Third, the proposed scheme increases the government’s role in the grain market, as it has to procure more; which is bad news in the sense that the distortions created by such a market player inevitably harm competition. Farmers, thus, might have no option but to remain satisfied at the support price the government offers. They will also have to bear the brunt of the Food Corporation of India’s inefficiency. Besides, whenever grain prices rise in the market, the government will be tempted to impose curbs and bans to cool the market so that it can procure cheaply. Farmers will never receive unfettered access to world markets.

Four, if the legislation makes it mandatory for the government to physically delver 25 kg foodgrain to the poor, then hopes for reforming the food delivery system through smart cards, food stamps, or direct cash transfer, are shattered. The vested interests in the present system will make use of the same law to thwart attempts to replace it. Direct transfer of subsidy to the poor through these mechanisms has great anti-leakage advantages; it is essential that the law leaves scope for these measures to be implemented.

One can imagine what would happen if such a law were passed. The difficulties of implementation would lead to litigation from civil society organisations pleading for the court to uphold the right to food; judicial intervention will result in the formation of monitoring committees at different levels. The conflict and litigation will, however, amount to nothing for the poor; the Supreme Court and its monitoring committees cannot materially alter the incentives that drive corruption in the PDS. If the government is serious about ensuring the food security of the poor it should first convert the PDS into a system of direct subsidy transfer. At current market prices, providing 25 kg rice at Rs 3 per kg amounts to a subsidy of Rs 300 per month, per family. This could instead be transferred directly, through various mechanisms, such as smart cards or food stamps. The subsidy amount can be indexed to the inflation in grain price, thus ensuring poor consumers continue to receive the same amount of food as they would from the supply of 25 kg grain at Rs 3 per kg. By eliminating dual markets, the problem of leakages is also eliminated. The system of cash transfers is also non-distortionary, as it does not discriminate against producers of coarse cereals.

... contd.