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Wednesday, 28 August 2013

Food Security Bill or will it actually be Full Suicide Bandobast?....................92713

Food Security Bill or will it actually be Full Suicide Bandobast?

So, what is this Food Security Bill (FSB) all about?

Salient features of FSB:

1. Upto 75% rural and 50% of urban population to be covered by this bill.
2. 5kg foodgrains per person to be distributed at the rate of Re 1/kg of millets, Rs 2/kg of wheat and Rs 3/kg of rice.
3. Oldest woman in the family will be considered as the ‘Head of Family’ and will be the one in charge of receiving the ration.
4. Maternity benefits to pregnant and lactating mothers. An allotment of Rs 6000 for pregnant women will be given in installments.
5. Children aged 6 months-14 years entitled to take home ration or hot cooked food.

India is home to about one-third of world’s poor, which is a shame for us considering that it’s been 66 years post independence. 70% of our children are malnourished. Roughly about 1 crore people die due to hunger and related diseases in India, every year. To address these shameful facts of our country, the UPA came up with the grand scheme of providing food to all these people. It all sounds very humble and a great cause and is a perfect vote bank strategy launched just before the elections. Let’s now look at some facts, which will make anyone wonder if indeed there was a need to bring in this new bill?

We already have food subsidies which puts the government’s current cost at 75,000 crores. Government estimates that the FSB will be at a cost of 1.25 lakh crores. These numbers are grossly under-estimated as they haven’t even take into consideration factors like administrative set up, scaling up of operations, enhancement of production, investments for storage, movement, processing and market infrastructure etc. Various economists are putting the costs at a much higher level, up to 11 lakh crores! Government claims that it will cost 1% of GDP, however it can rise up to as high as 3%. When you think of 1-3%, you may think ‘‘okay, that isn’t bad’’, but when you see the actual numbers, the expenditure that we will incur is shocking! Can we afford this expenditure?

Does the government even have that kind of back up to support such a huge expenditure, especially at a time, when the economy has taken such a set back? Our currency, the Indian Rupee has become a joke, with it’s falling faster than one would change their pair of clothes! In such a volatile economic situation, the government had to introduce this mammoth bill? A higher expenditure will mean a higher fiscal deficit. Fiscal deficit is defined as the difference between what a government earns and what it spends. We are already facing a huge fiscal deficit of 88 billion dollars, which simply means that we are facing a crunch of 88 billion dollars.

Our country exports a huge amount of grains, with the new bill introduced; the exports will further go down, again crunching the economy further. As a matter of fact, the government may need to import grains during bad years when the crops would have failed, to comply to the FSB.

So, now with the already deficient funds, how will the government buy the grains?

Simply by printing more money, which is the easiest step or by borrowing from IMF, which will lead to increased debts. This is will lead to inflation. Grains will be provided by the government but can anyone simply eat just grains? The current price of vegetables, especially something as basic as onion is a concern for worry. Do you expect the poor man to just eat grains, what about other needs? With the high prices, how will the poor man afford anything else? This will impact not just the ordinary middle class but also the poor class for who the bill has been launched.

All commodities prices will go up like clothes, basic household products, etc. People will try to cut down on all expenses as much as possible. This will further slowdown the economy. Don’t be surprised if the economy falls below 5% next year onwards. Further to add to the woes, as people will be spending more on basics like foods, there will be lower savings which will also have an impact on the current account deficit. If India does not save enough, it means it will have to borrow capital from abroad. And when these foreign borrowings need to be repaid, dollars will need to be bought. This will put pressure on the rupee and lead to its depreciation against the dollar.

We are heading towards an economic turmoil and a vicious cycle just to satisfy the ego of one woman!

Even if we discarded all the economic implications, will the food security bill really benefit the poor? Will it really reach the intended population? We all know how corruption is rampant in our country. Grains can be hoarded at throwaway prices and then sold by crooks in the market. You must understand that this scheme is not meant for you or me. It’s meant for the poor classes of people. We will still be buying food grains using our own money and with this bill being passed, expect the prices of grains to be higher in the market. All this will burden the middle class, be it lower or higher middle class. The rich will not get really affected as much, though they may crib about shelling out higher taxes. Interest rates will go up and so higher middle class will end up paying more on monthly EMIs.

What I feel is that, we need to start saving. Cut down on unnecessary luxuries and try to live in economical ways. Try to avoid dining outside unless needed. Don’t go for movies unless you really want to. Pool in cars or try to use public transport if possible. Don’t buy unnecessary junk food, which is costlier than natural foods. You can save in many ways, but just save as much as you can. Before starting a new business, think about the returns and plan well. This FSB is something to be majorly worried about! Let’s hope that the next government is a more able one, who can come with some reforms to reduce this burden on us.

P.S.: I am not an economist but I have taken time to understand as much as I could and tried to simplify what I have understood. All the points mentioned above are based on various articles that I have read on the net. One man I would like to give special credit is Mr. Vivek Kaul and you can find his entire article on the link:

http://www.firstpost.com/economy/food-bill-is-the-biggest-mistake-india-might-have-made-till-date-1062841.html


Food Security Bill or will it actually be Full Suicide Bandobast?

So, what is this Food Security Bill (FSB) all about?

Salient features of FSB:

1. Upto 75% rural and 50% of urban population to be covered by this bill.
2. 5kg foodgrains per person to be distributed at the rate of Re 1/kg of millets, Rs 2/kg of wheat and Rs 3/kg of rice. 
3. Oldest woman in the family will be considered as the ‘Head of Family’ and will be the one in charge of receiving the ration.
4. Maternity benefits to pregnant and lactating mothers. An allotment of Rs 6000 for pregnant women will be given in installments.
5. Children aged 6 months-14 years entitled to take home ration or hot cooked food. 

India is home to about one-third of world’s poor, which is a shame for us considering that it’s been 66 years post independence. 70% of our children are malnourished. Roughly about 1 crore people die due to hunger and related diseases in India, every year. To address these shameful facts of our country, the UPA came up with the grand scheme of providing food to all these people. It all sounds very humble and a great cause and is a perfect vote bank strategy launched just before the elections. Let’s now look at some facts, which will make anyone wonder if indeed there was a need to bring in this new bill?

We already have food subsidies which puts the government’s current cost at 75,000 crores. Government estimates that the FSB will be at a cost of 1.25 lakh crores. These numbers are grossly under-estimated as they haven’t even take into consideration factors like administrative set up, scaling up of operations, enhancement of production, investments for storage, movement, processing and market infrastructure etc. Various economists are putting the costs at a much higher level, up to 11 lakh crores! Government claims that it will cost 1% of GDP, however it can rise up to as high as 3%. When you think of 1-3%, you may think ‘‘okay, that isn’t bad’’, but when you see the actual numbers, the expenditure that we will incur is shocking! Can we afford this expenditure?

Does the government even have that kind of back up to support such a huge expenditure, especially at a time, when the economy has taken such a set back? Our currency, the Indian Rupee has become a joke, with it’s falling faster than one would change their pair of clothes! In such a volatile economic situation, the government had to introduce this mammoth bill? A higher expenditure will mean a higher fiscal deficit. Fiscal deficit is defined as the difference between what a government earns and what it spends. We are already facing a huge fiscal deficit of 88 billion dollars, which simply means that we are facing a crunch of 88 billion dollars. 

Our country exports a huge amount of grains, with the new bill introduced; the exports will further go down, again crunching the economy further. As a matter of fact, the government may need to import grains during bad years when the crops would have failed, to comply to the FSB. 

So, now with the already deficient funds, how will the government buy the grains?

Simply by printing more money, which is the easiest step or by borrowing from IMF, which will lead to increased debts. This is will lead to inflation. Grains will be provided by the government but can anyone simply eat just grains? The current price of vegetables, especially something as basic as onion is a concern for worry. Do you expect the poor man to just eat grains, what about other needs? With the high prices, how will the poor man afford anything else? This will impact not just the ordinary middle class but also the  poor class for who the bill has been launched. 

All commodities prices will go up like clothes, basic household products, etc. People will try to cut down on all expenses as much as possible. This will further slowdown the economy. Don’t be surprised if the economy falls below 5% next year onwards. Further to add to the woes, as people will be spending more on basics like foods, there will be lower savings which will also have an impact on the current account deficit.  If India does not save enough, it means it will have to borrow capital from abroad. And when these foreign borrowings need to be repaid, dollars will need to be bought. This will put pressure on the rupee and lead to its depreciation against the dollar. 

We are heading towards an economic turmoil and a vicious cycle just to satisfy the ego of one woman! 

Even if we discarded all the economic implications, will the food security bill really benefit the poor? Will it really reach the intended population? We all know how corruption is rampant in our country. Grains can be hoarded at throwaway prices and then sold by crooks in the market. You must understand that this scheme is not meant for you or me. It’s meant for the poor classes of people. We will still be buying food grains using our own money and with this bill being passed, expect the prices of grains to be higher in the market. All this will burden the middle class, be it lower or higher middle class. The rich will not get really affected as much, though they may crib about shelling out higher taxes. Interest rates will go up and so higher middle class will end up paying more on monthly EMIs. 

What I feel is that, we need to start saving. Cut down on unnecessary luxuries and try to live in economical ways. Try to avoid dining outside unless needed. Don’t go for movies unless you really want to. Pool in cars or try to use public transport if possible. Don’t buy unnecessary junk food, which is costlier than natural foods. You can save in many ways, but just save as much as you can. Before starting a new business, think about the returns and plan well. This FSB is something to be majorly worried about! Let’s hope that the next government is a more able one, who can come with some reforms to reduce this burden on us. 

P.S.: I am not an economist but I have taken time to understand as much as I could and tried to simplify what I have understood. All the points mentioned above are based on various articles that I have read on the net. One man I would like to give special credit is Mr. Vivek Kaul and you can find his entire article on the link:

http://www.firstpost.com/economy/food-bill-is-the-biggest-mistake-india-might-have-made-till-date-1062841.html

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