Rs 50,000 cr a year: What Food Bill corruption will be like

How much will systemic corruption increase once the Food Security Bill is introduced? The answer could be around Rs 50,000 crore annually.

How did one come to this estimate?

Here’s how. An article in The Indian Express by Surjit Bhalla, Chairman of emerging market advisory firm Oxus Investments, shows that of the 48.9 million tonnes of food distributed via the leaky public distribution system (PDS) in 2009-10, only 25.3 million tonnes went to the intended beneficiaries.

So where did the other 23.6 million tonnes go?

One can assume corruption to worsen. Reuters

To you and me and other middle class and rich consumers, who bought it from the open market at market prices. And middlemen pocketed the difference between the subsidised prices our ration shop owners paid to the Food Corporation of India and the market price they actually realised from us.

Since the total subsidy paid by the finance ministry on food was Rs 59,621 crore in 2009-10, and nearly half of it went to the wrong persons, the loss due to corruption is really Rs 28,774 crore – calculated proportionately from the amount of subsidised grain supplied to the PDS system, and the amount that actually went to the intended beneficiaries, according to the National Sample Survey.

Now, since the cheap supply of grain is again going to be routed through the PDS under the Food Security Bill, one can assume that the corruption will rise proportionately since the system has not been reformed.

In fact, one can assume corruption to worsen, since the difference between the extreme subsidies planned for ”priority” households – who will get rice, wheat and coarse grains at Rs 3, Rs 2 and Re 1 a kg – gives crooks a higher margin of profit.

According to the government’s calculations, the Food Security Bill will need around 65 million tonnes annually to administer. This means the amount of subsidised food that will be pumped through the system will rise from 48.9 million tonnes in 2009-10 to 65 million tonnes – a 16-million-tonne increase.

If leakages remain the same as before, this means the amount of potential corruption in moving from 48.9 million tonnes of PDS supplies to 65 million tonnes will increase the corruption level to over Rs 38,247 crore.

But this will be a gross underestimate.

Since the margin is even higher on super-subsidised grain, we can safely conclude that the real potential for corruption is closer Rs 50,000 crore a year. And this will only worsen as the years pass, since subsidy levels will keep rising every year.

This writer has argued in the past that the Food Security Bill will not ensure food security. It will, in fact, damage it thoroughly. Bhalla’s calculations now help us to put a number to the kind of disaster it could become.

The 2G scam is supposed to have led to a presumptive loss of Rs 1,76,000 crore to the exchequer, according to the Comptroller and Auditor General.

In three or four years, the Food Security Scam will easily top that. It is a multi-year 2G scam.

If the UPA government has any sense, and it still wants a Food Security Bill, it will find that eliminating losses in the existing PDS will automatically finance the additional subsidies planned under the FSB for free.

But then, FSB is intended as an election-eve sop. So who cares about reforming the PDS system before pumping more grain through it?