Indian Food Security Bill: The Making of an Economic Disaster?

Last week the Government of India passed its ambitious Food Security Bill (FSB) in the lower house of the Parliament. Under the bill, the government aims to cover 67% (around 85 crore) of its population by providing  5 kg rice, wheat and coarse cereals per month per person at a fixed price of Rs. 3,2,1 respectively.

At face value, the scheme looks like a boon to the people of India, especially to those who live under the poverty line. With malnutrition in the country escalating to high percentage levels, the Food security bill when implemented, is certain to bring it down considerably. Without doubt, the bill is an important step in India’s fight against hunger.Rice

But many economists believe, in the long run, such a scheme will completely destroy the India growth story and cripple the economy. It will deny millions of Indians the opportunity to get out of poverty, instead leaving them dependent on the welfare state and clemency of those who run it.

The criticism of such a bill is based on a simple logic. If a farmer gets food grains by paying a small amount of Rs. 1, why would he be bothered to grow his own crop? Under such a situation, a small worker just needs to work for couple of days in a month and with that money he can feed the family for a month. Many feel, this will completely destroy the work efficiency of the country.

Another question that arises is that who is going to pay for the bill? While the government asserts  it will cost an additional Rs. 25,000 crore to what is already being spent on subsidy, analysts have argued that the real cost will be anywhere around a whopping Rs. 200,000 crore annually.

In addition to these costs, setting up and maintain distribution centers and government agencies to monitor the subsidies also creates a big price. Such an outlay at this point will definitely have a hit at the current fiscal deficit. India’s current account deficit is only going to balloon to unprecedented levels.

To compensate for the scheme, corresponding amount has to be reduced from other schemes such infrastructure, health and education. Considering that the economy is in a bad state now, it will be a huge burden for the lawmakers. And the middle class is most likely to be the one to feel the pinch.

The repercussions of the bill will only be known in the coming months, once it becomes a law and is implemented. But, now, the general feeling among the economic class is that the bill could turn out to be a financial disaster.

The other day, a newspaper fittingly headlined it as ”Good politics, Bad economics”.

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