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Five myths about the food security Bill - Livemint
The passage of the proposed food security law in the Lok Sabha last week told us two things.
One, Sonia Gandhi proved once again that she is the politician to beat. Gandhi got an otherwise completely divided Parliament to collectively endorse the proposed law and revive momentum for the otherwise struggling coalition. The additional spin-off was of course that the Bharatiya Janata Party (BJP), which, rightly or wrongly, believes it is just months away from acquiring power, was once again shown up as a party without a positive agenda, especially in showcasing a credible economic alternative.
Second, it led to a clutch of economists, analysts and the paper tigers that inhabit television studios unleashing a vicious assault against the Bill and Gandhi. From a healthy debate they turned it into something personal. Allegations varied from being mistimed (they are right, it should have come about earlier) to how it will cause the fiscal deficit to go off the rails (implicitly claiming that it is in the pink of health) and how Gandhi had inspired bad politics to trump good economics.
Somehow the nature of the unravelling discourse is such that if you repeat the same point enough times, even if it is gravely wrong, it gains legitimacy. But actually these are myths and the facts show them up.
First, the Food Security Bill will completely derail the fiscal arithmetic of the Centre. While the government has claimed that it will cost an additional Rs.25,000 crore to what is already being spent on the food subsidy, some have argued that the actual cost will be anywhere upwards of Rs.200,000 crore annually. Complete nonsense. A bunch of erudite economists have dismissed this claim in a brilliant piece published in The Financial Express . That aside, the scheme is to kick in after a year. So then why would it impact the fiscal deficit target for this year. What were the foreign institutional investors (FIIs) thinking when they bolted for the door? And to think they draw six figure bonuses!
Second, since the Bill states that only 67% of the population will be covered, some bright minds are claiming that this is the actual poverty level in the country.
If I may, this is the level at which the government, based on scientific criteria, concludes that 33% of the population is automatically excluded.
Yes, there would be people within the 67% cut-off who should not be eligible for concessional food. But then, if the authorities press the criteria of exclusion, there is a risk of leaving out the genuinely needy—an error of commission.
The hope and belief is that there will be self-selection—just like we, who possess cars and homes, will presumably never claim the cooking gas subsidy on our first nine cylinders when the government moves to cash transfers.
For the record, the poverty level in the country as estimated by the Planning Commission is 22% at the end of 2011-12.
Third, it is claimed that the Food Security Bill would put a massive burden on an already overburdened exchequer as the government would have to procure additional food grain. Not only would they have to find more storage but also spend extra to procure the grain. Yes, it is fact that the procurement will have to be 62 million tonnes (mt) a year.
But guess what, the country procured 72 mt of foodgrain in 2012-13. And in case you wonder, in the previous year procurement was 63.38 mt, with the existing infrastructure at its disposal.
Fourth, leading on from the previous point, the additional procurement will drive up food inflation, even as fiscal overruns will create even more inflationary impetus. Bizarre as it turns economic logic on its head. At the moment one of the key reasons why food, especially cereal, inflation is up is because there is not enough supply in the market even while the food stocks—at 73.51 mt on 1 July—are mostly rotting. Now, if these stocks were instead offloaded through the public distribution system (PDS) at a subsidized price, what do you think will have happen to food inflation?
Fifth, it is claimed that the entire scheme entails throwing good money after bad. Bandying previous numbers, outlandish claims of leakages of food through the PDS are being used to make this argument. This may be true of a few states, but not all. It ignores the fact that several states, under the pressure of the Supreme Court, including Tamil Nadu, Odisha and Chhattisgarh, have shown a remarkable improvement in both the coverage as well as reduction in leakages. This point has been made explicitly by Himanshu, assistant professor in Jawaharlal Nehru University and a Mint columnist, in a comment published on 7 August, where he argues that the improvements as well as expansion of PDS coverage has increased consumption of cereals from 23% households in 2004-05 to 44.5% in 2011-12. Yet, critics claim this is bad economics.
In the final analysis, it is clear that it is a seminal moment for the entitlement revolution that was inspired by Gandhi and Parliament should be saluted for its unanimous support. The deluge of criticism will drown out this point.
Unfortunately, to talk in its defence is to invite the charge of being a Congress stooge or being fiscally irresponsible or being politically correct. Obviously, we conveniently forget that Bharat is also part of India and any sustainable progress requires them to be included as stakeholders.
Anil Padmanabhan is deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at capitalcalculus@livemint.com.
The passage of the proposed food security law in the Lok Sabha last week told us two things.
One, Sonia Gandhi proved once again that she is the politician to beat. Gandhi got an otherwise completely divided Parliament to collectively endorse the proposed law and revive momentum for the otherwise struggling coalition. The additional spin-off was of course that the Bharatiya Janata Party (BJP), which, rightly or wrongly, believes it is just months away from acquiring power, was once again shown up as a party without a positive agenda, especially in showcasing a credible economic alternative.
Second, it led to a clutch of economists, analysts and the paper tigers that inhabit television studios unleashing a vicious assault against the Bill and Gandhi. From a healthy debate they turned it into something personal. Allegations varied from being mistimed (they are right, it should have come about earlier) to how it will cause the fiscal deficit to go off the rails (implicitly claiming that it is in the pink of health) and how Gandhi had inspired bad politics to trump good economics.
Somehow the nature of the unravelling discourse is such that if you repeat the same point enough times, even if it is gravely wrong, it gains legitimacy. But actually these are myths and the facts show them up.
First, the Food Security Bill will completely derail the fiscal arithmetic of the Centre. While the government has claimed that it will cost an additional Rs.25,000 crore to what is already being spent on the food subsidy, some have argued that the actual cost will be anywhere upwards of Rs.200,000 crore annually. Complete nonsense. A bunch of erudite economists have dismissed this claim in a brilliant piece published in The Financial Express . That aside, the scheme is to kick in after a year. So then why would it impact the fiscal deficit target for this year. What were the foreign institutional investors (FIIs) thinking when they bolted for the door? And to think they draw six figure bonuses!
Second, since the Bill states that only 67% of the population will be covered, some bright minds are claiming that this is the actual poverty level in the country.
If I may, this is the level at which the government, based on scientific criteria, concludes that 33% of the population is automatically excluded.
Yes, there would be people within the 67% cut-off who should not be eligible for concessional food. But then, if the authorities press the criteria of exclusion, there is a risk of leaving out the genuinely needy—an error of commission.
The hope and belief is that there will be self-selection—just like we, who possess cars and homes, will presumably never claim the cooking gas subsidy on our first nine cylinders when the government moves to cash transfers.
For the record, the poverty level in the country as estimated by the Planning Commission is 22% at the end of 2011-12.
Third, it is claimed that the Food Security Bill would put a massive burden on an already overburdened exchequer as the government would have to procure additional food grain. Not only would they have to find more storage but also spend extra to procure the grain. Yes, it is fact that the procurement will have to be 62 million tonnes (mt) a year.
But guess what, the country procured 72 mt of foodgrain in 2012-13. And in case you wonder, in the previous year procurement was 63.38 mt, with the existing infrastructure at its disposal.
Fourth, leading on from the previous point, the additional procurement will drive up food inflation, even as fiscal overruns will create even more inflationary impetus. Bizarre as it turns economic logic on its head. At the moment one of the key reasons why food, especially cereal, inflation is up is because there is not enough supply in the market even while the food stocks—at 73.51 mt on 1 July—are mostly rotting. Now, if these stocks were instead offloaded through the public distribution system (PDS) at a subsidized price, what do you think will have happen to food inflation?
Fifth, it is claimed that the entire scheme entails throwing good money after bad. Bandying previous numbers, outlandish claims of leakages of food through the PDS are being used to make this argument. This may be true of a few states, but not all. It ignores the fact that several states, under the pressure of the Supreme Court, including Tamil Nadu, Odisha and Chhattisgarh, have shown a remarkable improvement in both the coverage as well as reduction in leakages. This point has been made explicitly by Himanshu, assistant professor in Jawaharlal Nehru University and a Mint columnist, in a comment published on 7 August, where he argues that the improvements as well as expansion of PDS coverage has increased consumption of cereals from 23% households in 2004-05 to 44.5% in 2011-12. Yet, critics claim this is bad economics.
In the final analysis, it is clear that it is a seminal moment for the entitlement revolution that was inspired by Gandhi and Parliament should be saluted for its unanimous support. The deluge of criticism will drown out this point.
Unfortunately, to talk in its defence is to invite the charge of being a Congress stooge or being fiscally irresponsible or being politically correct. Obviously, we conveniently forget that Bharat is also part of India and any sustainable progress requires them to be included as stakeholders.
Anil Padmanabhan is deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at capitalcalculus@livemint.com.
