The chief spokesperson of the Congress party, Ajay Maken, in a live television interview, apparently took great pride in reeling out that, in 2004, the food subsidy bill was only R25,000 crore (about $4.5 billion), which will rise to a massive R1.25 lakh crore (about $23 billion) by the time the Food Security Bill (FSB) is implemented. He was very clearly claiming that by increasing the food subsidy bill five times, his party had proven its pro-poor credentials! The needle has turned full circle. In Indian politics, we now brag about our fiscal profligacy and not try to hide it. This degree of brazenness must leave us aghast. But the question to ask is whether the FSB will actually help the poor or would they in fact be worse off in the coming period as a result of this measure.
Common knowledge tells us that Indians are currently not starving and there are no reports, not even from the most backward districts, of food deprivation and hunger deaths. Yes, there is deprivation but this is surely due to a shortage of proteins, vegetables, fruits and poultry products, that are priced out of the reach of the poor. It is surely not a result of the poor being unable to access basic foodgrains in any part of our country. If that was the case, our political leaders would have faced the wrath of the people much earlier for allowing millions of tonnes of foodgrain to rot in the Food Corporation of India (FCI) storage as happens with pathetic regularity. With assured returns from even higher procurement by the FCI, farmers will be even more disincentivised to produce any other product except foodgrains. The existing distortion in supply response in the agriculture sector will get even worse and the food price inflation for non-foodgrain commodities, which are in higher demand, will be aggravated. The result will be that the poor who are deprived of these necessary nutrients will be further pushed out and suffer even more food-related deprivation as a consequence of the FSB.
But this is certainly not the entire negative impact. All those who propagate the FSB know as well that the poorest in India are effectively excluded from the coverage of the public distribution system. The large majority of the actual poor have to fend for themselves in the open market. Migrant workers on all construction sites, hawkers, rickshaw pullers, etc, are just not covered by the governments corruption-ridden and highly leaky public distribution system, which remains highly biased towards the formal sector. These really poor people, who have to depend on the market for their daily dietary needs, will face higher prices even for foodgrains as a result of the FSB. This will be a direct consequence of higher procurement by the FCI. Thus, the residual supplies reaching the open markets will be much smaller, forcing up the foodgrain prices and in all likelihood also resulting in shortages and supply bottlenecks. The poor will face even greater hardships as the cost of basic necessities will rise even higher. And yet the Congress party will hit the electoral road claiming that they have worked for the welfare of the poor.
I am, therefore, dumbfounded that all this is happening under the watch of Manmohan Singh, Montek S Ahluwalia, C Rangarajan and Raghuram Rajan, who was the chief economist of the IMF, an agency that stood for (am not sure now) for fiscal rectitude and prudence. I do not include finance minister P Chidambaram, because being a quintessential politician of the highest calibre, he has played the game earlier. In the February 2008 Budget, he let public expenditure expand by a full 3.5% points of the GDP. I have since maintained that we Indians are so clever that our leaders anticipated the Lehman crisis and reflated ahead of it! That successfully paved the way for the UPAs electoral triumph in May 2009. But we are still paying the price of fiscal indiscipline that led the way to good economic policy being completely sacrificed to political expediency in the first three years of the UPA-2, and which has seen the economy turn turtle with lowest GDP growth rates in more than 10 years. During 1991-95, when I had worked in the ministry of finance, headed by Manmohan Singh and Montek Ahluwalia, they would not tire of warning us against the dangers of competitive populism and fiscal recklessness. No less than the governments own chief agriculture economist, Ashok Gulati, the chairman of the Commission of Agriculture Costs and Prices, has repeatedly warned of the unsustainable fiscal burden that this one act will put on the public fiscal. But, alas, to no avail. However, I want to emphasise that it is not the fiscal unsustainability but the negative impact on the poor that should force all concerned to think twice before going ahead with the FSB.
But the FSB allows this government to proudly claim that they have made food security a right that can be legally enforced. The irony is supreme. Can we seriously argue that the poor will actually move to legally enforce their right to sufficient food! Has the Right to Education seen legal action to take children off the streets and away from horrible work places Has the Right to Information made governance transparent and not full of unprecedented scams and crony capitalism This populist trend to legislate economic rights without due attention to providing gainful employment is populism run amuck. It should leave us dumbfounded because all this is being overseen by avowedly the best economists.
The Congress party legalises the right to food while at the same time overseeing economic growth rate decline to 4.8% in the last quarter of FY13 from the 8.1% it had inherited in 2004. It has allowed private investment to come to a near complete stop and seen private capital outflows from India become larger than inflows. Industrial sector growth has plummeted from more than 10% to less than 2% now and soon enough firms will be laying off workers. New employment opportunities have practically dried up already. Clearly, the ruling party thinks that there is no contradiction between its promise of food security and greater unemployment. They perhaps forget that after nearly 15 years of sustained growth, even the poorest Indians are more concerned about a dignified existence that comes from being gainfully employed and not interested in living on charity or dole. Our leaders must realise that India today needs to create 1 million new jobs every month (yes 12 million every year) for the next 10 years or longer to simply absorb the entrants to the workforce. As jobs dry up, these youngsters will become gun fodder to expanding groups of extremists and fundamentalists. A terrifying prospect and a certain path to social and economic ruination that the country can ill-afford.
The author is senior fellow, Centre for Policy Research, New Delhi