Yesterday, the Times of India published a story on its front page titled Food Security Act may Raise Prices Globally. This story argues that with the enactment of the Food Security Act, in the event of a drought, India will have to import food from the global market, which will lead to an increase in global food prices. This line of argument is absolutely wrong and only shows the total lack of basic economics knowledge that these reporters have.
Firstly, what does the data show about the production of food grains and procurement in India over the last few years? Let us take just two years, 2008 and 2009. In 2008, the total production of food grains was 210.2 million tonnes while the procurement was only 54.2 million tonnes. In 2009, which was a drought year, the total food grain production was 205.2 million tonnes and the procurement increased to 60.5 million tonnes. (Economic Survey 2010-11). In other words even with a drought year although the procurement increased, it was much less than the total production of food grains in the country. So the issue of importing food grains to feed the population in case of a drought did not arise. Interestingly, a table given in the report of TOI shows the same trend, but the report is totally silent on this. Moreover, the government exported food grains amounting to 4.1 million tonnes in 2009, which was a drought year. This only shows the lack of concern that the government has for providing food security to the people. But the TOI is silent on this.
It can be however argued that with the food security act, the demand for food grains will increase in the economy resulting in an increase in procurement. So in the event of a drought food grains might have to be imported. In order to look into the validity of this claim, one first needs to estimate the total amount of food grain that needs to be procured for the food security act. It has been estimated by Himanshu and Abhijit Sen that in order to provide 100% coverage with per capita per month provision of grains being 7 kg, the requirement would be 100.1 million tonnes and for 70% coverage for the same amount of grain, the requirement would be 70.1 million tonnes. Both of these are much less than the total production of food grains in the country. Hence, the issue of importing because of a rise in procurement does not arise.
Suppose there is a drought which is so severe that there is a food shortage in India. In the event of such a supply shortage, the price of food grains in the domestic market will rise. If this supply shortfall is not met by additional imports from the global market then millions of people will not get enough food to eat. This will be reflected in a short fall in demand for food grains and the price will then stabilize. The working of the laws of demand and supply in this case will come through an increase of starvation and malnutrition in the country. But the TOI reporters are not bothered about that. If it is the case that the only way to meet the supply shortage is through imports, then obviously to save people from starvation this has to be done. Whether this will lead to an increase in global food prices or not will depend on the global supply situation and total imports of India and cannot be ascertained a priori.
The fact of the matter is that the global food price increase is happening in spite of the fact that there has been no increase in imports from India. When George Bush said that the world food prices are increasing because of higher consumption in India and China, he was horribly wrong, because in both these countries, the per capita food grain availability has declined and is much less than per capita availability of food grains in the USA. The assertion that global food prices will increase as a result of the food security act passed in India is speculative and essentially aimed at confusing people.
The second issue that the report raises is the issue of fiscal burden on the state. The report points out that the food subsidy bill will increase to Rs 90000 to Rs 100000 crore as a result of the food security act. Currently, in 2010-11, the food subsidy is at Rs 60600 crore (approximately). In other words, there will be an additional increase of Rs 40000 crore as food subsidy. All other things remaining constant, this will increase the fiscal deficit by Rs 40000 crore. In 2010-11 the GDP at current price was Rs 7257000 crore. In other words, the food security bill will result in an additional fiscal burden of 0.55% of GDP. Contrast this with the fact that the government in the year 2010-11 has provided corporate tax exemptions worth Rs 88000 crore approximately. The TOI is not bothered about the fiscal impact of such huge tax concessions to the corporate. But it is bothered enough to make a front page news on the imaginary adverse impact of the proposed food security act.
This report of the TOI is an example how the corporate media wants to confuse issues of great importance relying on economic myths and conjectures in order to derail a pro-people policy initiative of the government. While the debate is going on regarding the inadequacies of the food security act, the TOI has portrayed an alarmist picture of the proposed act. Such kind of journalism is essentially anti-people and should be exposed.