs while the urban consumption for the lowest
MPCE classes constituting 30.2% of the urban population was 9.35 kgs.
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8. Suggestions
Indian Agriculture has not witnessed any major breakthrough since the
green revolution which focussed on cereal and was concentrated in north-
western states like Punjab and Haryana. Most of the procurement is done
by these states. A gradual shift from Northwestern states to Eastern states
like Bihar, West Bengal, M.P, Odisha, Assam, etc is required, as it makes
procurement cheaper from a logistic point of view. Due to BGREI, the grain
production from these states has been promising but lack of procurement
centers and marketing infrastructure has caused dismissal to farmers (unlike
Punjab and Haryana, which has a well-laid network of Mandis/Procurement
centers, these states lack inadequate procurement centers and storage facil-
ities).
India has been the greatest producer of wheat and rice in the world, but
its production productivity is below the world average. So Investments in
productivity-enhancing technologies in irrigation, power, fertilizer, seeds, etc
should be made Nodal point of NFSB. Also increasing decentralized stor-
age facilities like FPS-cum-godowns, transport facilities like rail lines, bulk
wagon, etc has to be insured.
3.2. Public Distribution System
PDS with its half-million networks of Fair Price Shop (FPS henceforth)
should be the most obvious choice for distribution of entitled food grains un-
der NFSB. But, poor identification of beneficiaries, massive leakage ( 40%)
in APL allocations, low margins for FPS creating perverse incentives for
diversion of PDS, and general lack of accountability had rendered it useless
for such a revolutionary Bill. The PDS has virtually collapsed in several
states in India due to weak governance and a lack of accountability. There
are, however, exceptions like Kerala and Tamil Nadu.
Suggestions
In 2006, in response to a PIL on the PDS, the Supreme Court had ap-
pointed a Central Vigilance Committee, headed by Justice D.P. Wadhwa
who has given a number of reports on the reform of the distribution system.
Moreover in July 2010, in a conference, the state food secretaries passed a
resolution on the best practices and reform of the PDS.
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9. Some of the suggestions common to both are
• Precise identification of beneficiaries
• Timely delivery of food grains to FPS. States to strive to make doorstep
delivery to FPS
• Rapid roll-out of IT in PDS on priority. End-to-end computerization
of the TPDS network, digitized allocation of food grains starting from
the FCI/State government, smart card-based delivery of food grains,
issue of ration cards with biometric identification and iris technology
• Creation of additional storage capacity both at central and state level.
States to create decentralized storage facilities at block/village/ pan-
chayat levels by the construction of Fair Price Shop-cum-godowns us-
ing funds available under various schemes
• Better monitoring of the distribution of food grains by using tech-
nology (GPS tracking, SMS alerts to beneficiaries, CCTV monitoring
of FPS, and creation of public awareness through campaigns in the
media) and social audit by local bodies/community groups / NGOs
• Better governance - administrative action, recovery of financial losses
and fixing criminal liability
• In the case of FPS, Justice Wadhwa suggests that the state civil sup-
plies organizations should take over the FPS network to deal with
the large scale corruption. However, the state food secretaries sug-
gest allotment of FPS to community-based organizations like coop-
eratives/SHG’s and measures to improve the viability of the FPS by
rationalizing commissions, extending credit, and encouraging the sale
of non-PDS items.
A large number of states have undertaken large-scale reforms and one
excellent example is Chhattisgarh which is in the process of turning around
the PDS system with the help of improved practices, governance, and tech-
nology. At present, there are a number of initiatives for computerizing the
PDS operations which range from the use of smart cards for beneficiaries in
an experimental way in Haryana and Chandigarh, use of Global Positioning
System in Tamil Nadu, Chhattisgarh, and Delhi, barcoded bags in Gujarat
and SMS alerts on grain availability in UP and MP.
Most of the current problems with the current PDS can be tackled with
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10. the Condition Cash Transfer facility. Since the average market price is cur-
rently around Rs 20 per kg, a subsidy of Rs 17 will need to be provided.
Currently, the Economic Cost of procurement also works out to Rs 20.43 per
kg, which implies a subsidy of Rs17.43 per kg. In other words, the subsidy
under the current system and the subsidy given under the smart card system
will be virtually the same. However, given that under the smart card sys-
tem there will be virtually no leakage. Moreover, under the smartcard-based
system, since a lot of subsidized grain will go through the normal market
channels it will also reduce the burden on the government procurement and
PDS network.
3.3. Identification of Beneficiaries
Smt. Sonia Gandhi supported the idea that rather than states conduct-
ing the BPL survey, there should be a socio-economic survey conducted by
the Registrar General of India and Census Commission who have expertise
in these matters.
But it is advisable that since State Government is the closest to the field
and is aware of the various local issues and realities they are best to carry
out actual identification. So the socioeconomic survey to be entrusted to
the state government. However, to ensure that no. of people identified by
the state government are genuine, each state must be allotted a cut-off no.
of rural and urban Population. A scheme that provides universal coverage
would not be prone to such errors but could have significantly higher costs.
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11. Microeconomic Impact
4.1. Subsidies vs Investment
NFSB would require huge funds and thereby huge subsidies by the Cen-
tral Government. The source for these subsidies should not be made via
a shift from investment to subsidies. Green Revolution was not an out-
come of subsidies but rather of enhanced investments in Technology, Insti-
tutions (R&D), communication, and physical infrastructure. Given fiscal
constraints, there is always a trade-off between allocating money through
subsidies and increasing investments. Ample research shows that invest-
ment option is always preferable to subsidies to sustain long-term growth
in agricultural production and also to reduce poverty faster. So the focus
of public expenditure for agriculture needs to shift towards investments to
boost productivity rather than subsidies. In contrast, NFSB is likely to
shift the nature of resource allocation more towards subsidies rather than
investments. This will be retrogressive from long term agro-growth and
sustainable food security point of view.
4.2. Low-level equilibrium trap
Faster growth in per capita incomes and urbanization are triggering shifts
towards high-value commodities like fruits, vegetables, fats and oils, and
animal products such as dairy, poultry, and eggs. Share of expenditure on
cereals in total food expenditure has declined from 41% in 1987-88 to 29.1%
in 2009-10 in rural areas and from 26.5% in 1987-88 to 22.4% in 2009- 10 in
urban areas. The Bill’s focus on rice and wheat goes against the trend for
many Indians who are gradually diversifying their diet to protein-rich foods
such as dairy, eggs, and poultry, as well as fruit and vegetables. There is
a need for a more nuanced food security strategy that is not obsessed with
macro-level food grain availability. But at the policy level, the Government
is still focused on food grains and NFSB is clearly reversing the movement
of Indian agriculture from high-value items to food grains. This will trap
the Indian agricultural sector in a low-level equilibrium trap as returns are
generally higher in high-value agriculture. But a faster movement towards
high-value agriculture needs large investments in infrastructure and risk-
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12. mitigating strategies. The NFSB is likely to slow down this natural process,
and at places even reverse this trend.
4.3. Restrictive private practice:
In pursuit of the food sufficiency regime, a regulatory framework has been
created with massive government intervention in terms of policing powers
under the APMC Act and Essential Commodities Act, interstate movement
restrictions, regular but unpredictable export bans on food grains, banning
of forwards trading on commodity exchanges, etc. This will be even further
tightened to enable the government to carry out its procurement functions
now. A combination of the quantum of public procurement and a stringent
regulatory framework would drive the private sector out of the food grains
sector.
Gujarat vs Punjab
Punjab experienced an increasing rate of growth for about 25 years, but
from 1997-98, Punjab has experienced a deceleration in its rate of growth.
Cultivation of high-yielding varieties of paddy, particularly under assured
tube well irrigation has resulted in an alarming depletion of the under-
ground water table, decline in soil fertility, an increased incidence of insect
pests, weeds, and increased resistance towards use of chemical inputs, and
decelerating rates of growth in yields. Further, an almost complete takeover
by the state of the food grain markets caused much of the private sector
to withdraw and there was not much modernization and scaling up of its
agro-processing (mills, etc) and storage infrastructure.
Gujarat, in contrast, has focused on commercial crops and diversified into
non-farm activities like milk, along with a strong focus on investments in
value-adding infrastructure. This holds the key to the stupendous growth
in agriculture of more than 9% per annum witnessed during the decade of
2000. Gujarat remained almost free from any large-scale government in-
tervention and regulation and leveraged its private entrepreneurs to drive
growth. Through incentives to attract the private sector by providing a
favorable investment climate, several non-farm income-generating employ-
ment opportunities have been created in rural areas supplementing rural
income.
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13. Recommendations
It is quite evident that NFSB is a revolutionary bill with the power
to positively impact the lives of millions if planned immaculately and exe-
cuted effectively. Failing to do so will have terrible consequences on Indian
economics, reducing the policy to be merely a meretricious political tool.
Therefore, the Government is prudently advised to have a proper and well-
laid discussion on NFSB and not to view it as a tool for vote bank politics.
5.1. CCTs: An Alternative Model
For decades, India has largely followed a ‘price policy’ approach to
achieve essentially what are equity ends. It has subsidized food (rice and
wheat) and agricultural inputs (fertilizers, power, canal waters, etc.) so
that poor consumers and small farmers can have economic access to these.
But the ground evidence suggests that this may not be the best way to
achieve equity objectives. It has led to major distortions in grain markets,
high costs in handling grain, and large-scale diversions of wheat & rice to
non-targeted groups. These have resulted in large ‘efficiency losses’ with-
out achieving commensurate results on the equity front. Literature on best
practices around the world shows that ‘income policy’ approach rather than
‘price policy’ is more efficient in achieving equity ends and this has been
adopted successfully by many countries across the world.
Specific criticisms on untargeted subsidies arise from the fact that:
• the benefits from general subsidies are often regressive
• the administrative costs of subsidy schemes can be high
• subsidy schemes are particularly open to corruption and mismanage-
ment
• subsidies can distort the market by crowding out private traders and
distorting the incentives for producers
• subsidies, especially those that benefit the non-poor, can be popular
and difficult to eliminate, given large constituencies opposed to change
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14. • subsidies can pose an increasingly heavy burden on the government
budget when placed on items (e.g., food or fuel) in times of increasing
domestic or international prices
Arguments in favor of CCTs stress that they contribute to economic
growth and make it more inclusive in many ways as it increases the bargain-
ing power of entitled group since they are paying the same amount as paid
by the general public, also ensure that they get quality food as they can buy
their requirement from the open market also. There is no open market price
distortion due to the same fact and private sector investments are ensured
as Government is not procuring large quantities.
Brazil is a classic example of this - the Bolsa Familia program, the world’s
largest conditional cash transfer program, has lifted more than 20 million
Brazilians out of acute poverty and also promotes education & health care.
These types of social protection systems are now being adopted nearer home
too as in Indonesia & the Philippines with immense success.
As India is a vast country, it may be left to individual states to devise
their own systems of provision of food security. States which are surplus in
terms of production of cereals could move straightaway to cash transfers.
Cities with a population of 1 million or more (currently 33 as per the 2011
census) can also shift to cash transfers. States which are grain deficit may
continue with the physical handling of food grains. Only an optimum level
of buffer stock needs to be maintained by FCI for contingencies. This would
go a long way in pruning the food subsidy and more importantly help in
achieving the welfare objectives efficiently.
5.2. Nutritional Security
‘Nutrition Security’, in principle is more important than food security
and can be defined as adequate nutritional status in terms of protein, energy,
vitamins, and minerals for all household members at all times. The necessity
to include nutrition into food security evolved over time as it was realized
that the ability of the human body to ‘Utilize/Absorb’ food requires not
only an adequate diet but also a healthy physical environment, including
safe drinking water and adequate sanitary facilities (so as to avoid disease)
and an understanding of proper health care, food preparation and storage
processes. From the present cereal-based approach the government should
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15. also focus on pulses and other protein-rich sources, oilseeds, eggs, milk, etc
so as to ensure not just food security but Food & Nutritional Security.
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