Rangarajan panel wants APL out of Food Security Bill

Last Updated: Tue, Jan 11, 2011 20:10 hrs

Says National Advisory Council numbers are flawed and not feasible

The Rangarajan committee, formed by Prime Minister Manmohan Singh to study the recommendations of the Sonia Gandhi-headed National Advisory Council (NAC) on the proposed Food Security Bill, has suggested to halve food allocation for the above poverty line (APL) category to 10 kilograms (kg) a month or exclude the category altogether from the legal entitlement of the proposed Act.

The committee suggested these measures as it feels foodgrain procurement needs to be stepped up exponentially to provide subsidised foodgrain to all or even 75 per cent of the population as the NAC has proposed. Also, the additional subsidy required to fulfill the target would be at least Rs 10,000 crore more than NAC’s estimates.

The exclusion of APL from the food distribution system is also pressed by the government, with the Cabinet Committee on Economic Affairs deciding to raise the prices of APL foodgrains this month.

In its report, which is yet to be officially released, the committee notes that the NAC grossly underestimated calculations on food availability and the subsidy requirements.

As opposed to NAC’s calculation of foodgrain requirement of 64 million tonnes, the requirement would cross 74 million tonnes, if buffer stock replenishment, higher offtake rates and higher requirements are taken into account, the committee notes.

On procurement, it cites the Department of Agriculture’s projections on foodgrain production to say that assuming a procurement level of 30 per cent, procurement cannot go beyond 58 million tonnes by 2013-14.

This is well below the estimated requirement of 64 million tonnes to provide subsidised rice and wheat to nearly 75 per cent of the population.

The committee also turns down the NAC’s subsidy estimate of Rs 80,000 crore per year for the final phase. With updated population projections and assuming an 100 per cent offtake, the subsidy would rise to Rs 92,000 crore, it says.

The corresponding ‘additional subsidy’ (over and above the current Rs 57,000 crore) is Rs 23,000 crore in the NAC proposal and Rs 35,000 under these new assumptions. The report notes that additional allowances would have to be made for capital investment in storage capacity, higher minimum support price (MSP) and other factors.

What the report recommends:
The report recommends that given the unfeasibility of the full-fledged NAC entitlements, one option is to reduce allocation for the APL category from five kg to two kg per person.

According to the NAC, general households (44 per cent in rural areas and 22 per cent in urban areas) should be entitled to 20 kg (equivalent to 4 kg per person) every month at a price not exceeding 50 per cent of the existing MSP.

The other option is to restrict legal entitlements to priority households (below the poverty line) and "cover the rest through an executive order with a varying quantum depending on the availability of foodgrains". The committee favours the second option, costing Rs 68,539 crore as per its estimates (i.e. ‘additional subsidy’ of Rs 11,500 crore).

While accepting the figures of 46 per cent and 28 per cent for coverage of priority households in rural and urban areas, respectively (corresponding to Tendulkar poverty ratios + a margin of 10 per cent), the report adds "thus the entitled category for food security may be anchored to the officially defined poverty line".

The issue prices of Rs 2 per kg for wheat and Rs 3 per kg for rice (no mention of millets) for the priority group are to be indexed to the Consumer Price Index. Foodgrains would be sold to non-priority households "at an issue price equal to MSP’’ unlike the NAC proposal to sell it at 50 per cent of the MSP.

On public distribution system (PDS) reform and alternative distribution mechanism, the committee concedes that the present system is full of flaws, but it is unable to come up with an alternative.

But it suggests a smart card system, almost identical to the Planning Commission’s smart card proposal. Smart cards (with biometrics and unique identification number) would be introduced in two stages. In the first stage, they would basically act as a tamper-proof record-keeping system to track food (keeping the current method of foodgrain allocation to the FPS unchanged). In the second stage (an alternative to the existing PDS), smart cards would be used to transfer food subsidy directly to beneficiaries, who would be able to use their smart card to purchase subsidised food from any store. This will "reduce the burden on the government procurement and PDS network" since "a lot of subsidised grain will go through the normal market channels", it says.

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