Answer:

♤ The Food Security Act envisages the distribution of wheat, rice and coarse grains to over 2/3rd of its population. The new bill will expands that coverage at a cost of about 1.35% of the GDP which is going to increase as our population increases. It will worsen the fiscal deficit situation and may even lead to high CAD in years of bad monsoons when government has to import food to meet its legal obligations. Hence financial analysts are raising predictable concerns about its affordability. These concerns, however, are misplaced.

♤ A large part of the food subsidy today is also wasted on the transport and storage of monumental food stocks. With a well-functioning PDS, it will be much easier to coordinate procurement and distribution, so that excess stocks don’t accumulate. The availability of excess stocks also means that the short-run economic cost (as opposed to the financial cost) of the Act is virtually nil.

♤ With clear legal obligations, the governments will be forced to step up their procurement infrastructures, create more storage houses, cold storage, etc. which may give rise to construction boom in the economy.

♤ Further to make up for the increased demand, the ministry of agriculture may have to take steps to improve farm productivity substantially. This will raise farmer’s income, effectively giving rise to higher aggregate demand. This will boost the sagging economy as well.

♤ Finally the Act is a form of investment in human capital. It will bring some security in people’s lives and make it easier for them to meet their basic needs, protect their health, educate their children, and take risks. This will make better, healthier and more productive work force, which will benefit the economy as a whole. In short, the Food Security Act is sound economics.