How We'Re Confusing Food Security With FSA

7/28/2019 How We'Re Confusing Food Security With FSA

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How we're confusing

Food Security

withFood Security Bill


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Agricultural revolution vs distribution efficiency

Food security: Sonias NAC should learn from Modis GujaratLiberalise farming to improve Indias food security: WEF expertsWake up, Mr PM! Our economy is running on empty

Why did Moodys upgrade us when we are going downhill?

Are our policies rotting like our food grains?

Its not about feeding the poor: 10 myths about the Food BillSonias reckless food security largesse could bust the bank

True cost of Dynasty: Sonia sends us a Rs 5,45,000 cr bill

A Rs 95,000 crore subsidy bill. Is it worth it?

Sonias dream bill food security, up for debate todayUnion Cabinet clears costly Food Security Bill

Inflation isnt dying; we might be headed for stagflationFood security: Easy to feed poor, but not Gandhi family


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Agricultural revolutionvs

distribution efficiency


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Food security:

Sonias NAC shouldlearn from

Modis Gujarat

If true food security has to be backed by an

agricultural revolution, Gujarat is the right place

to learn lessons from.

R Jagannathan, Dec 20, 2011


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If food security is as much about stok-ing an agricultural revolution as aboutredistributing available food to the poor,

Gujarat is the place to seek answers from.

Gujarat is the one state in India that has con-sistently outperformed the rest of India in termsof agricultural production and a large portionof this credit goes to Narendra Modis long-term

vision.

Unlike industry where Gujarat has always hadan edge agriculture is a freshly-minted suc-cess story.

This is not the view of Modis acolytes or of BJPpartisans, but the Planning Commission, whichis run by the PMs pal Montek Singh Ahluwalia.

According to a report in Business Standard, aPlanning Commission working group set up tosuggest booster shots for agriculture during the12th plan which starts next April said thatGujarat and Chhattisgarh were the states toemulate.Narendra Modi

In the period from 1999-00 to 2008-09, Gu-

jarat reported a huge 11.5 percent annual aver-age growth in agriculture (at 1999-00 prices).This dwarfs the national average of 3.5 percentduring the ve-year period 2007-12 and just 2.2percent in 2002-07.

Should one credit Modi for this miracle? Appar-ently, so. For, the real change happened after2002 the year after Modi took over. Says thePlanning Commission working group: A closerexamination of the data in respect of Gujaratshows that the state made remarkable increasein raising agriculture production after 2002-03.

The Planning Commission isnt the only one im-pressed with agricultures progress in Gujarat.

Another fan of Modis achievements is ShankarAcharya, former chief economic adviser to thegovernment of India and honorary professor atIcrier in Delhi.

In an article titled Agriculture: be like Gujarat,Acharya gives six reasons why the state crackedthe agricultural jinx.

Remember, Gujarat is not a state blessed withlots of irrigated land. Most of its land is semi-arid, and getting any crop out of it is a big effort.

So what did Modi do right? Six things, princi-pally.

First, he focused on sustained water conserva-tion and management programmes. Gujaratis one of the biggest users of drip irrigation inIndia today, and built many check dams, smallponds and minor irrigation sources. In 2008,Gujarat had 113,738 check dams and 240,199little ponds dotting the state.

Second, the state launched a massive and well-coordinated extension effort telling farmers

what to grow, when to grow, how to grow and

how to maximise output.

Third, Modi completely overhauled rural powersupply. Even though supplies are subsidised,farmers get assured power. This contrasts withother states that offer free power, but irregularlyand unpredictably.

Four, says Shankar Acharya, agricultures al-lied sectors like livestock development were

given a boost. This ensured steady and sustain-able growth in rural incomes a prerequisitefor comprehensive food security.

Five, Modi also promoted non-food crops andhorticulture, Bt cotton, castor, and isabgol. Con-trast this with the endless debates we now haveabout the dangers or otherwise GM seeds.

Six, Gujarat made huge investments in infra-structure especially rural roads, electricityand ports.

A report by IIM professors Ravindra Dholakiaand Samar Datta says it all in one paragraph.

The phenomenon of high agricultural growthin Gujarat is not conned only to Bt cotton butis widely experienced in several sub-sectors,including animal husbandry, milk and eggproduction, fruit and vegetable production, and

high value commercial cropsAll this in the lastdecade or so has been achieved through massiveeffort on rain water harvesting through checkdams, farm ponds, recharging of wells, etc;


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providing stable electricity for agriculture ona regular basis to all villages; market-orientedreforms; opening of agricultural exports; pro-

vision of supportive infrastructure like ports,linking roads, storage, internet and telecomfacilities at village level; and, signicant efforton agricultural extension by covering a largenumber of farmers with soil health cards, adviceon nutrients, pesticides, crop selection, etc.

The big question: is the Gujarat model replica-ble? Dholakia and Datta answer with an em-phatic yes.

Clearly, there is no short-cut to food security.We do not know whether Gujarat has been assuccessful in making food available to it poor asit has been in raising rural incomes and agricul-ture. But it has got at least one part of the foodsecurity equation right.

Maybe the National Advisory Council of SoniaGandhi would be better off taking a train toGujarat to nd out how key elements of food se-curity an agricultural revolution, among them can be put in place.


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Food, water and energy securityrankamong the top priorities for In-dias economy today. All three are also

highly politically-sensitive issues.

Recently, a decision by state-run oil marketingcompanies to raise petrol prices for the secondtime in two months caused such discontentamong the governments own allies, oppositionparties and the public that now it seems theprice hike might be rolled back to some extent.Petrol prices have been hiked 13 times since thefuels prices were deregulated in 2010.

Yet, political pressures on pricing decisions onsensitive commodities such as food, water andenergy dont improve the supply of these com-

modities, which is at the heart of the matter.So, what can be done then? In a panel discus-sion on the Water, Food and Energy Nexus atthe World Economic Forum (WEF) India Sum-mit being held in Mumbai, experts said threethings need to be done if India is serious aboutresolving its resource problems.

One, government planning has to become moredecentralised. Currently, a lot of key decisionson and resources and nances are made at thecentral government level, which fail to consider

the needs of the people for whom these resourc-es are meant.

Two, for the sake of improving food security inparticular, cropping patterns need to change inIndia. That was the view of at least one panelist Suresh Prabhu, chairperson, Council on Envi-ronment, Energy and Water for India. Otherexperts also noted that poor planning had led toagricultures contribution to GDP falling to 18percent from 30 percent two decades ago.

Chengal Reddy, co-chairman of the IndianFarmers and Industries Alliance, noted thatliberalisation and reforms, which gave wings tothe industrial and services sectors, had still nottouched the farming sector. Even today, farm-

ers dont have facilities to store, market, processand export most of their produce. That situa-tion needs to change if India aims to improve itsfood security.

Most panelists also thought biofuels were notan easy x for Indias energy solutions. NitinParanjpe, chief executive ofcer and managing

director of Hindustan Unilever, pointed out thatwhile everyone is talking about renewable en-ergy, the fact is that if India shifts to biofuel fortransport, it will typically need 50-10 percent

Liberalise farmingto improve Indias

food security:

WEF experts

Poor planning has led to agricultures

contribution to GDP falling to 18 percent from

30 percent two decades ago.

FP Staff, Nov 13, 2011


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more water and land than it uses now.

Three, consumer awareness needs to be raised.People need to be aware of their consumption,especially of water and electricity. The paneliststhought that subsidies, in general, had to bedone away with, and consumers had to mademore aware of how many units of water andpower they actually consume.

A farmer who consumes free electricity, forinstance, will never feel the need to use it spar-ingly. That, in turn, causes wastage of power,

which could have been used for more produc-tive purposes.

All in all, there are no easy solutions to Indiasfood, energy and water problems. the panel dis-cussion concluded.

Long-term planning and thinking are neededto improve supplies. But governments, whichalways have one eye on elections, are not alwaysthe best long-term planners. So, more oftenthan not, the economy tends to stumble throughone short x to another.

Will this government listen to what the WEFexperts are saying? Dont hold your breath.


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Wake up, Mr PM!Our economy isrunning on empty

F

or most of this year, as the enginesof the Indian economy misred repeat-edly, the wise mandarins of the Indian

government were in snooze mode. Preoccupiedfor the most part with political survival, theytook their eyes off the economic ball, allowingpolicy initiatives to drift. The governing philoso-phy appeared to be modelled on that of CharlesDickens ctional character Wilkins Micawber:that something would turn up and bail out theeconomy.

After yesterdays shocking data, which showed

industrialproduc-tion to bein contrac-tionarymode, araging rehas been lit under the Manmohan Singh gov-ernment. With industrial production contract-ing, and with ination still untamed, everything

about the economy screams stagation, whichrepresents the sum of all fears for economists.In every way, it is a rotten place to be.Manmohan Singh

Singed by the heat, the government has nallybestirred itself, but even today, it appears tomistake activity for action, and has sought ref-

uge in knee-jerk populism.

Woken up from its slumber, the Prime Minis-ters Ofce is now eager to signal that Manmo-han Singh is not, as is widely believed, missingin acti0n. On Monday, his ofce directed keyministries to send on a list of bills (relating totheir respective ministries) that have been heldup in parliament, including the parliamentarystanding committees.

The governmentis also looking for

ways to re up thestalling economy,perhaps by provid-ing incentives for

investments in the infrastructure sector. Thereare indications that Manmohan Singh will callan inter-ministerial meeting tomorrow to dis-

cuss long-pending reforms in the infrastructurespace.

Simultaneously, commerce and industry minis-ter Anand Sharma has convened a meeting with

Yesterdays industrial production data ashes

warnings of an economy sliding into stagation.

Venky Vembu, Dec 13, 2011


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industry leaders, who have long complainedthat policy paralysis has caused the economy toseize.

Yet, even in this moment of crisis, the govern-ment seems excessively preoccupied with thepolitical survival of the Congress, particularlygiven that elections to crucial state assembliesare coming up. And its reexive resort to theeconomics of populism one of its rst priori-ties appears to be get the Food Security Bill,

with all its aws, through Parliament makesno acknowledgement of the contribution of ill-funded, improperly conceived welfare schemesto the widening of the scal decit, which hasfuelled ination and is today cramping the gov-ernment from stepping in with stimulus meas-ures.

Most of the economic problems confronting thegovernment today can be traced to the fact thatfor the whole of this year, while ination hov-ered at or above the 10 percent mark, the gov-

ernment outsourced the job of ghting inationentirely to the RBI without any initiatives fromits side. In the absence of supply-side initiativesfrom the government those stalled invest-ments in infrastructure projects that it is nowlooking to revive- the RBI was constrained toovercompensate by hiking interest rates exces-sively.

These same efforts that the government iscontemplating today would have provided thegovernment some breathing room today if theyhad been taken up a year ago, when the early

warning signs of a slowdown were blaring loudand clear to anyone who was not in deep sleep.

The risk lingers that the policy mandarins maycontinue to deploy monetarist tools in the short

term by requiring the RBI to lower interest rateseven if the RBI isnt convinced that the battleagainst ination has been well and truly won.The risk of policy errors feeding the very realfears of stagation remains high.


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Why did Moodys

upgrade us when

we are goingdownhill?The Moodys upgrade of Indias government

bonds is a technical upgrade, not a real vote ofcondence on the Indian economy.



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Why did Moodys upgrade theIndian governments rupee-denom-inated debt ratings from junk to in-

vestment grade? Especially when the economyis going steadily downhill?

Consider, all thats going wrong.

The scal decit is slipping badly. The targetof 4.6 percent of GDP is likely to be overshot byat least 1 percent, and even the nal gure may

be a fudge, with oil subsides being underpro-vided for.

With industrial growth falling 5 percent in Octo-ber, with second quarter GDP growth slippingbelow 7 percent, and gross tax revenues slippingwell below budget estimates, the Indian econo-

my is slipping badly.

The rupee has never been weaker and couldfall all the way to Rs 60 (says CLSA). The cur-rency has dipped more than 20 percent fromearlier this year.

Food ination is slowing due to seasonal fac-tors, but manufacturing ination (core ina-tion) is yet to be tamed. Energy prices ination

has been articially suppressed.

Next year, the government is going to borroweven more if the Food Security Bill and otherexpenditure programmes take wing.

We can go on and on, but we need to return tothe basic question: what did Moodys see that

we did not, that it should be upgrading short-term and long-term government rupee debt

ratings from Ba1 (speculative) to Baa3 (invest-ment-grade) just before a huge budget slippage?

Explaining its actions, Moodys points to itsRating Implementation Guidance, which saysthat Moodys will maintain a gap between agovernments domestic and foreign currencydebt ratings infrequently and only in compellingcases. The guidance was based on an analysisof the last two decades of sovereign defaults,

which does not offer empirical justication for a

rating bias in favour of either local currency orforeign currency government debt.

While nance ministry bureaucrats are patting

themselves in the back for getting Moodys tosign on to the improved ratings, the real reasonsfor the upgrade are apparent in Moodys policycorrections not any improvement in Indiaseconomic performance.

One, when Indias foreign currency-denomi-nated debt is rated investment grade (Baa3), itmakes no sense to keep the rupee-debt ratinglower. Normally, rupee ratings for the Indiangovernment should have been higher than itsforeign currency ratings since, technically, nogovernment can default in local currency. Itcan always print more notes to pay back lend-ers. Moodys is essentially correcting its ownanomaly.

Two, with the external environment deteriorat-

ing and the rupee crashing to Rs 52-53 to thedollar, the government has been opening thesluice gates for external borrowing. In Novem-

ber it raised foreign investment limits for in-vestment in government and corporate bondsto $15 billion and $20 billion, while the limitis $25 billion for investment in infrastructure

bonds and $30 billion for external commercialborrowings. Thats $90 billion in various kindsof foreign and rupee debt that will ultimately

have to be repatriated in dollars or foreign cur-rency.

Put another way, there is now little differencebetween a countrys ability to service its localcurrency and foreign currency debt. When youinvite a foreign investor to buy government

bonds denominated in rupees, you still have toreturn dollars to him when he sells it.

This is what Moodys has to say. Financialliberalisation and especially currency convert-ibility has opened the possibility that domes-tically generated condence crises spill over toforeign currency debt through capital outowsand exchange rate crises. This powerful factorpleads for aligning the foreign currency and thelocal currency ratings in nancially open coun-tries with similar levels of local currency andforeign currency debts.

Though this statement is generic and not saidabout India in particular, this is what it meansfor us: the domestic crisis of economic con-dence has spilled over to external condence


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(which is why capital is eeing the markets),and hence the realignment of ratings for domes-tic and foreign currency government debt is notrally cause for celebration.

In short, the Moodys upgrade in not a vote ofcondence in the Indian economy, but a signalthat domestic worries and external worries can-not be hermetically sealed from each other.

A deterioration in either external ows or thedomestic economic situation could lead Indiangovernment bonds back to junk.

Given our deteriorating external situation, withexports tapering off and the rupee falling, it

would have been more logical for Moodys to

put the external situation on a rating watch in-stead of upgrading the local currency rating. AsHDFC Bank chief economist Abheek Barua toldBusiness Standard: Looking at the scal situa-tion of the country, India does not deserve to bein the investment bracket at this point of time.

But the situation in the eurozone probablysaved us. Given the serious threats to the sov-ereign ratings in Europe, India is obviously in afar better situation.

Hence Moodys chose to raise domestic ratingsinstead of lowering the foreign currency ratingfor now.

In the future, though, all bets are off.


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Are our policies

rotting likeour food grains?


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Its not aboutfeeding the poor:10 myths about the Food Bill

What can be so wrong about subsidising food for

the poor? Actually, the Food Security Bill is not

about food security at all.



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One of the questions one is asked byconscientious people is this: how cananyone oppose food subsidies for the

poor and robust schemes to end malnutrition?

This question comes from the heart, and so isworth answering in some depth. No one grudgesthe poor their food. The problem is with theFood Security Bill (FSB) which is actuallytestimony to the poverty of ofcial thinking onfood security. We should thus take this oppor-tunity to debunk some myths about the FSB.

Myth # 1: The Food Security Bill is theway to ensure food security. Nothing couldbe further from the truth. Food security comesfrom ensuring three things: creating jobs andincome, ensuring higher food output by raising

productivity, and creating a safety net to feedthose who cant do so themselves in distresssituations.

What the Food Security Bill does is to makethe exception the rule: offering food subsidiesto almost all people (65 percent of the popula-tion) without an end-date. This is irresponsiblepopulism. A government that does nothing inits seven-year tenure (so far) to improve agri-

cultural productivity and which fails to invest inresearch and infrastructure suddenly wants toend food insecurity with a bill two years beforean election.

If it genuinely cared for the poor, what stoppedthe government from helping them in phasesevery year from 2004? By now hunger couldhave been eliminated. The FSB is thus an at-tempt to fool the electorate before the elections,

with the bill being paid by all of us either astaxes or higher ination.

Myth # 2: The FSB is the only answer tohunger and malnutrition. This myth has

been busted by UPA-2 itself, which has beenarguing that Anna Hazares my-way-or-the-highway approach to corruption is wrong. If theJan Lokpal isnt the only answer to the problem,

why is it presumed that some NGOs working onfood security have all the right answers?

The FSB is just one approach to the problem and a awed one and there can be better waysto ensure food security which will not bust the

bank.

Myth # 3: Those who oppose food secu-rity for the poor are anti-poor. Why dontthey oppose subsidies for the rich?

There is some truth to this assertion, but theboot is on the other foot. The problem with theFSB is not that we should not spare resourcesfor the poor, but that you cannot subsidise eve-ryone for everything all the time.

If UPA-2 and Sonia Gandhis National AdvisoryCouncil want to fund an expensive FSB, theycan eliminate the huge subsidies on petro-goods(diesel and cooking gas, for a start, kerosenelater), and withdraw tax concessions to the rich.

But this is what the UPA has steadfastly refusedto do.

It is afraid of withdrawing any subsidies to thebetter off for fear of offending them, and thenclaims that those opposing the FSB are anti-poor. Even a petrol price hike gets Congresspartymen worked up enough to get it with-drawn. Pranab Mukherjee is shrinking fromimposing a tax on diesel cars.

The UPA is willy-nilly subsidising the rich andunwilling to back off from this.

Myth # 4: The Union budget subsidisesthe rich with tax concessions. True. Butthis comment is also off the mark. The problemis politicians want to eat their growth cake andhave it, too.

The last budget (2011-12) put the total revenueforgone as a result of direct and indirect taxconcessions at a stupendous Rs 5,11,630 crore.

This sounds like an easy bank to raid to nancethe ambitious FSB, but lets look at what thesetax-breaks include: Rs 88,263 crore in corpo-rate taxes forgone for encouraging exports, etc,Rs 50,658 crore in individual tax breaks (two-thirds of it is the ubiquitous 80C deductions PF, NSCs, LIC premia which the middle

class loves), and the balance (Rs 3,72,709 crore)constitutes excise and customs concessions of

various kinds.


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These are the taxes forgone on the rich andin favour of business. But are they reallyonly that? Concessions to export houses createhigh-value jobs in the IT and other sectors (andprevent the rupee from crashing much more);concessions to companies to set up industries in

backward areas and the north-east are the onlyway to create jobs there; concessions to middle-class salary earners are the only way to getthem to save and buy insurance. And excise andcustoms cuts lower prices on all goods. Whichbenets do we want to eliminate?

The nance ministry has fought shy of with-drawing even the 2008 post-Lehman stimuluspackage, orraise cus-toms duties

on items likepetroleumgoods.

The UPA canchoose how it

wants to taxthe rich tofeed the poor.It has ducked

this choice and this is why

we are in anancial mess,unable to fundany legitimatefood securitymeasure.

Myth # 5: A centralised Food Security Bill

will sort out hunger and malnutrition.

This is a variant of the traditional myth aboutone cap tting all. India is a continent-sizedcountry it needs many approaches to prob-lems. The fact is neither the proponents of theFSB nor its opponents know really what will endhunger and deprivation. The best solution is totry many things and adopt the best solutionsafter trial and error.

The UPAs self-serving answer is to keep throw-ing money at the problem and hope it getssolved. But the FSB is not Indias rst crack athunger. In the past we have had the food-for-

work programme (a mix of NREGA-like workwith payments being made in kind), the An-tyodaya scheme (targeted at the ultra-poor),the mid-day meal scheme for children, andthe anganwadi schemes for mother and child.

Above it all, we have a leaky public distributionsystem (PDS) which works well in some statesand badly in others.

The only logical way to tackle hunger is to trydifferent methods in different states and see

which one works best and extend the model na-tionally. This is how the mid-day meal schemeintroduced in Tamil Nadu and much derided

by critics then was adopted nationally.

We thus need amultitude of ap-

proaches to foodsecurity thatare tried out ina decentralisedmanner before

we extend iteverywhere. Thesurest way todisaster is to im-plement a cen-

tralised, Stalin-esque solution toa problem that

varies acrossthe country. Thehunger problemis not the same

in Kerala, Chhattisgarh and Jharkhand. Theyneed different solutions. Why should a NAC-proposed solution be forced down everybodys

throats?

Myth # 6: Only the National AdvisoryCouncil knows best about food security.Nothing can be more arrogant that this (unstat-ed) assertion where all other approaches to foodsecurity are deemed unworthy of consideration.The FSB is a patent attempt to garner the politi-cal gains accruing from the bill for the Congressparty without taking the states into condence.

If Sonia Gandhi and NAC were genuinely con-cerned about food security and not just re-elec-tion, the rst thing to do is consult states andask them for suggestions since it is the states


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that are going to implement the scheme. IfBihar wants to distribute cash instead of cheapfood, and Chhattisgarh wants to distribute onlyrice under FSB, so be it.

It is the attempt to corner all credit for thescheme and leave the debits for poor imple-mentation to states that shows up the narrowpolitical goals of the Congress in promoting its

version of the FSB.

Myth # 7: Food security can be divorcedfrom income schemes. Like burning a can-dle at two ends, social security should eithertarget the income-generating side of livelihood(which is what NREGA tries to do) or the con-sumption side (which is what the FSB tries todo). Ensuring that at least one works well will

ensure the other. Both need to be backed withan efcient public distribution system whichneed not be publicly owned.

However, what do we see now? NREGA is in thedoldrums, since states and district administra-tions are unable to provide enough work forthe poor. The scheme is riddled with massivecorruption. Money is being spent carelessly,and the scheme is not achieving its basic goals

ensuring higher incomes, and the creation oftangible assets in rural areas that will ultimatelyimprove agricultural productivity.

The right way to approach food security is tox NREGA rst even by extending it to six ornine months a year and then launching foodsecurity schemes in places where NREGA hasnot worked. By making both a creaky NREGAand FSB nearly universal, the UPA is actually

saddling us with huge costs without deliveringworthwhile results.

An efcient NREGA would have generatedincomes and created the right assets for agricul-ture making food security a reality without theFSB. Rushing from scheme to scheme withoutproper implementation is the road to wastageand failure.

Myth # 8: FSB can be divorced from

farmer welfare and agricultural produc-tivity. India faces multiple problems on thefood security front. Indias agricultural revolu-tion is lopsided, with north-west India (and

some parts of the south) providing the food sur-plus, and the rest of the country consuming it.On the other hand, farming is sub-optimal andunremunerative in many parts of the country,even after giving farmers fertiliser, water andelectricity subsidies. This year, many farmers in

Andhra have declared a crop holiday to protestagainst low prices.

The country spends less than a tenth of whatis proposed to be spent on the Food SecurityBill (Rs 2,00,000 crore annually, accordingto Ashok Gulati) on agricultural research. Wespend years arguing about whether genetically-modied seeds are good or bad, while poorpeople starve. But the same NGOs who want anFSB pronto are the ones delaying other parts ofthe agricultural revolution.

Rural Indias economic problem is that thereare too many people feeding off unviable agri-culture when more people should be movingtowards industry and urban areas. But the UPAis preventing this by making land for industryand urbanisation (Land Acquisition Bill) ex-pensive to acquire thus slowing the process ofpeople moving from unproductive jobs to moreproductive ones elsewhere.

Why isnt UPA able to improve agriculturalproductivity? The answer is a battle of egos with

Agriculture Minister Sharad Pawar. You cantprovide food security without xing agriculture,

but for this you need Pawar on board.

The Congress does not want to share politicalcredit for food security with Pawar. Hence itchose to divest Pawar of his food supplies min-

istry. This is the main reason why we have anFSB and no corresponding agricultural revolu-tion and real food security enablers.

Myth # 9: Food security can only be en-sured by government. This means stockingmillions of tonnes of food in Food Corporationgodowns and transporting it from Punjab, Har-

yana and Western UP to south and east India.

Nothing could be more foolish. Food security

is the result of enabling policies which improveboth production and distribution locally. Thiscalls for localised innovations in productivityso that food can be moved from western Ma-


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harashtra to Nagpur rather than from Hisar orBhatinda to Dibrugarh.

Lower costs of production and transport willmake FSB more viable.

Myth # 10: The poor should get every-thing subsidised. This is the ultimate myth

we need to kill. A subsidy makes a beggar outof the poor. It is demeaning. An income is whatthe poor need though no one denies the needfor direct food supply schemes when the goingis bad.

Look at our current approach to any problem.Most farmers dont nd farming remunerative,

so we give them cheap electricity, cheap fertilis-er, subsidised power and discount diesel and aminimum support price for their produce. Plus,

we dont tax the rural rich who are basicallyagriculturists.

After subsidising everything that goes into foodproduction by poor farmers, we then buy it ata high price and then tell the poor, look, we aregiving you cheap food. What can be more de-meaning to the poor than this?

Is this logical? Is this sustainable? You judge.


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The virtue of making donations offood (or annadhanam) to the poor hasalways been upheld in scriptural para-

bles and in popular culture as worthy of emu-lation. It has traditionally been pitched as aneffective way for the wealthy, even those lackingin empathy towards those less privileged thanthemselves, to earn karmic brownie points.

Given the widespread income inequality thatprevails in India, compounded by the caste-

based and feudal nature of our society and thesheer wretchedness of abject poverty that mil-lions of Indians continue to live in, one can

make a persuasive case for charity as the quick-est way to get food on the plates of the abys-mally poor.

Yet, in pushing the Food Security Bill, whichprovides for cheap, subsidised foodgrain asa legal entitlement to over 63 percent of thepopulation, Sonia Gandhi, whose brainchild the

bill is, has taken the government on the scallyruinous path of converting the government intoa charitable organisation.

Taken with theearlier chari-

table projectsher govern-ment hasdevised from

the farm loan waiver to the rural employmentguarantee scheme, which is leaking like a sieveand has had an unforeseen negative impact onrural wages and ination the ill-conceivedfood security initiative has the capacity to bustthe bank.

The earlier initiatives were at least undertakenat a time when economic circumstances weresomewhat more propitious. India had the cush-ion of higher economic growth, and our publicnances were slowly, but steadily, getting intoshape.

But in terms of timing, the Food Security Billbetrays a cavalier attitude to the ill winds thatare sweeping across the domestic and the global

economies, and the very real risk of undertak-ing such a costly project at a time when Indiasscal decit is about to overshoot and the econ-omy is slipping into a lower orbit of growth.

Sovereign rating agencies are beginning toget downbeat on Indias economic prospects.The corruption scandals of recent years, each

more mind-boggling thanthe next, have

already bledthe countrydry by robbingit of revenues

Sonias recklessfood security largesse

could bust the bank

The Food Security Bill is badly conceived, poorly

timed - and could prove economically ruinous.It betrays a regressive mentality that sees the

government as a charitable organisation.



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that should legitimately have come in. That,effectively, is money down the drain, and at atime when the need was for prudence in spend-ing, this proposal to send spending through theroof with an ill-conceived scheme without xingthe leaks in the public distribution system onlycompounds the folly. There is a serious riskof Indias sovereign rating being downgraded,

which will push up the cost of our external bor-rowings, and take us further down the spiral ofan economic slowdown.

Despite some initial opposition from someCabinet Ministers to the scheme in itself anextraordinary thing, given that Sonia Gandhisproposals normally get a free pass the FoodSecurity Bill has been steamrolled throughCabinet, working on a Sunday (another extraor-

dinary thing), without addressing in any mean-ingful way the concerns relating to cost andimplementation of the proposal.

Even the most charitable estimates from thegovernment put the additional subsidy burdenat Rs 28,000 crore. But those estimates vastlyunderstate the price that the state will pay forSonia Gandhis liberal largesse.

According to more forward-looking estimates,the total nancial burden to the state excheq-uer could be of the order of Rs 2 lakh crore a

year for the rst three years. Writing recently inthe Economic Times, A Gulati, chairman of theCommission for Agricultural Costs and Prices,and J Gujral, director with Infrastructure De-

velopment Finance Co, explain why the govern-ment estimates are overly optimistic.

The fact that so many Indians continue to livebelow the poverty line is itself an indictment ofthe failed welfare policies that the Congress hasimplemented for much of the time that it has

been in power since independence. Without anyreection on the demerits of the politics of do-goodism, Sonia Gandhi has embarked on anoth-er scally reckless charitable project and hassteamrolled her way through the Cabinet.

The reexive instinct to throw money to winpolitical goodwill shows the governments utterlack of imagination in conceptualising models ofeconomic growth that can empower and enrichpeople. It also blurs the distinction between acaring government and one that sees itself as anoutpost of charity.

Under the traditional models of charity, kar-mic good accrues to those who typically donateto the cause from out of their own wealth. ButSonia Gandhis model of the government as acharitable organisation works a little differently:it rests on her making donations by dippinginto state nances as if they were merely anextension of her personal khazana, but the elec-toral reward that she reasons will accrue from it

will ow to her.

Sonia Gandhis political do-goodism and herbleeding-heart liberalism, subsidised by thestate exchequer, is bleeding the country dry.


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True cost of Dynasty:

Sonia sends us aRs 5,45,000 cr bill

The various freebies and subsidies given and

planned by Sonia Gandhi is going to set us back

and damage the economy. Can we afford

Dynasty any more?



23/35

Despite the objections of many in theUPA cabinet and the advice of econo-mists, Sonia Gandhi is shoving the

Food Security Bill down our throats.

It is tempting to conclude that all this isprompted by a desire to see the poor fed, butthe truth is that the Food Security Bill (FSB) like many of its predecessors will end upachieving the exact opposite of what it wants to.It will achieve food insecurity and a devastatedeconomy.

The FSBs bills will fall due only later, but SoniaGandhis old bills are already costing us plenty not least ination and a busted budget.

Let us add up the real cost to the country when

Sonia Gandhis party feeds itself off someoneelses money: ours. This is the true cost of keep-ing the Dynasty in power.

The following are Sonia Gandhis political billsthat have been paid by all of us taxpayers andconsumers.

# 1 Farm loan write-off of Rs 72,000crore in 2008.All that the UPA needed to do

to help farmers in debt was to waive interest,freeze the outstandings, and allow them to payit all in easy instalments. But what could have

been a bill of less than Rs 10,000 crore of inter-est waivers, which would have helped maintaina proper climate for loan recovery while provid-ing real relief, ended up with a cost of Rs 72,000crore for the exchequer. The political part ofthe bill is thus Rs 72,000 crore minus inter-est waiver costs say around Rs 60,000 crore.

The cost of damaging the repayment culture isincalculable and will be paid by subsequentgenerations and banks.

# 2: Subsidies paid for keeping diesel,cooking gas and kerosene prices low:Rs2,23,203 crore in 2005-11. Add this yearsunder-recoveries of another Rs 1,32,000 crore,and the total bill is Rs 3,55,000-and-odd crore.Lets further assume that all politicians wouldhave subsidised petro-goods to some extent. But

the NDA did not subsidise half as much. If wetake 50 percent of the amount as subsidies thatevery politician would have paid to consumers,the subsidies paid only to humour Sonia Gandhi

would be around Rs 1,75,000 crore.

# 3: The National Rural EmploymentGuarantee Act (NREGA) has cost all of Rs1,00,000 crore so far, and by March, 2012,it will have cost around Rs 1,40,000 crore. As-suming, once again, a more sensible kind ofpopulism would have ended up with only halfthe expenditure on such schemes, Sonias bill

would work out to Rs 70,000 crore.

The Sonia-Rahul re-election bill so far thusamounts to Rs 3,05,000 crore.

Now, lets bring in the Food Security Bill. Theofcial estimate of costs is around Rs 1,00,000crore, but since these are likely to be underesti-mates intended to force a foolish bill through a

reluctant cabinet, we should look at more realis-tic estimates.

Ashok Gulati and Jyoti Gujral the former ischairman of the Commission of AgriculturalCosts and Prices, and thus should know whathe is talking about wrote in The EconomicTimes that the real cost of the FSB, taking boththe direct cost of subsidies and the accompa-nying investment in infrastructure (godowns,

higher food procurement prices, et al), shouldbe reckoned at Rs 2,00,000 crore per annum inthe next three-year period.

Now lets assume that even this money is worthspending to feed the poor. But the existing pub-lic distribution system (PDS) leads to a leakageof nearly 60 percent.

Says a World Bank study prepared at the in-

stance of the UPA government: Leakages anddiversion of grains are high. Only 41 per cent ofthe grains released by government reach house-holds, according to the 2004-05 National Sam-ple Survey (the latest data available), with somestates doing much worse. In 2001, the PlanningCommission has estimated this leakage of BPL(below poverty line) grains at 58 percent na-tionally.

If 58-60 percent of Rs 2,00,000 crore spent on

the Food Security Bill is going to be lost due toleakage and pilferage, this is a humongous Rs1,20,000 crore loss every year. Since it is SoniaGandhi who insists on the FSB in its current


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form after rejecting every other alternative (in-cluding cash transfers to the poor), it means this

bill ought to be sent to her and the National Ad-visory Council (NAC) she heads. Since we havetwo years of food security to nance before thenext election, the real bill will be Rs 2,40,000crore for 2012-13 and 2013-14.

Add Rs 2,40,000 crore to the Rs 3,05,000 crorebill the dynasty has already racked up to keepitself in the good books of the electorate and toget Rahul Gandhi the gaddi in 2014, and thetrue cost of Dynasty is Rs 5,45,000 crore.

NACs annualbudget in justaround Rs 4crore. But the

bill it is send-ing taxpayers isas much as Rs5,45,000 crore.

Can India reallyafford dynasticpolitics of this ir-responsible sort?

Lets return tothe economics ofthe Food Secu-rity Bill (FSB)again. Its worth beginning with the old saying,slightly modied for our purposes: Teach a manto sh, and he will feed himself for life. Givehim a sh every day, and you will have him eat-ing out of your hands. You would have created apermanent dependency and ultimately run out

of sh.

This is what Sonia-nomics will achieve with theFSB: a population dependent on the dole, andan economy ultimately unable to feed itself.

To be sure, lets give Sonia the benet of thedoubt and assume she has a heart of gold and

weeps buckets at the thought of anyone go-ing hungry. But nothing in the policies she has

backed so far suggests she has her head screwed

right.

If there is a crisis, of course, you should providefood to the hungry. But this can only be a short-

term measure. Since Sonia has been in powerfor more than seven years, the crisis phaseshould have ended long ago and long-term solu-tions found to the problem of hunger and foodsupplies.

Sonia Gandhi wakes up to hunger only whenelections are in sight. But we shall let that pass.

However, the damage caused by the FSB will bewith us long after the UPA is gone. The Bill willresult in the following dangers:

1) It will damagethe exchequerand stoke ina-tion causingthe subsidy bill

to go higher andhigher every

year, leading to apile-up of debts.India will beGreece by 2014.

2) The huge pro-curement targetsneeded to feed 75

percent of ruralhouseholds and50 percent orurban ones will

call for regular increases in food procurementprices. This will again feed ination.

3) If the monsoon fails in any particular year,we will have to import grain. International foodprices are already well above Indian levels. If we

enter the market which we have seldom done prices will go through the roof. High importswill send the rupee crashing raising pricesagain. This is a recipe for disaster.

4) High procurement means closing downthree-fourths of the market system in grainssince the government becomes a monopoly

buyer everywhere.

5) Both poor and rich farmers will try to game

the system. If the market gets you a price of Rs20 a kg for rice, and you can get 35 kg of rice perfamily per month at Rs 3, who will not buy fromthe PDS and sell to the market? This is cash


25/35

transfer by another name: graft will be the onlyresult.

6) The massive bill of Rs 6,00,000 crore forthe FSB over three years is essentially moneydown the drain. It works against the funda-mental argument about teaching someone tosh as against feeding him indenitely. It willcreate dependencies, when the amount couldhave been spent to create rural infrastructure toimprove agricultural productivity, and incomes.

What we have essentially done is consumed theseedcorn of the future by spending money tofeed instead of investing in rural infrastructure.

Raghuram Rajan, who teaches at ChicagosBooth School of Business, said the other day at

a lecture organised by Business Standard thatthe root cause of poverty in India was poor ruralproductivity. But instead of raising productivity,Indian governments were busy offering pal-liatives through money transfer schemes likeNREGA, higher support prices for food, and,now, the Food Security Bill. This can merelyraise rural demand without improving agricul-tural productivity causing ination.

But with UPA-2 listen? Unlikely, for the gov-ernment has just got its ears tweaked by SoniaGandhi for delaying her Food Security Bill.

UPA-2 is hastening our tryst with economicdisaster.


26/35

A Rs 95,000 croresubsidy bill.Is it worth it?


27/35

Sonias dream bill

food security,up for debate today

In what appears to be a busy day in Parliament,

the food security bill, whistleblowers bill and

judicial accountability bill will be up for

discussion in the House.

FP Staff, Dec 13, 2011


28/35

In what appears to be a busyday inParliament, the food security bill, whistle-

blowers bill and judicial accountability billwill be up for discussion in the House.

Food security bill

It will cover 63.5 percent of the total popu-lation including 75 percent of the total ruralpopulation. Of this number, 46 percent would

be priority households. In urban areas of the 50percent of total population, 28 percent would bepriority households.

Priority households would be given 7 kg perperson or 35 kg per family of government heldgrains. Subsidised rates would apply to 1 kg ofmillets, 2 kg wheat and 3 kg rice.

Parliament

The bill provides for cash benets to meet nu-tritional requirements of pregnant women andlactating mothers and children up to 14 years.

The bill is likely to cost Rs 1 lakh crore annu-ally in subsidies.

Pranab Mukherjee, Sharad Pawar and Montek

Singh Ahluwalia have objected to this bill in acabinet note. The PM had set up an EGOM onthis. But since this is Congress President SoniaGandhis dream bill, the govt had to nally givein to her demands.

There are strong indications that the agshipsocial welfare legislation, whose drafting wasoverseen by Sonia herself, could be introducedin the ongoing winter session of Parliament.

Judicial accountability bill

Judges will have to declare their assets andliabilities, and also that of their spouse andchildren.

A National Judicial Oversight Committee,Complaints Scrutiny Panel and an investiga-tion committee. Any person can le a complaintagainst a judge to the Oversight Committee ongrounds of misbehaviour.

Motion for removal of judge can be moved inParliament which will then go to oversight com-mittee.

Complaints and inquiries against judges willbe condential and frivolous complaints will be

penalised.

The Oversight Committee may issue adviso-ries or warnings to judges, and also recommendtheir removal to the president.

Whistleblowers bill

Anybody who reveals the identity of thewhistleblower would face imprisonment for

three years or ne up to Rs 50,000.

Department head to be held liable if whistle-blower is revealed.

CVC to have jurisdiction over all ministries,institutions.

A false complaint would make the person li-able to punishment with equal amount of im-

prisonment and ne.


29/35

Union Cabinet

clears costlyFood

Security Bill

If passed it will provide subsidised foodgrainand guarantee rice at Rs 3 per kg, wheat at Rs 2

per kg and millet at Rs 1 per kg.

PTI, Dec 18, 2011

Paving the way for subsidisedfoodgrains for the poor, the govern-ment today cleared the National Food

Security Bill that seeks to give legal entitlementof cheaper food to over 63 percent of the popu-lation that will cost an additonal subsidy of Rs27,663 crore.

Under the Bill cleared at a special meeting ofthe Cabinet, chaired by Prime Minister Manmo-han Singh on Sunday evening, each person ofthe priority household, similar to Below PovertyLine families under the current Public Distri-

bution System (PDS), would be supplied sevenkg of rice, wheat and coarse grains per month

at the rate of Rs 3, Rs 2 and Rs 1 per kg respec-tively.

According to estimates, the implementation ofthis would result in higher food subsidy by Rs27,663 crore taking the overall gure to aboutRs 95,000 crore.

The Bill, considered to be the pet project of UPAChairperson Sonia Gandhi, was announced inthe election manifesto of the Congress Party in2009 general elections.

Since September, 2009 the empowered Group

of Ministers, headed by Finance Minister

Pranab Mukherjee, has been deliberating on it.

Agriculture Minister Sharad Pawar has beenvocal about his criticism of the initiative due tonancial burden and also about the avaialbilityof foodgrains to meet the requirement under theproposed law.

The government would require 61 milliontonnes of foodgrains to provide food security asagainst 55 million tonnes required now underthe PDS.

Food Minister K V Thomas, who has met seniorCabinet Minister (including those from UPA

allies) last week to evolve a consensus in viewof some differences voiced by Pawar and theTrinamool Congress seeking more time to study

the Bill.

Besides cheap foodgrains to the poor, the Billalso seeks to provide minimum three kg offoodgrains per month per person under the gen-eral household category at a rate not exceeding50 per cent of the Minimum Support Price.

The government has also made a special allow-ance for pregnant women and lactating moth-ers, children, destitutes and homeless.


30/35

The drop in the Wholesale Prices In-dex (WPI) from 9.73 percent in Octoberto 9.11 percent in November is the rst

sign that slowing growth and a good monsoonare nally denting ination.

But keep your ngers crossed. The ofcial re-lease also raised the September ination gureto double-digits to 10 percent which meansthe November gure too could revised upwards

when the provisional gures are corrected acouple of months down the line.

Ination isnt over. A closer look at the numberstells us why.

The November gure of 9.11 percent is lowerbut not as low as expected by analysts be-cause food prices have fallen after a good har-

vest. Winter is when food prices fall anyway.So it isnt quite a triumph of anti-inationarypolicy or monetary action.

But food and primary articles, which accountfor a weight of around 20 percent in the WPI,are the only things falling. They fell from 11.4percent to 8.53 percent and made all the differ-

ence.

Manufacturing and fuel and light, which con-stitute 65 percent and 15 percent of the WPI by

weight, or nearly 80 percent, are still rising. Inthe coming months, they could make all the dif-ference.

In November, the ination rate for manufactur-ing crawled up from 7.66 percent to 7.7 percentand fuel and light from 14.79 percent to 15.48percent.

Given that the rupee has been heading southsince July, imported ination and costs are

bound to continue feeding the inationary pushin energy prices and manufacturing in the com-ing months unless international prices crashdue to the eurozone crisis.

The prospects for ination in the New Year de-pend on the following ifs.

If the eurozone crashes, and oil and commodityprices, fall, ination will continue to fall.

If the rupee continues to fall, it may negate thefall in commodity prices and boost ination.

If the UPA persists with its Food Security Bill,even the downtrend in food prices may reverse

in the second half of 2012.

If the monsoon next year is not as good, it willfuel a further rise in food ination.

Inflation isnt dying;we might be headed

for stagflation

WPI ination may be falling, but it is far from

being fully tamed. There are too many ifs and

buts to the fall in ination.



31/35

If growth continues to slow down, but cost pres-sures persist due to a falling rupee, we will havestagation slowdown or stagnation with risingprices.

If government revenues shrink due to the slow-down, the scal decit will widen and buildfurther inationary pressures.

Net-net: Dont assume that ination is over. Ithas been weakened, but is denitely not dead oreven dying.


32/35

Food security:

Easy to feed poor,

but not Gandhi family

The Food Security Bill will neither ensure

food security not spare the budget. It is only

intended to secure the political fortunes of

the First Family.



33/35

The Union cabinet is said to have de-ferred consideration of the contentiousFood Security Bill (FSB) because several

senior ministers Agriculture Minister SharadPawar, among them have questioned its vi-ability.

Just as well. The problem is not that the poordo not deserve food security, but a harebrainedscheme is not going to deliver it. The FSB, ascurrently conceived, is a messy compromise

between what Sonia Gandhis NGO mob wantsand what the government thinks its nances canafford.

Net result: the FSB captures the worst of bothworlds. It will neither guarantee food securitynor help the government keep its nances in

some shape in a year in which the world is goingdownhill.

In fact, we shouldnt call it the Food SecurityBill, but the Sonia and Rahul Political InsecurityBill. FSB is meant to secure the political for-tunes of Sonia and Rahul Gandhi, never mindthe cost. Feeding the poor is only incidental toits aims.

To satisfy the National Advisory Council crowd,the FSB seeks to cover 75 percent of ruralhouseholds and 50 percent of urban ones. (NAC

wanted 100 percent.) To satisfy the budgetsminders, it seeks to create two categories of sub-sidies very high subsidies for the ultra poor(priority households), and moderate subsidiesfor the rest (general households). The cost ofFSB will be Rs 1,00,000 crore in subsidies - andthis could be an underestimate.

Priority households will get 35 kg of coarsegrains, or wheat or rice at the 1-2-3 price: coarsegrains at Re 1 a kg, wheat at Rs 2 and rice atRs 3. The non-priority beneciaries will getthe same at half the minimum support price ofthese grains.

The problem with 1-2-3 is that it is not as simpleas A-B-C. The scheme will fail not only becauseit is too expensive, but because it is simply un-

workable due to its complexity.

As Pratap Bhanu Mehta argues in his IndianExpress column, the more a scheme relies on

complex targeting, the more likely it is to fail.

Mehta says that the FSB creates Orwelliancategories like priority households and generalcategory households. And it introduces newforms of differential pricing. In short, it will-fully incorporates into its design three featuresthat have made schemes in the past a failure:impractical targeting categories, administrativecomplexity, and incentives to game.

In Mehtas view, the scheme should be univer-salised to give it a chance of success, but hisobjections do not go far enough.

The more fundamental objection one shouldhave to the FSB is to ask where it ts into theoverall scheme of social safety nets for the poor.

Currently, we have scores of them, all of themimplemented poorly. The two most importantones are universal the Mahatma GandhiNational Rural Employment Guarantee Scheme(NREGA, for short), and the mid-day mealscheme for school children. Then, of course,

we have the current public distribution system(PDS).

Here are the questions to ask:

Is food security about delivering subsidisedgrain to the poor or creating income opportuni-ties for them and improving the public distribu-tion system (PDS)? If we do the latter, we dontneed FSB to ensure food security.

Is the physical delivery of grain more impor-tant than putting cash and choice in the handsof beneciaries? Isnt it simpler to focus on im-

proving agricultural productivity, and let peoplebuy what they want at reasonable prices?

If one aim of the FSB is to deliver nutritiousfood to pregnant mothers and early-age chil-dren, should this not be integrated with themid-day meal and anganwadi schemes wherecooked food is the goal? Should one create yetanother system for pregnant mothers?

Most important, why is it necessary to in-

sure both income and food for the poor whenone may do the job better? Should NREGA bestreamlined and made more universal to gener-ate year-round incomes, and perhaps include a


34/35

dole, too, to become the prime safety net for thepoor? There would be no need for FSB then.

Is it sensible to proliferate schemes withsimilar objectives when we can improve existingones to improve their efciencies? If more than40 percent of the PDS grain is pilfered or getsinto the wrong hands, shouldnt we be xingthis instead of starting yet another PDS underthe name of FSB?

Sharad Pawars objections to FSB that thescheme will drive up global food prices in case

we need to import, that it will ultimately affectthe interests of farmers, and that the subsidyscheme is scally unviable are valid, but can

be overcome with some planning.

But the ultimate truth is this: no governmenthas the capability to manage so many complexschemes intelligently and efciently.

It is a myth that organisations can target mul-tiple objectives successfully. Just as most indi-

viduals can manage at best one or two tasks wellat the same time, government can also manageonly one or two things simultaneously.

The UPA government has thrown caution to thewinds and is trying to do too many things with-out thinking about their implications and imple-mentation. Just look at the initiative overload ithas convinced itself about: after NREGA, it haslegislated the Right to Education, and now isplanning the Food Security Bill and universalis-ing health care. It is also planning to legislatetougher land acquisition and mining bills bothof which will take a huge amount of executivetime not to speak of the National Manufactur-ing Policy.

Quite clearly, the driving force behind all theseinitiatives is the political interest of the FirstFamily not national interest or the interests ofthe poor.

Proof: you cannot have long-term food secu-rity without an agricultural revolution, but thefood and agricultural ministries are on oppositesides of the FSB battle. Clearly, Sonia Gandhispolitical needs are trumping good policies. Badpolitics is leading to bad economics.

The bottomline: the country has enough re-sources to feed the poor, but not the voraciouspolitical ambitions of the First Family.


35/35

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How We'Re Confusing Food Security With FSA

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