I’m not convinced by the official figures for the subsidy that is required for the food security bill. According to my calculations (shown below), it is likely to be a whopping 11% of the budget, and this is excluding administrative cost.
I bought rice this morning from the kirana store close to my house. I paid Rs. 48 per kg, and it was not the most premium quality. Assuming that the food security act will provide rice that is of slightly inferior quality, and taking out the retailer’s margin, I think assuming Rs. 40 per kg is a fair estimate for market price of rice.
I’m pasting a screenshot of my spreadsheet here:
As you can see, the proposed bill intends a subsidy of 11% of India’s budget this year (to put that in context, the Fiscal Deficit is 5%). Also note that the calculation above doesn’t take into account the administrative cost of implementing this scheme.
Errata: The sixth line in the spreadsheet should read “subsidy per person per year'”. The numbers, though, remain the same
Hey,
The governement in all likelyhood will buy rice at its minimum support price of Rs. 1250 per Quintal. Therefore the subsidy per kilo will be around Rs. 10, you may want to relook your numbers here. On a more perverse note, the figure of Rs. 40 you have assumed is what we would have to pay for the rice that is diverted from the PDS network to the black market. Even if the Bill is passed, it would be nothing short of reckless for the Governement to enact it without significant reforms in the Distribution networks and in the method of assesment of beneficiaries. Let’s hope that the ill conceled haste to pledge huge spendings to faulty systems do not afflict this as well.
Karthik,
The cost price figure is clearly off.
For wheat, the current market price, at harvest time is under Rs. 15 per kg. The average economic cost of wheat – including storage, interest etc., is about Rs. 18 per kg.
I think a back-of-envelope calculation such as yours such use an average cost of grain number of Rs. 20, to reflect distribution costs, margins etc.