Is the food security dilemma finally resolved?

Ranen Banerjee, Executive Director, Public Finance, PwC India

Is the Food Security Act (FSA) a political move or a measure for re-distribution of wealth? Aiming to cover a population of 800 million, the expenditure to be borne by the government is estimated to be over 1.3 trillion INR on full implementation.

With a high revenue and fiscal deficit in the current economic environment, revenues are unlikely to grow faster than the existing revenue expenditure, most of which is fixed. Thus, the implementation of the FSA will add further upward pressure on the revenue deficit. This is expected to eat into the fiscal deficit, thus constraining capital expenditure. The government can ill afford to allow increase in deficits as it can lead to a sovereign rating downgrade. This will make borrowings more expensive for the country and put further strain on the rupee.

The only consolation is that the implementation machinery is not geared to immediately achieve full coverage of the FSA and hence the increase in the expenditure will be staggered over the coming years. This is expected to provide some breathing space for the government. Hopefully, it will also provide for a push for consensus on the GST Bill which is likely to provide an avenue for higher revenues for the government to cover for the FSA expenditure. Another side effect will be the possible curbing of tendencies to raise minimum support prices (MSP) for the procurement of food grains. This will have a cyclical impact on the subsidy bill for the FSA. 

One hopes that the FSA does not become a leaking bowl like the other mass benefit schemes launched in the past and that the roll-out mechanism is foolproof.

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