National Food Security Bill – Its impact on Indian Economy

To provide food security is impetus for economic growth of any country. In India the same has been introduced in Year 2013, which says that it would provide food security to at least 67% of the population.

Synopsis of Food Security Bill: The Food Security Bill would provide Rice, Wheat and other food grains at a heavy subsidised rate, and the food grains will be available at price as low as Rs.1 to 3 per kg.

Here the government would buy food grains from the farmer at MPS (Minimum Support Price). MPS is the price that government guarantees to the farmer for purchase of food grains, and the same generally ranges from Rs.13.5 to Rs.20 per kg in this case. Difference amount will be borne by the government.

Great!!! but at this point of time when Indian rupee (INR) is bleeding to an extent, scams are at its peak, current account deficit is at its peak, is it the right time to introduce the bill.

Ooops!!! did I miss that elections are around the corner. (A perfect stunt…I guess so)

Let see, how the bill will impact us and our economy.

Government Expenditure: Every year the government will incur not less than 1.3 lakh crores to fund this scheme, as the differential amount (MPS minus subsidised price) will be borne by the government. The question that arises here is, do the government have sufficient fund for this. I guess not!!!

Then from where would the money come from?

Option one – Government go on printing money to fund, but this would not help as the same will only add up to the current inflation.(Economics basics Chapter – 1)

Option two – increasing tax rate on current already hiked tax rates. But, since elections are coming up, government won’t take much chance to use this source of funding.

Option three – Borrowing from IMF or other countries, but the same would only increase the deficit, but again, a possible option.

The food security bill will only add up to current condition of the Indian economy and chances are that our currency will depreciate further.

And if the taxes are increased then will we have to pay more to the government and thus 
would end up saving less.

Disclaimer: The idea behind this article is not to cover the political motives of either the ruling party or the opposition. This article is my personal opinion about this Food Security Bill purely from an investment and economic stand point. The author does not guarantee the accuracy of any of the claims in the article.