OM NAMAH SHIVAY

REPORT OF THE EXPERT COMMITTEE ON

NATIONAL FOOD SECURITY BILL
CONTEXT
1.
Smt Sonia Gandhi, the Chairperson of the National Advisory Council wrote
to the Prime Minister on October 27, 2010 forwarding the basic framework of the
proposed National Food Security Bill (NFSB). In another letter on November 16,
2010 to the PM, she suggested a close examination of the proposal of the Ministry
of Rural Development (MoRD) to replace the existing BPL survey with a socioeconomic census/ survey to be conducted by the Registrar General and Census
Commissioner of India. The Prime Minister set up an Expert Committee under the
chairmanship of Dr C.Rangarajan to examine the implications of the proposals of
the NAC and MoRD and make suitable recommendations. The members of the
Expert Committee include Member Secretary Planning Commission, Chief
Economic Advisor, and the Secretaries of Departments of Agriculture &
Cooperation, Expenditure and Food & Public Distribution. It has also been
suggested that views of other Secretaries and Registrar General of India and
Census Commissioner may be obtained if required. The Expert Committee has
been requested to submit its report within one month.

National Food Security Bill (proposed by NAC)

2.
Indias high economic growth rate in the past decade has not been fully
reflected in the health status of its people, with 22 per cent of its population
undernourished1. According to the National Family Health Survey 2005-06, 40.4
per cent of children under the age of three are underweight, 33 per cent of women
in the age group of 15-49 have a body mass index below normal and 78.9 per cent
of children in the age group of 6-35 months are anaemic. These are disturbing
statistics which point to nutritional deficiencies. The NAC proposal for a National
Food Security Bill is perhaps the most important national effort yet to address these
deficiencies in India.
3.
It is at times assumed that the relationship between economic growth and
health is unidirectional with improving economic conditions leading to better health.
In reality, and as confirmed by recent research, the reverse is equally true and
health is an 'economic engine.' That is, better health which is an important end in
itself leads to and may, in certain cases, be a necessary prerequisite for economic
development. Hence besides being an end in itself, the economic role of health and
nutrition thus provides an additional and compelling rationale for public policy to
support well targeted nutrition improving interventions in ways directly analogous to
the support given for increasing other forms of capital investments.
1

According to Global Hunger Index - IFPRI

4.
The NFSB proposed by the NAC is a potentially revolutionary bill that can
have a huge impact on the economy. Well crafted and effectively executed, it can
transform the lives of people. The salient features of the NFSB proposed by the
NAC are:
Legal entitlement to subsidized foodgrains to be extended to at least 75% of the
countrys population - 90% in Rural areas and 50% in urban areas
The priority households (46% in rural areas and 28% in urban areas) to have a
monthly entitlement of 35 Kgs (equivalent to 7 Kgs per person) at a subsidized
price of Rs. 1 per Kg for millets, Rs. 2 per Kg for wheat and Rs. 3 per Kg for rice
The general households (39% rural and 12% urban in phase 1 and 44% rural and
22% urban in final phase) to have a monthly entitlement of 20Kgs (equivalent to 4
Kgs per person) at a price not exceeding 50% of the current Minimum Support
Price for millets, wheat and rice
The minimum coverage, entitlement and price to remain unchanged until the end
of the XII five year plan
Government of India to specify the criteria for categorization of population into
priority and general households
In the first phase, food entitlement to be extended to 72 per cent of the
population. In the final phase, to be completed before March 31, 2014, full
coverage of food entitlement (to 75 per cent of the population) to be ensured
Legal entitlements for child and maternal nutrition, destitute and other vulnerable
groups
Reform of the Public Distribution System

IDENTIFYING THE MAJOR ISSUES

5.
The NFSB suggests near universal coverage of the population. The
underlying logic of this, as understood by the EC, is the argument that typically
the identification of beneficiaries in such an exercise is fraught with danger of
severe under inclusion. Hence to ensure that the genuinely needy are not left out,
universalization is the only way. The richer households will normally opt out of
such schemes and hence with tight monitoring of offtake of grains, over time it
would be possible to minimize leakage of foodgrains. The Expert Committee
understands the logic of this view but is also conscious of the fact that this implies
a massive procurement of food grains and a very large distribution network
entailing a substantial step up in subsidy. Since the coverage proposed by the
NAC is also not 100% and there are differential categories of entitlement, the
need for proper identification of beneficiaries still exists. The approach of the
Expert Committee in examining these recommendations has been to secure the
wholly laudable underlying objectives in a way that is sustainable and
administratively feasible. With this end in view the Expert Committee has
identified the following major operational issues which need to be resolved to
realize the goals of the proposed NFSB:

 Given the current trends of foodgrain production and government procurement,

and the likely improvements in these over time, will there be adequate availability
of grain with the public authorities to implement the full entitlements for the
priority and general category as proposed in the NFSB?
What will be the impact of such large government foodgrain procurement on the
open market prices? This is relevant since both the priority and general category
will be purchasing a part of their consumption needs from the open market.
What are the subsidy implications for both the phases and can these levels be
sustained in the future?
Arriving at a clear definition of priority and general households and the
methodology of identification of these households especially the feasibility of
involving the Registrar General of India and Census Commissioner in this task.
Given the inefficiencies and leakages in the current distribution system, identify
the principal areas of reform of the PDS and the alternative mechanisms of
reaching the foodgrain/subsidy to the entitled households.
FOODGRAIN REQUIREMENT Vs CURRENT PRODUCTION & PROCUREMENT
Estimates of Foodgrains Required for Implementing the NFSB
6.
NAC has estimated the entitled foodgrain requirement (PDS) for phase 1
at 49.36 million tonnes and for the final phase at 55.59 million tonnes. These
estimates are based on the assumption of 85 per cent offtake of foodgrain during
Phase 1 and 90 per cent offtake of foodgrain during the Final Phase. It is
understood that NAC has used the population projections of the National
Commission on Population for October 2010 for estimating the grain requirement
for both the phases.
7.
On examination, it appears that the foodgrain requirement projected by
the NAC need to be revised, as population projections for October 2010 have
been used by the NAC for both the phases. To obtain more realistic foodgrain
requirement, EC has used the population projections pertaining to the year for
which the phases are to be implemented. In other words for phase 1, population
projections for October 2011 have been used and for the final phase, projections
for October 2013 have been used2. Moreover the offtake percentages used by
NAC would also need to be revised upwards. The current three-year average
AAY and BPL household3 offtake for wheat and rice is around 95 per cent while
the offtake for APL households4 is around 85 per cent as per the Department of
Food and Public Distribution. Using these two assumptions we have worked out a
scenario (scenario 2) where the entitled foodgrain requirement (PDS) for phase 1
works out to 54.04 million tonnes and for the final phase to 58.58 million tones
2

October population projections have been used as these can be used as a proxy for the average of the relevant
financial year.
3
These can approximate for the Priority household
4
These can approximate the general households

(Table 1). It is important to note that the current issue price for BPL and APL
household is higher than the foodgrain price proposed in the NFSB for priority
and general households respectively and in all likelihood at these prices the
offtake is likely to be 100 per cent5. Based on this we have worked out a Scenario
3 according to which the foodgrain requirement for the two phases works out to
58.76 million tonnes and 63.98 million tonnes. In all the three scenarios to obtain
the total foodgrain requirement, we must add another 8 million tonnes required
for the other welfare programmes of the government like Mid Day Meal Scheme,
ICDS, Social Welfare Hostels and Natural Calamities. Moreover there is a need
for maintaining a buffer stock which is an important tool for food security
especially in times of droughts, natural and other calamities. According to some
estimates a food security reserve of about six million tonnes is required.
However, after the procurement in the initial year, the stocks will be recycled
every year if there is no drawdown. To convert this stock number into a flow we
are assuming a two million tonne buffer stock requirement every year. Detailed
calculations of these scenarios summarized in the table below are at Annexure
1(a) and 1(b).
Table 1- Foodgrain Requirement for Implementing the proposed NFSB
NAC Projections*
Scenario 1

Priority
Households
General
Households
Sub Total
Other Welfare
Schemes
Buffer Stock
Total
Foodgrain

Phase 1
34.40

Final Phase
36.42

14.96

19.17

49.36
8.00

Scenario 2*
Offtake priority95% ; general-85%
Phase 1
Final Phase

Phase 1

Final Phase

38.91

39.83

40.96

41.93

15.13

18.75

17.80

22.05

55.59

54.04

58.58

58.76

63.98

8.00

8.00

8.00

8.00

8.00

2.00

2.00

2.00

2.00

64.04

68.58

68.76

73.98

57.36

Million tonnes
Scenario 3*
Offtake-100%

63.59

*Population - Scenario 1 October 2010; Scenario 2 &3 Phase 1-October 2011; Phase 2- October 2013

Foodgrain Production and Procurement Trends and Projections

8.
Indian agriculture is still highly dependent on rainfall and drought years
cause production declines which can take a couple of years to be made up. A
case in point is the drought year 2002-03 where the production of wheat and rice
5

In the currently operational AAY scheme where grain allocations are made at the NAC proposed prices the
offtake is close to 100 per cent.

fell by 28.53 million tonnes over the previous year. It took 3 years to make up and
it was only in 2006-07 that the production at 169.17 million tonnes exceeded the
2001-02 level (Table 2). Similarly 2009-10 witnessed a production decline of 10
million tonnes (in rice) which was however expected to be made up this year but
the current monsoon position has introduced some uncertainty. The implication of
this for future projections is that to estimate the total available foodgrain (wheat
and rice) for the first and final phase of the NFSB it is best to be somewhat
conservative and use the long term trend growth rates. According to the
projections made by Department of Agriculture, the total projected foodgrain
production (wheat and rice) is expected to be 187.82 million tonnes for 2011-12
and 192.02 million tonnes for 2013-14.
9.
There was a sharp increase in the procurement of wheat and rice in the
year 2007-08 both in terms of absolute quantity and as a percentage of the total
production (Table 2). The procurement peaked at 59.07 million tonnes for the
production year 2008-09 reaching almost 33 per cent of the production in that
year. In the subsequent year, the absolute procurement fell sharply, decreasing
to 54 million tonnes, but the fall in the relative procurement was muted because
production had also fallen sharply. In the period 2000-01 to 2009-10 the average
procurement as a percentage of production was at 26.6 per cent. However, for
projections this may be too conservative in the light of higher procurements in the
last few years. Accordingly, we have assumed that it will be possible to procure
30 per cent of the total production which translates to 56.35 million tonnes in
2011-12 and 57.61 million tonnes in 2013-14. In view of the cycles in agricultural
procurement, it may be imprudent to assume an average procurement level of
more than 30 per cent. It has been estimated by the Department of Agriculture
that the marketable surplus of wheat and rice in 2010-11 was about 106.5 million
tonnes. The expected procurement of 53.22 million tonnes in 2010-11 works out
to about 50 per cent of the marketable surplus. A larger procurement has the
danger of distorting the food prices in the open markets. This is an important
consideration, since the proposed entitlement of 7kgs per capita per month for
the priority category, does not cover their total consumption requirement,
necessitating the purchase of the balance foodgrain from the open market.
Higher government procurement will lead to a lower availability of foodgrain for
the open market, pushing up prices. According to the NSSO consumption
expenditure survey 2004-05 the average monthly per capita rural consumption of
wheat and rice for the lowest MPCE classes constituting 49.9% of the rural
population was 10.11 kg while the urban consumption for the lowest MPCE
classes constituting 30.2% of the urban population was 9.35 kg6. This implies that
even the priority households which constitute the most vulnerable section of the
population will have to procure 25 to 30 per cent of their consumption
6

For the lowest MPCE classes constituting 30.2% of the urban population which covers the priority households

requirement from the open market. The actual requirement is likely to be higher
since people consume wheat and rice in processed forms like bread, biscuits,
sooji, maida etc which are not reflected in the consumption estimates worked out
here. In other words the market prices are extremely relevant for the household
budgets of both the entitled and other households.
Table 2 - Production and Procurement of Wheat and Rice
Million tonnes
Procurement

Production
Wheat

Rice

Total

Wheat + Rice

As ratio of
production (%)

2000-01

69.68

84.98

154.66

41.91

27.10

2001-02

72.77

93.34

166.11

41.18

24.79

2002-03

65.76

71.82

137.58

32.22

23.42

2003-04

72.16

88.53

160.69

39.62

24.66

2004-05

68.64

83.13

151.77

39.47

26.01

2005-06

69.35

91.79

161.14

36.88

22.89

2006-07

75.81

93.36

169.17

36.24

21.42

2007-08

78.57

96.69

175.26

51.43

29.34

2008-09

80.68

99.18

179.86

59.07

32.84

2009-10

80.71

89.13

169.84

53.98

31.78

2010-11

82.00

95.41

177.41*

53.22**

30.00

2011-12
83.61
104.21
187.82*
56.35**
(Phase 1)
2013-14
85.61
106.41
192.02*
57.61**
(Final Phase )
* Projections as per Department of Agriculture & Cooperation, Govt. of India
**Assuming an optimum procurement of 30 per cent of total production

30.00
30.00

SUBSIDY IMPLICATIONS
10.
In addition to the physical foodgrain requirement, the proposed NFSB
has large subsidy implications. The total subsidy outgo is expected to be higher
than the projections by NAC on account of a number of factors. Firstly, according
to the NAC projections the total subsidy will work out to Rs 71,837 crores in the
first phase and Rs 79,931 crores in the final phase (Table 3). However this figure
needs to be revised upwards if we change the population figures to October 2011
and 2013 projections for the two phases and assume 100 per cent offtake. The
subsidy then increases to Rs 85,584 crores and Rs 92,060 crores respectively
(Scenario 3 of Table 3). Secondly, with the current procurement and storage
capacity of a little above 42.5 million tonnes, providing 68.76 million tonnes of
foodgrain in the first phase and 73.98 million tonnes in the final phase (Table 1)
implies significant scaling up of the procurement, warehousing and supply chain

operations. This involves large financial outgo which has not been quantified as
yet. Thirdly, since the promised entitlements are legally enforceable we will need
to either scale up the procurement by large increases in the MSP or imports. Both
these options imply a large fiscal burden which are difficult to quantify. Fourthly,
this does not include the subsidy on supplying grain to the non entitled
households at MSP based prices which are lower than the economic cost of
procurement, storage and carrying this grain. Moreover there are other
components like the cost of carrying the buffer stock and the increase in the
economic cost over time, all of which will inflate the subsidy outgo.
Table3- Subsidy Implications of Alternative Scenarios
NAC Projections*
Scenario 1
Phase 1

Final Phase

Scenario 2*
Offtake priority-95%
; general-85%
Phase 1
Final Phase

Rs Crores
Scenario 3*
Offtake-100%
Phase 1

Final Phase

Priority
54,449
57,652
61,636
63,093
64,880
66,414
Households
General
17,388
22,279
17,598
21,799
20,704
25,646
Households
71,837
79,931
79,234
84,892
85,584
92,060
Total
Subsidy
Requirement
Current
56,700
56,700
56,700
56,700
56,700
56,700
Subsidy**
Additional
15,137
23,231
22,534
28,192
28,884
35,360
Subsidy
*Population - Scenario 1 October 2010; Scenario 2 &3 Phase 1-October 2011; Phase 2- October
2013
**Source : NAC
NAC has assumed a foodgrain mix of 60% rice and 40% wheat to make the subsidy calculations. To
ensure comparability we have used the same proportions for calculation of subsidy in scenario 2 and
3. According to DFPD the actual ratios are 66% rice and 34% wheat. Even if these ratios are used
there is a modest increase in the subsidy figure.

PUBLIC DISTRIBUTION SYSTEM

11.
The Public Distribution System (PDS) with its network of about half a
million Fair Price Shops (FPS) is the most obvious choice for the distribution of
the entitled foodgrain under the proposed NFSB. However in its current form it is
plagued by a number of deficiencies like poor identification and targeting of
beneficiaries, massive leakage of grain especially from APL allocations, low
margins of FPS creating perverse incentives for diversion of PDS foodgrains and
general lack of accountability. There are several studies which have pointed out
that a significant amount of the foodgrain under the TPDS misses the targeted
poor. Since the basic objective of the NFSB, is to eliminate hunger and
malnutrition, the distribution system must be able to efficiently and effectively
deliver to the correctly identified beneficiary. This implies major systemic reforms
in the public distribution system.

12.
In 2006, in response to a PIL on the PDS the Supreme Court had
appointed a Central Vigilance Committee, headed by Justice D.P. Wadhwa who
has given a number of reports on the reform of the distribution system. Moreover
in July 2010, in a conference the state food secretaries passed a resolution on
the best practices and reform of the PDS. Some of the suggestions that are
common to both are:
Precise identification of beneficiaries
Timely delivery of foodgrains to FPS. States to strive to make doorstep
delivery to FPS
Rapid roll out of IT in PDS on priority. End to end computerization of the TPDS
network, digitized allocation of foodgrains starting from the FCI/State
government, smart card based delivery of foodgrains, issue of ration cards with
biometric identification and iris technology
Creation of additional storage capacity both at central and state level. States to
create decentralized storage facilities at block/village/ panchayat levels by
construction of Fair Price Shop-cum-godowns using funds available under
various schemes
Better monitoring of distribution of foodgrains by using technology (GPS
tracking, SMS alerts to beneficiaries, CCTV monitoring of FPS and creation of
public awareness through campaigns in the media) and social audit by local
bodies / community groups / NGOs
Better governance - administrative action, recovery of financial losses and
fixing criminal liability
13.
In the case of FPS, Justice Wadhwa suggests that the state civil supplies
organizations should takeover the FPS network to deal with the large scale
corruption. However the state food secretaries suggest allotment of FPS to
community based organizations like co-operatives/SHGs and measures to
improve the viability of the FPS by rationalizing commissions, extending credit
and encouraging sale of non PDS items. Justice Wadhwa has also suggested
that the maximum diversion occurs in the APL category, hence it should be
abolished. If this is not possible, he has suggested creation of another category
marginally above poverty line.
14.
Others have suggested alternatives to the PDS like food stamps, food
coupons and generic smart cards which can be used both in the FPS and open
market. However barring some limited experiments at the state level with food
coupons and smart cards tied to a designated FPS, no major scalable alternative
to the PDS is currently available.

IDENTIFICATION OF BENEFICIARIES
15.
Smt Sonia Gandhi in her letter to PM has pointed out that the
deficiencies in the BPL surveys conducted in the past have led to significant
inclusion and exclusion errors. With sizeable government resources being
targeted at BPL and with NFSB on the anvil it is crucial that the BPL lists and
cards be prepared correctly and the methodology adopted inspire confidence in
the stakeholders. She has supported the contention of the MoRD that unlike in
the past when states conducted the surveys to identify the beneficiaries, this time
the socio economic survey which will form the basis of this identification may be
conducted by the RGI and Census Commissioner. According to MoRD the
benefits of doing this are that (a) RGI has the requisite expertise to conduct these
surveys and is an uninterested party unlike the state governments which are
much more likely to be subject to pressure groups; (b) The socio-economic
census can be clubbed with the caste census which is being undertaken by the
RGI in June 2011. This will save a lot of resources and reduce the stress on the
field machinery.
16.
The Home Minister however holds a contrary view and wrote to the
Prime Minister stating that conducting the socio economic census and the 6th
Economic Census along with the caste census has a number of disadvantages
namely (a) cause delay in the caste census which has a simple questionnaire as
opposed to the elaborate and complicated questionnaires for the other two
surveys; (b) caste enumeration is individual based while the other two are
individual, household and enterprise based;(c) caste enumerator will only visit
household while for the economic census he will also have to visit non residential
buildings also;(d) BPL census will attract interest groups which may impact the
integrity of the census and caste enumeration. In view of this the Home Minister
has suggested that caste enumeration may be done as a stand alone exercise
and RGI may extend co operation to organizations that will conduct the BPL and
Economic Census.
RECOMMENDATIONS OF THE EXPERT COMMITTEE
17.
As noted at the outset the Expert Committee is fully in agreement with
the idea that 60 years after independence the Indian State should be in a position
to ensure that the country is rid of hunger and malnutrition caused by poverty. To
that extent provision of minimum food entitlements at affordable prices to the
vulnerable is a goal that few can quarrel with. However while operationalizing this
idea, the consequences of conferring legal entitlements and failing to meet them
have to be fully weighed in. Given the various constraints on stepping up
production and procurement of food grains as well as its country wide distribution
with minimal leakage - all of which are fixed in the short term - the implementation
of the entire set of NAC recommendations may have to be calibrated, to prevent
the state from being accused of reneging on such an important right. The
9

recommendations of the Expert Committee have to be seen in this spirit. The

implementation of the proposed NFSB would require resolution of a number of
issues that have been noted earlier. The Expert Committee recommendations on
the four primary issues i.e. foodgrain entitlement, subsidy, PDS reform and the
agency for identification of beneficiaries are discussed in the following sections.
Foodgrain Entitlement and Subsidy Implications
18.
As estimated by the Expert Committee the total foodgrain requirement to
roll out the NAC recommendations covering 72 per cent of the population in the
first phase and 75 per cent in the final phase is 68.76 million tonnes and 73.98
million tonnes respectively (Scenario 3:Table 1). Based on past performance and
on best effort basis, we can assume that the government will be able to procure
about 30 per cent of the total production in any year. As discussed earlier a larger
procurement has the danger of distorting prices in the open market which are
likely to hit the vulnerable sections who purchase almost 25-30 per cent of their
consumption requirement from the open market. If we look at the production and
procurement data the likely procurement on this basis works out to 56.35 million
tonnes for the first phase and 57.61 million tonnes for the final phase (Table 2).
This implies a shortage of about 12 million tonnes for the first phase and 16
million tonnes for the final phase for the NAC suggested population coverage.
Imports are clearly not an option since Indias entry into the international market
as a large buyer exerts significant upward pressure on prices. If we were to use
imports as a permanent strategy, the market expectations regarding Indias huge
demand will lead to international prices ratcheting upwards, rendering this a high
cost option which will be unsustainable in the long run due to the heavy fiscal
burden. Clearly, we will have to depend on domestic production and productivity
increase to deliver the entitlements under the NFSB.
19.
Since the NFSB creates a statutory entitlement for the included
population and its obverse namely a legal obligation for the government, it is
important to mandate enforceable entitlements keeping in mind the availability of
grain. The government must be capable of delivering on its promise even in the
situation of two successive drought years. To pragmatically move this idea
forward, there are two options available. Option 1 is to accept the NAC
recommendations of 7kg per capita entitlement to the priority households and
restrict the per capita grain entitlement to 2kgs for the general households. This
implies a foodgrain requirement of 59.86 million tonnes in the first phase and
62.95 million tonnes in the final phase (Annexure 2). This option is difficult to
implement in the first phase and even harder to implement in the final phase
since the projected foodgrain availability will be short by 3.5 million tonnes and
5.3 million tonnes respectively. Moreover this monthly entitlement of 10 kgs for
the general households may be considered less than adequate especially for
poor households at the margin. Covering the general households under a

10

mandated regime will be feasible only if the entitlement of the priority is less than
7kg per person.
20.
Option 2 favoured by the EC is to restrict the assured delivery of
foodgrains at Rs 2 per Kg for wheat and Rs 3 per kg for rice, to the really needy
households and cover the rest through an executive order with a varying
quantum depending on the availability of foodgrains. Strictly speaking, the really
needy households can be defined as those falling below the Tendulkar poverty
line according to which 41.8 per cent of the rural and 25.7 percent of the urban
population are poor. However, since in option 2 the assured entitlement is only
confined to the really needy households the Expert Committee feels that the
coverage must go beyond the BPL numbers to include families at the margin
which tend to be vulnerable. The Expert Committee accordingly recommends
that the entitled population may be defined as the percentage of population
below the official poverty line + 10 per cent of the BPL population. Using
the Tendulkar poverty line, this works out to 46 per cent rural and 28 per
cent urban population. These percentages are the same as those
recommended by the NAC for categorization as the priority households.
This captures not only the poor but also some at the margin, which is
desirable given the objectives of the NFSB. Thus the entitled category for food
security may be anchored to the officially defined poverty line. The statewise
percentages of the entitled population are in Table 4 below. The total foodgrain
requirement for the entitled population, buffer stocks and other welfare
programmes will be 50.96 million tonnes in the year 2011 and 51.93 million
tonnes in the year 2014 (Table 5). As regards the entitled category as stated
earlier, in the first phase the foodgrain may be supplied at Rs 3 per kg for rice
and Rs 2 per kg for wheat. These prices may be set in 2011 when the NFSB is
implemented and thereafter these prices should be inflation adjusted. The Expert
Committee feels that these can be indexed to the Consumer Price Index. Since
there are currently three indices being generated we could use an average of the
indices to adjust the issue price of the foodgrain suitably. In this option, in 2011,
after meeting the entitlement of the entitled category, other welfare
schemes which must also be treated as mandatory and buffer stock, there
will be around 5.4 million tonnes of foodgrain which can be used for
distribution to the remaining population at an issue price equal to MSP
(Table 5). In 2013-2014, according to the current projections on production
and procurement we will have 5.68 million tonnes of grain that can be
distributed to the non entitled population at an issue price equal to the MSP
(Table 5). As production and procurement improve, the coverage can be
increased through executive orders. Moreover the actions of the government
through the OMSS (Open Market Sale Scheme), when undertaken, help to keep
the market prices of foodgrains under check, which benefit the non-entitled
category. The aim should be to ensure that the market in general functions better.

11

Table 4 - State wise cut off for the entitled population Under NFSB
State/UTs

(1)

Rural
As per Tendulkar
Report

Cut Off*

Urban
As per Tendulkar
Report

Cut Off*

(2)

(3)

(4)

(5)

Andhra Pr.

32.3

35.5

23.4

25.7

Arunachal Pr.
Assam

33.6
36.4

37.0
40.0

23.5
21.8

25.9
24.0

Bihar

55.7

61.3

43.7

48.1

Chattisgarh

55.1

60.6

28.4

31.2

Delhi
Goa

15.6
28.1

17.2
30.9

12.9
22.2

14.2
24.4

Gujarat

39.1

43.0

20.1

22.1

Haryana
Himachal Pr.

24.8
25.0

27.3
27.5

22.4
4.6

24.6
5.1

J&K

14.1

15.5

10.4

11.4

Jharkhand

51.6

56.8

23.8

26.2

Karnataka
Kerala

37.5
20.2

41.3
22.2

25.9
18.4

28.5
20.2

Madhya Pr.

53.6

59.0

35.1

38.6

Maharashtra

47.9

52.7

25.6

28.2

Manipur
Meghalaya

39.3
14.0

43.2
15.4

34.5
24.7

38.0
27.2

Mizoram

23.0

25.3

7.9

8.7

Nagaland
Orissa

10.0
60.8

11.0
66.9

4.3
37.6

4.7
41.4

Punjab

22.1

24.3

18.7

20.6

Rajasthan

35.8

39.4

29.7

32.7

Sikkim
Tamil Nadu

31.8
37.5

35.0
41.3

25.9
19.7

28.5
21.7

Tripura

44.5

49.0

22.5

24.8

Uttar Pradesh

42.7

47.0

34.1

37.5

Uttaranchal
West Bengal

35.1
38.2

38.6
42.0

26.2
24.4

28.8
26.8

Pondicherry

22.9

25.2

9.9

10.9

All India

41.8

46.0

25.7

28.3

12

Table 5 Foodgrain Entitlement for Wider Coverage of

Entitled Category (Option 2)

Foodgrain Requirement
(Million Tonnes)

Phase 1

Final Phase

Rural (46%)

32.44

33.06

Urban (28%)

8.52

8.87

All India (41%)

40.96

41.93

Other Welfare Schemes

8.0

8.0

Buffer Stock

2.0

2.0

Total Foodgrain

50.96

51.93

Assumptions
1. Population as on Oct 2011 for Phase 1 and as on Oct 2013 for final Phase
2. Entitlement of 7kg per person per month
3. 100% Offtake of food grains

Subsidy Outgo
21.
In the case of Option 2 recommended by the Expert Committee, the
subsidy outgo works out to Rs68,539 crores in the first phase. This subsidy
calculation is only for the foodgrain for the entitled population but to obtain the
total subsidy outgo, we must add other components. According to the
calculations by Department of Food and Public Distribution, if we add to the
above the subsidy required for the other welfare schemes and maintenance of
buffer stock then the total subsidy for phase 1 is around Rs83,000 crores.
Foodgrain Production and Procurement
22.
It has been brought to our notice by Secretary Agriculture that the per
capita availability of foodgrains shows a declining trend. In the year 2000 the per
capita availability of rice was 203.7 gms per day while that of wheat was 160 gms
per day. The availability had declined by 2009 to 188.4 gms and 154.7 gms
respectively. This is a matter of grave concern as assuring food security with
falling (per capita) production will, in the long run, translate to the government
reneging on its statutory obligation for the entitled population and a worsening of
13

nutritional deprivation for the rest of the population. Both of these outcomes are
unacceptable. Department of Agriculture and Cooperation has suggested a
number of measures to increase foodgrain production which need to be
immediately implemented in mission mode. Since land is limited, production
increase in foodgrains will have to come from investment in productivity
enhancing technologies in irrigation, power, fertilizers, seeds and post harvest
technology to reduce losses. Moreover to encourage investments by farmers in
better inputs, interventions for better credit availability and risk coverage through
customized insurance products is important. The other intervention to ensure
foodgrain availability is to create a stable procurement regime. The average
procurement in the period 2000-01 to 2006-07 was 24 per cent of production and
it is only in the last three years that it has increased beyond 30 per cent.
Procurement has to be maintained around this level to ensure grain availability to
the entitled population. One method of doing this is to increase the MSP which
will ensure higher procurement but the limitation here is the potential inflationary
impact on food prices. In this context decentralized procurement and focus on
states which have not hitherto contributed significantly to procurement may be
explored.
PDS Reform and Alternative Distribution Mechanism
23.
Comprehensive recommendations on the reform of the PDS are
available with the government. A large number of states have undertaken large
scale reforms and one excellent example is Chattisgarh which is in the process of
turning around the PDS system with the help of improved practices, governance
and technology. The Expert Committee feels that it will add better value if it just
drew the attention of the government to two interventions which can make the
maximum impact namely comprehensive computerization of the PDS and
introduction of smart cards for the beneficiaries. At present there are a number of
initiatives for computerizing the PDS operations which range from use of smart
cards for beneficiaries in an experimental way in Haryana and Chandigarh, use of
Global Positioning System in Tamil Nadu, Chattisgarh and Delhi, bar coded bags
in Gujarat and SMS alerts on grain availability in UP and MP. However each of
these initiatives target a part of the system and are not comprehensive and
replicable at the all India level. The Central Government has initiated a
computerization project, which envisages tracking of food grain bags using
barcode from FCI godown upto the Fair Price Shop in stage 1 and beneficiary
related transactions in stage 2. It is important to fast track the implementation of
this project and involve the state governments in executing this project
expeditiously. The comprehensive computerization of the PDS network starting
from the allocation of the grain to the final delivery to the targeted beneficiary will
go a long way in plugging diversion of grain, bogus ration cards and delivery of
poor quality of foodgrains to beneficiaries.

14

24.
As an alternative to the existing PDS we may switch over to the use of
smart cards which simply means that the food subsidy may be directly transferred
to the beneficiaries instead of to the owners of PDS stores. This in turn gives the
people an opportunity to go to any store of their choice and use their smart cards
or food coupons to buy food. In fact with the biometric identification system,
people will have the freedom to migrate to any part of the country without the fear
of losing their food rations. Since under this system the poor will be paying the
stores the same price for food grains as the others the shopkeeper, including
PDS stores, will have no incentive in selling adulterated grain to the poor. This
will finally lead to a system where there are no leakages and distortions of food
grains and will create incentives for PDS stores to be more efficient.
25.
In terms of the fiscal burden, the smart cards will not impose an
additional burden and the subsidy may in fact reduce. Let us take the case of rice
which is proposed to be supplied at Rs 3 per kg. Since the average market price
is currently around Rs 20 per kg, a subsidy of Rs 17 will need to be provided.
Currently the Economic Cost of procurement also works out to Rs 20.43 per kg,
which implies a subsidy of Rs17.43 per kg. In other words, the subsidy under the
current system and the subsidy given under the smart card system will be
virtually the same. However given that under the smart card system there will be
virtually no leakage, while under the present system there is a large leakage, the
subsidy under smart card is likely to reduce. Moreover, under the smart card
based system, since a lot of subsidized grain will go through the normal market
channels it will also reduce the burden on the government procurement and PDS
network. Inflation may in time erode the real value of this subsidy which can be
tackled by annual (or six monthly) revisions of the subsidy amount.
26.
The introduction of the smart card system described above can be in two
stages. In the first stage, keeping the current method of foodgrain allocation to
the FPS unchanged we can introduce smart cards for the beneficiaries only.
These biometric cards may simply contain details of the beneficiary and his
entitlement. Only when the beneficiary swipes the card at the FPS, will it be
deemed that the targeted grain has been delivered. Allocations to the FPS will
depend on the electronic proof of delivery of the grain to the targeted beneficiary.
This will prevent large scale leakages of foodgrains which happens under the
present system of manual record keeping at the FPSs. These cards can initially
be linked to a FPS which has been mandated to service the beneficiary and as
the system stabilizes the beneficiary may be permitted to use the smart card at
any FPS that is convenient to him. The advantage of this will be introduction of
some competition amongst the Fair Price Shops and making it easy for migrant
poor to access the entitled foodgrains irrespective of their location. Depending on
the success of the first stage the scheme can be extended to non PDS retail
shops in the second stage. A pilot of the stage 2 can be introduced even now in a
few metropolitan areas which is likely to have a large network of retail shops. The
15

UID project which would make the unique identification of each beneficiary
possible is currently underway. It is extremely important to explore the synergies
between these two programmes which will go a long way in streamlining the food
delivery mechanism.
Identification of Beneficiaries
27.
In view of the forthcoming food security legislation, it is critical that the
beneficiaries are reasonably accurately identified in the shortest time-frame
possible. Since this is a national legislation, there is also need for some broad
uniformity of approach for the identification of the beneficiaries for this purpose.
Given that state governments are closest to the field situation and are aware of
the various local nuances and realities, they are best placed to carry out the
actual identification. In the very nature of things, it will be difficult to evolve
uniform national criteria which can be applied to all states and districts. Using the
pilot exercises that the Ministry of Rural Development is at present undertaking, it
will be possible to come up with the broad guidelines and indicative criteria which
can then be communicated as guidelines to the states. Thereafter, it will be best
to entrust this socio economic survey work for the identification of the
beneficiaries under the NFSB to the state governments. However to ensure that
the number of people identified in the entitled category (for the purpose of the
foodgrain entitlements under the NFSB) is within the ceiling of BPL + 10% of
BPL, the central government must indicate the cutoff numbers of the rural and
urban population percentage (Table 4) to the states. This will ensure that the
number of persons identified by the states as entitled do not exceed the statewise
prescription and are totally within the overall all India coverage figure of 46 per
cent rural and 28 per cent urban population. In other words the central
government will indicate the percentage of the entitled population, while the
actual identification of the beneficiaries will be the responsibility of the states.

16

ANNEXURE 1 (a)
Three Alternative Scenarios of Proposed NFSB
Phase 1

Population Coverage

Priority (46%)
General (39%)
Total (85%)
Priority (28%)
General (12%)
Total (40%)
Priority (85%)
General (40%)
Total (72%)*

As per NAC
As per current offtake status
Recommendations
Scenario 1
Scenario 2
Offtake (85% & 85%)
Offtake (95% & 85%)
Food Grain
Food Grain
Total Subsidy
Total Subsidy
requirement.
requirement.
Requirement.
Requirement.
( Million
( Million
(Rs Crores )
(Rs Crores)
Tonnes)
Tonnes)
Rural
27.30
43216
30.82
48812
13.22
15369
13.36
15535
40.52
58585
44.17
64347
Urban
7.10
11233
8.10
12824
1.74
2019
1.77
2063
8.84
13252
9.87
14887
All India
34.40
54449
38.91
61636
14.96
17388
15.13
17598
79234
49.36
71837
54.04

As per 100% offtake

Scenario 3
Offtake(100% & 100%)
Food Grain
Total Subsidy
requirement.
Requirement.
( Million
( Rs Crores )
Tonnes)
32.44
15.72
48.15

51381
18277
69658

8.52
2.09
10.61

13499
2427
15926

40.96
17.80
58.76

64880
20704
85584

* According to October 2010 population used by NAC the total entitled population works out to 71.53% but in scenario 2 and 3 which use )ctober
2011 population the total entitled population works out to 71.43%
Assumptions
1. Population as on Oct 2010 for Scenario 1 and October 2011 for Scenario 2 and 3
2. Issue price for priority is Rs 2/Kg for wheat and Rs 3/Kg for rice and for general is 50% of MSP (Rs. 7.69 for rice and Rs. 5.5 for wheat)
3. Entitlement for priority is 7kg per person per month and for general is 4kg per person per month
17

ANNEXURE 1 (b)
Three Alternative Scenarios of Proposed NFSB
Final Phase

Population Coverage

Priority (46%)
General (44%)
Total (90%)
Priority (28%)
General (22%)
Total (50%)
Priority (90%)
General (50%)
Total (78%)

As per NAC
As per current offtake status
Recommendations
Scenario 1
Scenario 2
Offtake (90% & 90%)
Offtake ( 95% & 85%)
Food Grain
Food Grain
Total Subsidy
Total Subsidy
requirement.
requirement.
Requirement.
Requirement.
( Million
( Million
(Rs Crores)
(Rs Crores)
Tonnes)
Tonnes)
Rural
28.91
45758
31.40
49742
15.80
18359
15.36
17861
44.71
64117
46.76
67603
Urban
7.51
11894
8.43
13351
3.37
3920
3.39
3938
10.88
15814
11.82
17289
All India
36.42
57652
39.83
63093
19.17
22279
18.74
21799
55.59
79931
58.58
84892

As per 100% offtake

Scenario 3
Offtake(100% & 100%)
Food Grain
Total Subsidy
requirement.
Requirement.
( Million
( Rs Crores)
Tonnes)
33.06
18.07
51.13

52360
21013
73373

8.87
3.98
12.85

14054
4633
18687

41.93
22.05
63.98

66414
25646
92060

Assumptions
1. Population for Scenario 1 is as on October 2010 while for Scenario 2 and 3 it is as on Oct 2013
2. Issue price for priority Rs 2/Kg for wheat and Rs 3/Kg for rice; for general 50% of MSP (Rs7.69 rice and Rs. 5.5 wheat)
3. Entitlement for priority is 7kg per person per month and for general is 4kg per person per month
18

ANNEXURE 2
NAC mandated entitlement for priority and lower entitlement to general category (Option 1)
Phase 1
Category

Population
Coverage
( Per cent)

Entitled
Population
(Crores)

Final Phase

Food Grain
Requirement
( Million
Tonnes)

Priority
General
Total

46
39
85

38.62
32.74
71.36

32.44
7.86
40.30

Priority
General
Total

28
12

10.15
4.35
14.50

8.52
1.04
9.56

Priority
General
Total
Other Welfare
Schemes
Buffer Stock
Total Foodgrain

85
40
72

71.36
14.50
85.86

40.30
9.56
49.86

8.0
2.0
59.86

Entitled
Population
( Crores )

Food Grain
Requirement
( Million
Tonnes)

Total Subsidy
Requirement
(Rs Crores )

46
44
90

39.35
37.64
76.99

33.06
9.03
42.09

52360
10506
62866

28
22
50

10.56
8.30
18.86

8.87
1.99
10.86

14054
2316
16370

90
50
75

76.99
18.86
95.85

41.93
11.02
52.95

66414
12822
79236

8.0
2.0
62.95

Total Subsidy Population

Requirement Coverage
(Rs Crores ) ( Per cent)
Rural
51381
9,138
60519
Urban
13499
1,214
14713
All India
64880
10352
75232
-

Assumption
1.Entitlement of 2 Kg per person per month for the General Category
2. Population for phase 1 is October 2011 and for final phase is October 2013
19