India is a country of poor people. In the celebration of Indian growth story, the English-speaking elite has conveniently forgotten this basic truth. It is estimated by the World Bank that one-third of the world’s poor people live in India. In 2009-10, 75.5 per cent rural persons could not consume food worth 2,200 calories per day while in the urban areas 73 per cent could not consume food worth 2,100 calories per day.
These proportions were 69.5 per cent and 64.5 per respectively in 2004-05.
As per the Global Hunger Index published by the International Food Policy Research Institute, India ranks 65th amongst 79 countries, with countries such as Niger, Sudan and Nepal having a better rank. As many as 48 per cent of children below five years of age are stunted while 43 per cent are under-weight. The question is how we do address these pressing problems. One approach is to argue that the growth process in a market economy will take care of all these problems and the state should do nothing.
From the hunger data, however, it is seen that even after two decades of the reform process, these problems are persisting at alarming levels. It is clear that the so-called reform process based on the market economy has not been able to solve these problems.
The other way is to point out that it is the duty of the state to take care of the problems of malnutrition, hunger and poverty of the people; hence, the state must take an active role in dealing with these problems.
On the basis of this second approach towards policy-making with demands arising from various sections of society, the Food Security Bill was passed in Parliament on August 26. As per the Bill, 75 per cent of the people in the rural areas and 50 per cent of the people in the urban areas will be entitled to 5 kg of food grains per capita per month with rice at `3 a kg, wheat at `2 a kg and mullet at `1 a kg. According to the government, the total grain requirement for the Bill is 612.3 lakh tonnes while the estimated cost for 2013-14 is about `1.25 lakh crore.

The real cost
Critics have pointed towards the very high burden that the FSB will impose on the exchequer, which will increase the fiscal deficit and thereby affect the growth rate. Many economists have said that the cost of this Bill is between `3 lakh crore and `6 lakh crore per annum.
These calculations are clearly overestimates because of the following reasons. Firstly, in 2013-14 the total food subsidy has been budgeted at `90,000 crore which in 2012-13 was `85,000 crore.
In 2011-12, 45 per cent of the population accessed food through the Public Distribution System (PDS). The FSB covers 67 per cent of the population. The additional money needed for feeding this extra 22 per cent is roughly `45,000 crore.
It is estimated that in 2012-13, the GDP at current prices is `94,61,013 crore. Therefore, the additional money required for the FSB is a mere 0.47 per cent of the GDP, and the total expenditure on the FSB should be between 1.3 per cent and 1.4 per cent of the GDP.
The food subsidy is the difference between the economic cost of food grains and the price of food grains under the PDS (P) per kg, multiplied by the number of beneficiaries (N) and the per capita consumption of food grain through PDS (Q).
Researchers have shown that leakages of the PDS get plugged when its coverage increases.

The Ps and Qs
In 2009-10, even with a limited PDS system, the average cereals purchased from PDS per household (those who buy from PDS) was 20.7 kg per month, which is 4.14 kg per-capita per month (assuming five members per household). With larger coverage and larger allocation of money it can be safely assumed that 5 kg per capita per month of food grains can be provided with the additional money and that there will be a significant drop in leakage because of the additional coverage.
Therefore, once the FSB is implemented, Q - per capita consumption of food grain through the PDS - remains constant over the years.
Let us assume that in the subsequent years, the number of beneficiaries increases according to the growth rate of population, which is 1.64 per cent. So, in the absence of any change in P, the increase in subsidy will be 1.64 per cent. Assuming that the growth rate of GDP is higher than this, the share of food subsidy in the GDP will decrease over time, if P is constant.
But P will not be constant because the economic cost of food grains will increase over time. Again, for the coming three years, the price of food grains under PDS will be constant. Therefore, the change in P is essentially the change in the economic cost of food grain.
According to the Food Corporation of India data, the economic cost of rice and wheat over the last 2 years has increased by around 10 per cent. If we assume this increase to continue, then P will rise by around 10 per cent.
Taking both P and N into account, it can be assumed that the expenditure on food security will increase by around 12 per cent. Now, the growth rate of real GDP is 5 per cent, and the nominal GDP is 13.3 per cent. Assuming that the growth rate of nominal GDP remains around 10-12 per cent, the share of food subsidy in GDP would increase negligibly (0-2 per cent) and the final share of food subsidy on GDP would be between 1.33 per cent and 1.43 per cent.
Even taking into account the increased economic cost of food grains, the share of food subsidy in GDP will be minimal. With an increase in the growth rate of GDP, this ratio will be even less.

`5.7 lakh crore ‘foregone’

To put this in perspective we must note that India has one of the lowest tax-GDP ratio in the world at 10.4 per cent. The total tax revenue foregone in 2012-13 was `5,73,626.7 crore, which is 6 per cent of the GDP. In other words, if even one-fourth of this 'revenue foregone' is actually collected, the entire expenditure on FSB will be met.
The problem can be posed in another way. It is a fact that a large number of people in India suffer from hunger. If, in the name of curtailing the fiscal deficit, the FSB is not implemented, then the so called “investor confidence” in the economy will be maintained at the cost of hunger prevailing in the hinterland.
The point is such 'investor confidence' goes against the basic demands of the people and hence should be shunned.
The real question is not about whether there is enough money that the government can mobilise. The issue is about the political will of the government to mobilise the extra money for feeding the people.

Different problems

The problem with the FSB is, however, different. Firstly, the allocation of food grain of 5 kg per person would hurt many large families who are in any case getting 7 kg food grains from various state governments who are also providing rice at `2 a kg instead of the proposed `3 a kg.
More importantly, the agriculture sector is facing a crisis. The per-capita food grain production has been declining.
Between 2001 and 2011, the growth rate of population in India was 1.64 per cent while the growth rate of production of cereals was only 1.04 per cent. This imbalance has not precipitated a crisis because cereal consumption has been falling in the reform period.
In this situation in order to meet the food security of the population, the agricultural sector in the country should be revived through a massive investment in this sector.
In order to do this the government needs to come out from the path of fiscal conservatism and prioritise spending in the agricultural sector.

Subhanil Chowdhury is assistant professor, Institute of Development Studies, Kolkata