‘Cash transfers are preferable to giving food directly’

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Ashok Gulati Chairman, Commission for Agricultural Costs and Prices
Ashok Gulati Chairman, Commission for Agricultural Costs and Prices

EDITED EXCERPTS FROM AN INTERVIEW

You have cautioned that the Food Security Bill could be a real challenge to the government’s finances. How have you come to that conclusion?

I am not against the Bill itself, but have presented a realistic assessment of the finances. The Rs 90,000 crore budgeted for this in the current fiscal is quite sufficient, given that half the year is over. Yet the Bill cannot be rolled out right away because we lack the infrastructure for its execution. Many states don’t have the beneficiary lists ready, and that will take time. In a full year, say 2014-15, the cost estimate would exceed Rs 1,30,000 crore. For sustainable food security, you will need to increase food production by investing in agriculture. Do we have that kind of money?

In 2003, a drought year, foodgrain stocks plunged by 38 million tonnes. If we remain so dependent on the monsoons, how would you keep the commitments made in the Bill? We need to invest in irrigation. At least 300 major and medium projects needing investments of more than Rs 2,00,000 crore are still pending. Moreover, the railways don’t have the extra capacity required to move such huge amounts of grain from where they are procured, say Punjab, to the other states. So we need more investment in the railways and in storage facilities. If all these investments are accounted for, then the subsidy bill will go up to Rs 2,00,000 crore.

Besides, the minimum support price (MSP) will also keep going up along with rising production costs. But the Bill suggests that the issue price will be fixed for three years at Rs 1, Rs 2 and Rs 3 for coarse cereals, wheat and rice, respectively. Can you freeze the MSP? With rising MSP, the subsidy too will go up.

The best way is to move towards conditional cash transfers as it will save thousands of crores of rupees.

Do you agree that if other subsidies are brought down, then the Food Bill can be justified?

Reducing fuel subsidy will increase diesel prices, making the use of tractors more expensive. Cutting fertiliser subsidies will raise the input costs of agriculture. Each is connected with the other and there’s no free lunch in the system.

Is it possible to ensure food security at a lower cost?

International best practices prove that such ideas don’t help end hunger and malnutrition. Countries have moved from doles to cash transfer. We will save at least Rs 30,000-Rs 40,000 crore if we adopt cash transfer and not give food directly. Handling of foodgrain via State agencies is an expensive exercise. Costs will rise by nearly 50 percent. It’s better to give people income support through conditional cash transfers.

Could this Bill lead to more inflation?

The biggest reason for inflation is very high fiscal deficit. Power, fuel, fertiliser and even food subsidies need to be rationalised. These can easily be cut by 30 percent. If the rest of the world has moved to conditional cash transfers because it bypasses intermediaries, why not us? The problem is misuse, which creates shortages. Handling by State agencies is a bad idea when you can just bypass them. You should better prepare the ground for that. And then effectively approach these subsidies.

How do you see the subsidy bill going up in the years ahead?

The PDS was worth Rs 80,000 crore last year when there was no Bill in the works. This year, the finance minister has budgeted for Rs 90,000, which is in line with what we can afford. But only for this year. It was known that no Bill would go through before the Monsoon Session. It will take more time before the rollout happens and so this money would suffice.

But in the coming years, I am sure the cost will go up. The cost of meeting rising MSP, administration and distribution costs following the Food Bill, general inflation, the cost of building new infrastructure — all that will increase. I guess there will be a 10 percent jump in the subsidy bill every year.

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