National Food security Act 2013

What is Food Security Act?

Food security Act is a provision by the Government to supply food grains
in very cheap price with an aim to secure food for all. The beneficiaries
under food security Act will be almost two third population of India. The
food grains which will be supplied in subsidised rates are wheat, rice and
coarse grains.

Features of Food Security Act

Under the Act, the government will sell subsidised wheat and rice to
67.5 per cent of its population of 1.2 Action. India is home to a
quarter of the world's hungry poor, according to United Nations
data.
According to the Act, the beneficiary will be entitled to 5 kg of rice,
wheat and coarse cereals per month at a fixed price of Rs. 3, Rs. 2
and Re 1, respectively.
Around 2.43 crore poorest of the poor families covered under the
Antyodaya Anna Yojana (AAY) scheme under PDS (Public Distribution
System) would get legal entitlement to 35 kg of food grain per
family per month.

Beneficiaries Of The Food Act.

This will cover below poverty line people, pregnant mother
and children up to 14 years of age.
The beneficiaries of food security Act will be 75% of rural
population out of which 46% will be in priority category and
50% of urban population in which 28% will be in priority
category.
A ration card will be issued and women of the family will be
head of the household for issuing ration card.
As per the Act the priority category will get 5 kg of food grains
per person at a price of 3 Rs per kg for rice, wheat at 2 Rs per
Kg and coarse grain at 1 Re per kg.

 General category will get 5 kg of food grain per person at a

price not exceeding 50% of support price
Pregnant and lactating mother will get free meal upto 6
months after delivery. Apart from these benefits pregnant
mothers will also get Rs 6000 as maternity benefit.
Children upto 14 years of age will get free meal.
Free meal for destitute, homeless person, disaster victims or
the person on the verge of starvation.
In case the foodgrains are not supplied a food allowance will
be provided to the beneficiaries.

Cost of Implementing the Food Act.

This program will require huge food subsidy. According to the
government's estimates, the centre's total food subsidy at 2012-13
costs will be at Rs. 1,24,723 crore.
This is just one estimate but according to The Commission for
Agricultural Costs and Prices(CACP) of the Ministry of Agriculture in a
research paper titled National Food Security Act Challenges and
Options puts the cost of the food security scheme over a three year
period at Rs 6,82,163 crore. During the first year the cost to the
government has been estimated at Rs 2,41,263 crore.
In order to properly understand the situation we need to express the
cost of food security as a percentage of the total receipts(less
borrowings) of the government. The receipts of the government for
the year 2013-2014 are projected at Rs 11,22,799 crore.
The governments estimated cost of food security comes at 11.10%
(Rs 1,24,723 expressed as a % of Rs 11,22,799 crore) of the total
receipts. The CACPs estimated cost of food security comes at 21.5%
(Rs 2,41,623 crore expressed as a % of Rs 11,22,799 crore) of the
total receipts.
In this case the estimated cost is in the range of 1-3% of GDP. But
the government does not have the entire GDP to spend. It can only
spend what it earns.

 Take rice for example. The government purchases the grain at an

economic cost of 18 rupees per kilogram. This includes the price it
pays the farmers, the cost of stocking the food and distributing it.
Under the Act, the government will sell the food to ration card
holders at between one and three rupees per kilogram, which is a
subsidy of 16 rupees per kilogram.
Even if the quantity of food remains the same each year, the food
subsidy Act will increase annually. As the cost of food goes up
(because of wage increases and oil price rises,) the amount that
the government sells the subsidized food for will remain the same.

Implications/ consequences:
A higher subsidy burden may force the government to look for
ways to increase income. It could look at increasing borrowing.
Higher government borrowing could crowd out private borrowing,
and interest rates may rise.
Food security will also mean a higher expenditure for the
government in the days to come. A higher expenditure will mean a
higher fiscal deficit.
In a particular year when the government is not able to procure enough rice or wheat
to fulfil its obligations under right to food security, it will have to import these grains.
There is another factor that can put pressure on the rupee.
This might also lead to the government printing money to finance
the scheme. It was and remains easy for the government to obtain
money by printing it rather than taxing its citizens.
Money printing will lead to higher inflation.
Higher food prices will mean higher inflation and this in turn will
mean lower savings Lower savings will also have an impact on the
current account deficit.

Conclusion:
The scheme is open-ended: theres no expiry date. It covers around two-thirds of the
populationeven those who are not really needy. This means that the outlays will have to

increase as the population grows. The government intends to use the Public
Distribution System for delivering subsidies to the poor. The PDS is already
used to deliver food subsidies to the poor but around 51% of the food
delivered that way is currently lost to leakages. It is sold on the open
market for a higher price. To conclude, the basic point is that food security will turn
out to be a fairly expensive proposition for India.

References:
http://profit.ndtv.com/news/cheat-sheet/article-food-security-bill-10-factsyou-should-know-326330
http://www.dnaindia.com/india/1587925/report-explained-facts-aboutfood-security-bill
http://www.firstpost.com/economy/food-bill-is-the-biggest-mistake-indiamight-have-made-till-date-1062841.html