Impact of Food Security Bill (FSB) on Aam Aadmi

Lok Sabha passed the food security bill on 26^th August 2013. 67% of the population is covered under the scheme which will cost us 1.3 Lakh crore. Isn't it a good thing?


There are plenty of articles and views circulated on how this is going to impact on the exchequer. So I'll not dwell into it. What am I concerned is on it's impact on aam aadmi's family budget.


To begin with let's look at the impact of rice, wheat and cereals in the open market. The 33% of population not covered needs to procure their requirement from this open market. If agriculture growth continues at it's current rate, food continues to rot in the warehouses and Minimum Support Price (MSP) remains the same, the cost of these items can go up by as much as 75% (over and above the current inflation) in the next 2 years. That is a increase in budget of Rs. 750 on a current cost of Rs. 1000.


On a average Indian's spend about 75% of their food budget on other food items. These include milk, vegetables, edible oil, meat, fish, eggs, fruits, nuts, sugar, salt and spices. The demand for these will go up since the money saved due to FSB will flow into consumption of other food items. This can lead the prices to raise by about 20% (plus current inflation) per annum.


Non food items that include medicines, fuel, clothing, conveyance and education will again increase for the same reason as above. This may not be as steep as the above 2 items, but rise, it will.


So what does it mean for the monthly budget of the Aam Aadmi?

People not covered in FSB	Marginal	Amount of money spent on food and essential items is is a small portion of the monthly budget. So by giving up some discretionary spending, this group can manage their monthly budget
People covered under FSB, but not current PDS distribution as per BPL	Significant	Though rice, wheat and cereals will be available at cheaper rates, the increase in other items will more then make up for this group. Savings and investment including investment in education and healthcare will take a hit. Pregnant women may be forced to compromise on protein & calcium intake. Overall this group aspires to move up the ladder but FSB may end up pushing this group more into poverty
People under BPL (in current PDS) and covered under FSB	Critical	From 35 Kgs per month per family at about Rs. 65 to 5 Kg per person at Rs. 11, this group will gain marginally. However other food items and essential non food items will be totally out of reach by the time the economics of FSB catches up. This will ensure that this group cannot dream of getting out of poverty any time in the near future. The only good that may happen is that increase in the cost of country made liquor may induce restrain in it's consumption.

Disclaimer:
The views expressed are personal. The numbers are derived from publicly available data on internet. Assumptions made to derive the numbers available on net has not been validated. I'll leave the computation of more accurate numbers to people who have accurate inputs themselves. The purpose of this blog is to identify the trend. My belief is that when market forces are not allowed to work freely, economic realities kicks in where least expected.