Column: Rajiv Gandhi lessons on Food Bill

Written by Surjit S Bhalla | Updated: Jul 28 2013, 02:26am hrs
According to data just released by the UPA government, 250 million people, or 22% of the Indian population, was absolutely poor in 2011-12, a steep decline from the 38% level recorded in 2004-05. This is great news for India, but given the reaction in the media and opposition politicians, it is as if disaster had struck. Learned people lamented and argued that the R30 per person day poverty line, the basis for the above estimates, was set too low, that it was impossible for a person to survive on such low consumption.

This is very true. None of the politicians or the learned experts can survive on R30 per day. Theirs is an upper class survival definition. Unfortunately, the whole point about wretchedly poor developing country poverty is that most people do not earn enough to achieve not-poor middle class survival status.

No matter what poverty line the experts choose, it is the case that poverty has declined significantly during the first seven years of the UPA rule. And it is the same UPA that has significantly increased welfare programmes and expenditures for the poor. And it is the same UPA that is now stating that really two-thirds of the Indian population is absolutely poor and in need of food subsidies of 5 kg per person a month virtually free of cost (actually at R2 per kg with the market price at about R18 a kg).

In my previous article (The unimportance of NREGA, The Financial Express, July 24, 2013http://goo.gl/ZtXzGE) I had estimated the effect of the employment guarantee dole (NREGA) on poverty reduction. In this article I look at the effect of the three times larger dole of food subsidies on poverty reduction. Food subsidies are financed by the middle class taxpayer, and provided by the Food Corporation of India (FCI), a government organisation in charge of procuring, storing, and administering the supply of food to the ration shop.

There are two important leakages in food subsidy expenditures. (A leakage is defined as expenditure which does not reach the intended poor beneficiary.) The first leakage is in the quantity of foodgrains the government (FCI) states that it has delivered to the people, rich or poor, versus what the people actually receive (NSS data). Both in 2009-10 and 2011-12, this leakage amounted to R30,000 crore (with quantities valued at market prices of foodgrains). This leakage is not administrative costs, payments to FCI employees etc. This is simply the Indian vanishing rope trick. One can speculate as to what causes this disappearance into thin air. Leakage suspects include theft, food rotting (and rotten wheat going to the liquor trade), PDS food diversion to non-ration shops, etc.

The second leakage is food going to the non-poor. In 2011-12, the non-poor receiving a food subsidy were at an average percentile level of 64%. As it happens, this is near identical to the average consumption percentile level of the non-poor receiving NREGA payments for imaginary work (as reported in my previous article). Between a third and half of the non-poor who purchased a first or second hand scooter in 2011-12 also received food subsidies. Ditto for those purchasing a TV or a refrigerator. This is the second leakage component and one which accounted for R22,000 crore in 2009-10 and a much larger R31,000 crore in 2011-12.

Adding up the expenditures on NREGA (R31,000 crore) and food subsidies (R74,000 crore), the government spent about R1,05,000 crore in 2011-12. The poor received only R14,000 crore or just 13% of the money meant for them! This gives as 13% the estimate of the Rajiv Gandhi Corruption Index, so named because he was the first, and only politician, to honestly and publicly state that less than 15% of the money meant for the poor actually reached the poor. He said that in 1985. His wife Sonia Gandhi, along with prominent advisers like Amartya Sen, has gone to great lengths to reject his well-founded rejection of corrupt government policies and instead to implement policies that further enhance corruption. Ironic, sad, but very true.

That rampant corruption is the perception about the UPA and its policies and programmes is confirmed by the results of a 2011 and July 2013 all India CNN-IBN-Hindu survey of potential voters. Out of 75% who expressed an opinion in 2011, only 6.7% felt that the UPA-2 was not corrupt, while 80% believed that it was somewhat to very corrupt. The same survey in July 2013 shows an increase in belief about corruption in Sen-Manmonia land. Now 80% express an opinion, and of these, 83% believe that the UPA-2 is somewhat to very corrupt.

The head count ratio of poverty declined by 16 percentage points between 2004-05 and 2011-12. If properly directed and devoid of leakage, the money that the UPA has spent on these welfare programmes would have been enough to make poverty zero. How do we know that From the following: average monthly per capita expenditure of the poor in 2011-12 was R709 and the poverty line for that year was R893. The average shortfall in expenditure per person is therefore (893-709) or R184 per person per month or R2,210 per year. The number of poor in 2011-12 was 250 million. So perfectly targeted money to make 250 million poor non-poor and zero poverty (the dream of Mahatma Gandhi, Nehru, Sonia Gandhi, and all of us) in 2011-12 was only R55,000 crore.

The NREGA and PDS dole expenditures did reduce poverty by about 3 to 4 percentage points or 40 million people in 2011-12. It should have taken R8,000 crore to achieve this objective. The UPA government, in its largesse, spent close to 14 times the amount needed. Baap ka paisa jo hai. The UPA may not have the mind, but at least it has the heart to waste money for the poor. This money could have been better spent on creating Sen capabilities, by providing water, sanitation, making the poor a lot richer and even substantially raising the poverty line. Isnt it better, much better, to create capabilities in practice rather than rights in theory

By redirecting expenditures meant for the poor to the poor, we can increase the poverty line by at least 30% and still have 22% poor. That would be good policy which all of us can and should endorse. But it wont happen with policies like the food ordinance or NREGA. These policies enhance corruption, corruptability, and provide corruption money to the middle class. The choice is clear for all of us. As we watch, in shame and in sorrow, all the political partiesespecially the Congress and the BJPpass the Food Security Bill.

Surjit S Bhalla is chairman of Oxus Investments, an emerging market advisory firm, and a senior advisor to Blufin, a leading financial information company. He can be followed on Twitter, @surjitbhalla