Column - Mindless populism: Facts and remedies

Written by Surjit S Bhalla | Updated: Jul 5 2014, 06:25am hrs
Finance Minister Arun Jaitley recently stated that there was no room for mindless populism in Budget 2014. In this article, the first of a two-part series, mindless populism will be defined and estimates provided; the second will contain further facts, and remedies.

The following simple definition of populism may be considered representative. Populism means expenditure programmes aimed at subsidising a large, preferably majority, of the voting population. In many countries, populism would be social expenditures targeted at the middle-class. In India, these schemes would be those targeted towards the absolute poor. However, what the Congress party did not realise, or appreciate, is the simple fact that the absolute poor were less than a quarter of the population in FY12, and possibly less than a fifth at the time of the 2014 election.

There is another element to the mindful nature of populism. Indian politicians should be aware that as per capita incomes have increased manifold, so has the percentage of population subject to income tax. So this financing class worries about the efficacy of the delivery of subsidies to the poor, and to themselves. Mindless populism is now a deep negative for getting elected in India. Dont believe me, believe the Congress which, despite many populist programs, has just managed to register the largest loss for any incumbent national government anywhere, at anytime. In 2009, it won 206 seats; in 2014, just over a fifth of the seats. That is a world-record for the BJP and Mr. Modi to be proud of, and for mindless populists to beware.

The longest running, and the most expensive of the social programmes for the poor, is the food subsidy program populistically called the Public Distribution System (PDS)a scheme that has been in operation since the late-1970s. The total expenditure on this policy in FY15, thanks to it having been enshrined as law by the Sonia Gandhi-led previous government, is slated to be R1.25 lakh crore.

Facing deal

The Tendulkar poor today are likely to be around 250 million. So, the populism of the Congress dictated that the government would spend R5,000 per poor person on food subsidies alone, i.e., not including NREGA (let us call it by its original name rather than introducing the Mahatma into the controversy), not including fertiliser, not including diesel, not including kerosene, and not including LPG. Incidentally, these excluded items together account for approximately R1.75 lakh crore.

Let us just concentrate exclusively on this PDS subsidy. Is expenditure of R5,000 per poor person mindless populism The answer is a doubly emphatic yes, i.e., it is not mindless populism but mindless-squared populism.

In the run up to the 2014 election, the welfare schemes of the UPA government came up for much discussion. Last year, at the time of the Food Security Bill, Madam Sonias dream project which the BJP enthusiastically supported, it was believed that all was right with the PDS scheme, except perhaps implementationand the BJP said that they were doing PDS delivery much better than the Congress, and all one had to do was to look at Chhattisgarh where the thrice-elected Chief Minister Raman Singh had completely revamped the corrupt food delivery system.

The accompanying table vindicates the BJP claim. It shows the PDS consumption for rice and wheat in selected states of India in FY12 (NSSO data). In Chhattisgarh, delivery of PDS rice to the poor was close to the highest in the country4.2 kg per poor person. Not reported, per poor person PDS delivery of wheat was 0.5 kg; thus, Chhattisgarh had nearly achieved the FSB target of 5 kg. of foodgrains in FY12 itself. Note, however, that both Tamil Nadu and Odisha are also PDS success states. However, these three states are the only exception. Nationwide, the poor received only 1.9 kg of rice and 1 kg of wheat in FY12.

But there is another curious fact that emerges from just a casual perusal of the table. While PDS delivery increased substantially in Chhattisgarh, Odisha and Tamil Nadu, the absolute consumption of foodgrains declined in these three states, as well as all India. And the decline is not smallmore than 10% in Chhattisgarh alone. The same pattern of declining total consumption is observed for the non-poor. This fact has several implications, especially for consideration of mindless populism.

First, what this reveals is that the need for the Food Security Bill was never there, neither for poverty reduction, nor for the attack on hunger. Foodgrains are what economists call an inferior goodas your incomes go up, and increase beyond the absolute poverty/hunger level, your foodgrain intake goes down. For a poor person suffering from chronic hunger, cereal consumption does increase. However, past a certain biological need, cereal consumption plateaus, and then declines. From the data, it appears that this peak plateau was reached sometime around 2000, and what can be said with near certainty is that the average poor person was not suffering from hunger in FY12, i.e., while some fraction of households in India do suffer from hunger, this percentage is likely well below the Tendulkar poverty level of 22% in FY12.

Second, as Dean Spearss research has convincingly shown, which is also medically and biologically intuitive, digestion of food is a function of the quality of water intake and the quality of available sanitation; hence, the desirability and advocacy of toilets before temples. So thrusting food down peoples throats (rich or poor) will not help wastage, or stunting, or health, if the appropriate and healthy sanitary environment is not present. For the lawmakers to be unaware of the inefficiency of food intake in the context of open defecation (lack of sanitation) shows a sinful disregard for facts that matter.

Third, and a final calculation, on the cost of mindless food populism. Out of the 273 million poor in FY12, only half (145 million) received any PDS delivery of rice or wheat. The UPA government spent R73,000 crore on food subsidy in that year. Both rice and wheat subsidies to the poor added up to R12,000 crore. In other words, the government spent more than R6 to transfer R1 to the poor. Where the rest went is for you to figure out, but even a 2-to-1 ratio qualifies as mindless populism; what we have here is mindless cubed populism!

The author is chairman, Oxus Investments, an emerging market

advisory firm, and a senior advisor to Zyfin, a leading financial information company. Twitter: @surjitbhalla