Food Security Act & Issues Involved

PROLOGUE

(A)

Domestic Issues

(1)Method Of Delivery => PDS Vs Cash Transfer Vs Food Coupons (2)Identification Of Beneficiary (3)Financial Implications- Cost Sharing b/w Centre & State (4)Cost Of Implementation Of Bill => Cascading Effect = Fiscal Deficit CAD Rupee Depreciation etc. (B) Global Issues- WTO AoA Commitments

(1)Concept of De minimis Level & Indias Position (Imp for Short Notes) (2)Concept of Boxes- Amber + Green + Blue (Imp for Short Notes) (3)Aggregate Measurement of Support (Imp for Short Notes) (4)Peace Clause (Imp for Short Notes) (5)Indias Argument + G-33 Proposal vis--vis Food Security Act

[A] Domestic Issues

It was clear from the start that legislating such a mammoth undertaking would involve purchasing food grain from farmers at high prices and selling them through the Public Distribution System at subsidised rates

(1) Method of delivery

Right to food = A Statutory right. Bill apart from PDS, also allows for cash transfers and food coupons in lieu of grains as mechanisms to deliver food security Problems Involved o o [i] PDS => Leakages= 40 % [ii] Cash transfers and Food Coupons => Expose to Price volatility + Inflation

A Comparative Analysis :>>>>>

Mechanism PDS

Advantages Insulates beneficiaries from inflation and price volatility Ensures entitlement is used for foodgrains only Well-developed network of FPS ensures access to foodgrain even in remote areas

Disadvantages Poor identification and targeting of beneficiaries

Low offtake of foodgrain from each household Large leakages and diversions of subsidised foodgrain

Adulteration of foodgrain Lack of viability of FPSs due to low margins Cash transfers Cash in the hands of poor expands their choices Cash may relieve financial constraints faced by the poor, make it possible to form thrift societies and access credit Administrative costs of cash transfer programmes may be much less than that of centrally sponsored schemes Potential for fully electronic transfer Vulnerable to targeting errors Cash can be used to buy non- food items

May expose recipients to price volatility and inflation

There is poor access to banks and post offices in some areas Vulnerable to targeting errors

Food coupons

Household is given the freedom to choose where it buys food Increases incentive for competitive prices and assured quality of foodgrain among PDS stores PDS stores get full price for foodgrains from the poor; no incentive to turn the

Food coupons are not indexed for inflation; may expose recipients to inflation

Difficult to administer; known to have delays in issuing food coupons and

poor away

reimbursing shops

(2) Identification The Bill does not universalise food entitlements Population into two categories of beneficiaries, identified by Centre + States Mechanism = Prone to large inclusion and exclusion errors.

(3) Financial implications Cost sharing between the centre and states Costs shall be shared between the centre and states. States will have to bear a significant financial burden on account of implementation. Costs imposed on states (partial or full) include: nutritional support to pregnant women and lactating mothers, mid-day meals, anganwadi infrastructure, meals for children suffering from malnutrition, transport and delivery of food grains, creating and maintaining storage facilities, and costs associated with District Grievance Redressal Officers and State Food Commissions. It is unclear whether Parliament can require states to allocate funds without encroaching on the powers of state legislative assemblies Implementation of the Act could be seriously affected, if a state chooses not to allocate the necessary funds or does not possess the funds to do so. Recommendation of the Standing Committee = An independent body, such as the Finance Commission, should be consulted regarding additional funds to be borne by states.

(4) Cost of implementation of the Act Another contentious issue, cost estimated = 95,000 crore by the Govt Experts & Opposition believes that such huge financial expenditure may backfire in the poor financial condition of the country and may result to cascading effect such as Widening fiscal deficit Widening CAD- Rupee Depreciation etc.

[B] Global Issues- WTO Agreement on Agriculture (AoA) Commitments

What is AoA ? AoA = Commitments on tariffs, tariff quotas, domestic supports, export subsidies Demand =The Agreement on Agriculture allows market distorting subsidies up to a limit of 10 per cent of the total production. Some of the developing countries are demanding that this limit be raised. 40th ministerial conference of the Food and Agriculture Organisation concluded in Oct 2013 Indias Concern Some WTO member-countries had questioned whether Indias stockholding to support 67 per cent of its population with subsidised food grains will distort international trade and impact the world stocks of grains.

(1)

Domestic support: some you can, some you cant The main complaint about policies which support domestic prices, or subsidize production in some other way, is that they encourage over-production. This squeezes out imports or leads to export subsidies and low-priced dumping on world markets. The AoA distinguishes (by classifying them into various BOXES) between support programmes that stimulate production directly, and those that are considered to have no direct effect.

A) Amber Box Amber = Slow Down ur Domestic Support (MSP or Subsidies) Domestic policies that do have a direct effect on production and trade have to be cut back. Total AMS (Total aggregate measurement of support) = How much support per year for the agricultural sector Base years of 1986-88. Developed countries agreed to reduce these figures by 20% over six years starting in 1995. Developing countries agreed to make 13% cuts over 10 years. Least-developed countries do not need to make any cuts.

B) Green Box Green = Allowed Dom Support (MSP or Subsidies) Measures with minimal impact on trade can be used freely They include government services such as research, disease control, infrastructure and food security. They also include payments made directly to farmers that do not stimulate production, such as certain forms of direct income support, assistance to help farmers restructure agriculture, and direct payments under environmental and regional assistance programmes.

C) Blue Box

Also permitted Cover certain direct payments to farmers where the farmers are required to limit production (sometimes called blue box measures). NOTE As US and other developed nations did [India + G-33 nations opposes this] Covers certain government assistance programmes to encourage agricultural and rural development in developing countries Also covers other support on a small scale (de minimis) when compared with the total value of the product or products supported (5% or less =developed countries & 10% or less = developing countries).

2) Peace Clause Agricultural subsidies committed under the agreement cannot be challenged under other WTO agreements, in particular the Subsidies Agreement and GATT.

Expired at the end of 2003.

3) Indias Argument vis--vis Food Security Act WTO DG Views on Indias FSA Not only should the needy be provided access to food but farmers too must be incentivised to produce more grain to reduce reliance on imports. o Both actions, it has been argued, constitute a type of price support that the WTO classifies as amber box measures considered to distort production and trade. o More specifically, India has to comply with its commitments under the Aggregate Measurement of Support, which stipulates a ceiling on domestic subsidies. WTO DGs Concern o Plurilateral, multilateral and bilateral agreements will proliferate and many countries will be denied the benefits of a rule-based approach to trade liberalisation. Example- NAFTA + TPP + TTIP + RCEP etc [Vimp- Compare TPP,TTIP & RCEP & Critically analyse which will be more beneficial for Indias Interest Covered in separate article] The markets will then open on non-MFN basis, and the ticket to admission into these agreements will be far more expensive than a WTO-led multilateral trading system Indias Stand Presently, India as per deminimis level concept offers far less domestic support to its local farmers (in terms of MSP) via Food Security act. Hence, Indias claim for getting Dearness Allowance (DA) is justified on the grounds that high domestic inflation compels Indian Govt to raise the MSP for the indigenous farmers and there will be no violation of WTO norms like trade distortion + market access + improper incentivisation to local farmers; moreover India also claims that the opposition from developed countries is totally useless & India along with G-33 and ASEAN platform vows its position in support of FSA. The G-33 proposals stated objective is food security. Buying grains at government administered prices with the objective of stocking it for food security purposes or distributing it as food aid should not be taken as a trade-distorting support There is currently very little in the trade rules to squarely address the issue of food security. The G-33 proposal addresses this lacuna & deserves full engagement India supports the G-33 proposal that wants subsidies, which are a part of the procurement of grains for public stockholding for poor and marginal farmers, to not be regarded as a prohibited subsidy by the WTO. For now, the government has sought an interim concession from the WTO to ensure India is not subject to legal action from other members, especially the United States and the European Union However, if Indias attempts fails = Epicfail = for Implementation for recently passed Food Security Act as it will be deprived of huge sum from DA, hence India will be caught under financial stress and may lead to cascading cycle of --- Fiscal deficit CAD Rupee Depreciation Business Sentiments further exacerbatePoor Rating No FDI Inflow + FDI outflow like POSCO + Arcellor Mittal Indian Economy= Doldrum etc

Moreover, India also vows for dilution of WTO norms (in WTO Bali October Ministerial conference) in favour of developing nation, since different economies are at different stage of development hence dilution in WTO Norms for Developing Nation needed in order to fulfill food security to its own people. At the Bali Conference, it is likely the U.S. and EU will push for a grand bargain: lesser import restrictions and open markets in developing countries for exemptions on procuring subsidised food grain The aim is to secure an exemption from AMS limits without conceding too much ground to the West, which is more interested in penetrating the Indian market. India may resort to the Peace clause in order to defend itself. India is also ready to commit that procured foodgrains would not be released for international trade and the management of public stocks would be done in a transparent manner. Rahul Singh REFERENCES The Hindu Articles For all Global Issues Involved

http://www.thehindu.com/business/Economy/food-subsidy-issues-need-to-be-addressedwto/article5210832.ece?ref=relatedNews http://www.thehindu.com/business/Industry/g33-proposal-deserves-full-engagementanand-sharma-http://www.thehindu.com/news/national/thomas-to-defend-food-law-inrome/article5207362.ece?ref=relatedNewstells-wtochief/article5210835.ece?ref=relatedNews http://www.thehindu.com/opinion/editorial/trading-on-hunger/article5218375.ece

PRS Blogspot specially for Domestic Issues

http://www.prsindia.org/theprsblog/
WTO Site

http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm3_e.htm#newrules