Column: Manmonia's FSB: 3% of GDP

Written by Surjit S Bhalla | Updated: Jul 6 2013, 11:00am hrs
The Food Security Bill, sorry emergency Ordinance, if implemented honestly, will cost 3% of GDP in its very first year

We have an emergency of the rarest order. The BJP stops Parliament and therefore the government passes an emergency privilege provided by the Constitution to pass the Food Security Ordinance.

The Bill, sorry Ordinance, wants to provide food to the poor in order to eliminate poverty. This, according to the Congress, was Sonias dream and indeed was part of the Congress manifesto in 2009. Again, if the Congress spokespersons are to be believed, this is a path-breaking attempt to eliminate poverty. It will give the poor a legal right to claim their 5 kg of rice, wheat or coarse cereals a month at the subsidised rates of R3, 2 and 1 per kg, respectively.

This Act-to-be follows the same pattern and motivation as the Employment Guarantee Act passed in 2005. At that time, the Congress had claimed that this would provide much needed employment to the poor, that it was something new being offered. They never once mentioned that government-guaranteed employment was first provided by the state government of Maharashtra, and since the early 1980s, it has been part of central government schemes. The Food Security Bill (FSB) is merely an extension of the public distribution system (PDS) of foodgrains which has been in operation by all central governments since the late 1970s!

The import of this is to partly nail the blatant spin (lie!) that the Congress government is adding to its list of scams. But they can be forgiven, because this is an election year and by all accounts the Congress is desperate. From a policy point of view, the relevance is that Indian governments and polity have considerable experience with employment guarantee schemes as well as food distribution schemes. What does this experience tell us

Another claim by the Congress is that the FSB will provide a legal right to the poor for the food, just as the MGNREGA has provided a legal right to the poor for employment. And the poor can sue the government for lack of food or jobssurely, the most advanced welfare system in the world, and something India, and especially the Congress, should be justly proud of.

The Employment Act scheme has been in the works since 2005-06, and for all India since 2008-09. So there is five years of concentrated experience with employment provision to the poor. Fortunately, to date, no rich and especially no poor person has sued the government for lack of employment, so it must be the case that the poor are fully satisfied and employed for at least the 100 days provided by the Act. Then why is it the case that over two-thirds of the beneficiaries of the employment guarantee scheme were not only not poor in 2009-10, but their average consumption was 50% higher than the average expenditure of the poor beneficiaries! And these non-poor doing back-breaking MGNREGA work were in the top third of the distribution! Only two conclusions are possiblethe middle class rich are not doing back-breaking work or there is a lot of corruption in the MGNREGA scheme (the dictionary defines a scheme as to make plans, especially in a devious way or with intent to do something illegal or wrong.) So that is why there have been no legal suits even though there is lack of jobs for the poor (even the government admits to that fact) and the fact that the MGNREGA has not been able to spend the money allocated to it in any of the last five years.

There is little doubt that the MGNREGA is plagued with corruptionwhat maybe news to the governance by ordinance wallahs is that the PDS of foodgrains, whose operations the government will only multiply, is, on proven evidence, many times more corrupt than even the MGNREGA.

Before proceeding further, I want to set up some ground rules for discussion of the FSB, and the poor. In a recent panel discussion on CNN-IBN, noted food security expert and Principal Adviser to the Commissioners of the Supreme Court, Biraj Patnaik, alleged that I molested poverty data. For long I have held the belief that policy discussion should be centred on evidence, not ideology, and especially not You have to believe me because I am arguing for the benefit of the poor. Hence the title of my column No Proof Required. So when you look at the evidence presented in this article (above, below and in the table) please inform me which data, or estimate, or conclusion, is incorrect, and whose evidence is proof of molestation.

The estimates contained in the table are from the recently released NSS consumer expenditure data for 2011-12. It presents calculations for the subsidy involved if governance by ordinance becomes law. Two columns are presented, one a factual based assessment of what happened in 2011-12, and the other if the FSB was implemented faithfully, as I am sure the Congress, and Manmohan and Sonia (hereafter Manmonia) would want to do. After all, they are all honourable persons.

The simplest possible summary of the subsidy is as follows (tell me where I am wrong or mad or molesting). Assume the subsidy in year BFSB (before the Bill) is 100.

According to NSS data, only 45% of the population was accessing the PDS system in 2011-12. With the Bill, it will be 67%. So based on greater coverage alone (the better for elections, my dear), the subsidy will increase to (100*67/44.5) or 150.

The NSS data states that in 2011-12, average PDS consumption was 2.1 kg per person per month. So with greater consumption, the subsidy bill increases to (150*5/2.1) or 357.

But because India is growing so fast and so can afford largesse, and it is Sonias explicit dream to introduce the FSB (and Congresss manifesto promise), the subsidy per kg will increase from R13.5 per kg to R16.5 (with weighted market price staying constant at R19, the subsidised price declines from R5.5 to R2.5 per kg). This increases the subsidy to (357*16.5/13.5) or 436.

In 2011-12, total food subsidy (government figures) was R72,000 crore. So AFSB (after the Bill), food subsidy expenditures will be R72,000*4.36 or R3,14,000 crore or 3% of GDP.

This is an open challenge to Ms Sonia, and Dr Manmohan Singh and Mr P Chidambaram. Your minions are stating that the ordinance induced FSB will only increase by about 25% and will amount to 1% of GDP. I get a conservative increase of 336%, or a total subsidy level of 3% of GDP with an honest implementation of the Bill, sorry ordinance. One of us is massively wrong. I believe it is not me. But prove it otherwise.

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