Investors and industrialists fear that this Act could worsen the fiscal deficit and would not augur well for rejuvenation of the economy.
The Food Security Bill, which was kept in abeyance for some time, has now been passed in Parliament and is an Act. The UPA strongly believes that the Food Security Act 2013 along with other populist schemes such as NREGA would enable it to return to power at the Centre in 2014. This was reflected in the recent speech of Rahul Gandhi, who asked people to eat a full roti, work for 100 days and vote for the Congress. But, will the Food Security Act be the UPA’s game-changer in the 2014 general elections?
For this, the impact of the Act on the lives of people has to be viewed from various perspectives.
The first aspect is the right to food, which was ensured in this Act. Even without a law on right to food, many State overnments have been supplying essential foodgrains through ration shops for a very long time. Moreover, the entitlement assured in the Act is not more than what is offered by some of the State Governments in terms of quantity, price and coverage.
For instance, the Act guarantees 5 kg of foodgrains per capita per month that includes rice at Rs 3 a kg, wheat at Rs 2 a kg and coarse grains at Rs 1 a kg for the priority households, which comprise the bottom 40 per cent of the population.
Another 37 per cent of the population would get grains at double the price at which it will be offered to priority households.
But the Tamil Nadu Government has already been providing free rice up to 20 kg to all cardholders and 35 kg for the below poverty line cardholders.
In fact, the Act would reduce the entitlement from universal coverage to 67 per cent of its population in the State; in fact, the Tamil Nadu government has been at loggerheads with the Centre on this aspect of the Act.
The second issue is proper implementation through the Public Distribution System (PDS) of State Governments. If the PDS apparatus is reliable, transparent and effective, foodgrains will reach the needy. For example, the Chhattisgarh government was commended for fixing this apparatus by ensuring coverage, delivery and transparency. The PDS buck stops with the State governments. While the performance of these governments in distributing rations largely makes or mars their election prospects, streamlining PDS or the introduction of the Food Security Act has a somewhat lower impact on the Union government’s image.
However, the negative impact of the Act could create more problems for the national economy, which has been already bleeding, and could further damage the Centre’s fiscal health.
The additional burden for the Centre on account of this Act will be Rs 10,000 crore as indicated by Food Minister K.V. Thomas.
But it has been estimated by various economists and agencies that the actual cost will be in the range of Rs 1.25 lakh crore to Rs 3.14 lakh crore per annum depending on various contingencies.
The fiscal deficit was 4.9 per cent of GDP in 2012-13 and is likely to cross 5 per cent in 2013-14 given the slowdown in the economy.
Investors and industrialists fear that this Act could worsen the fiscal deficit and would not augur well for the rejuvenation of the economy. The twin deficits hypothesis links the fiscal balance with the current account balance and postulates that the larger the fiscal deficit, the wider the current account deficit.
The current account deficit (CAD) was about $70 billion at the end of the financial year 2012-13. India has only $275.5 billion of forex reserves (in Sep 2013), which is enough for approximately seven months of import.
Given the current exchange rate, our forex reserves are likely to deplete even before April-May 2014 when elections are due, creating problems for the import of essential items such as crude oil.
The passing of the Food Security Bill may therefore not be a game-changer for the UPA in the 2014 general elections; rather, it may turn a Frankenstein.
(The author is a doctoral scholar of the Public Systems Group, Indian Institute of Management-Ahmedabad. The views are personal.)