EDITED EXCERPTS FROM AN INTERVIEW
The Food Bill has triggered a lot of fears: primarily that the country does not have the revenue to fund this and cannot afford it. Is this fear justified?
One of the first things we learn in economics is to distinguish between economic costs and financial costs. If there were no distinction, economists would be superfluous — good accountants would do. Unfortunately, the debate on the Food Bill overlooks this distinction, and focusses almost entirely on financial costs. And even the discussion of financial costs is often misleading.
Starting with economic costs, the first point to note is that foodgrain procurement has grown by leaps and bounds over the years. Last year, procurement reached 73 million tonnes — a full 12 tonnes more than what is required for the Bill. The driving force behind growing procurement is not the need to feed the Public Distribution System (PDS), but the steady increase of Minimum Support Prices (MSP). The PDS has been used as a dumping ground for excess stocks, with little regard for efficiency or equity. Even then, excess stocks have grown to unprecedented levels. The Bill is an opportunity to make much better use of these resources. Contrary to a common perception, actively promoted by the business media, it does not require any increase in procurement levels. But it can help to ensure that the foodgrains being procured are used to protect people from poverty and insecurity. Seen in this light, the economic costs of the Bill are not very large.
As far as the financial costs are concerned, the official estimates seem plausible. But they have to be correctly interpreted. For instance, the fact that the so-called ‘food subsidy’ is likely to rise to Rs 1,25,000 crore per year after the Bill comes into effect does not mean that this is the cost of the Bill! The food subsidy has been rising year after year on its own, mainly because of rising procurement and support prices, as I have just explained. Counting the food subsidy as the cost of the Bill would be like spending Rs 5,000 to upgrade a laptop worth Rs 50,000, and saying that the upgrade costs Rs 55,000!
Further, even the additional subsidy associated with the Bill is partly a transfer from the Central to state governments. The net additional expenditure for Central and state governments combined is very moderate and eminently affordable.
There is a lot of corporate hostility to the Food Bill. Can you help us get perspective on why this is so?
Corporate hostility does not tell us anything except that the Food Bill does not serve corporate interests. Nobody is claiming that it does, nor is that the purpose of the Bill.
Many factors seem to have contributed to the devaluation of the rupee, including the binge of gold imports, public subsidies for oil imports, changes in monetary policy in the United States, and more recently, the prospect of a military attack on Syria. It has little to do with the Bill.
To the extent that it does, the main reason probably lies in the irrational fears that have been generated by wildly exaggerated estimates of the financial costs of the Bill in the business media. An impression has also been created that the Bill would require a huge expansion of procurement and distribution. A financial analyst who learns about the Food Bill from the corporate-sponsored media is bound to be worried.
Would you accept that you need high growth to fund big welfare spending — or rather investing — in India’s citizens?
Economic growth obviously helps to fund social programmes. This is one of the positive aspects of growth, but that does not tell us how to balance growth with other objectives, or what kind of growth we should pursue. Nor does it mean that we should wait for growth to invest in education, health or social security. Countries that have made an early start down that road have tended to do very well, and that applies to Indian states too.
There are also fears that so many welfare handouts will turn Indians into an entitled, lazy unproductive society; that people will not seek work; farmers will not produce. Is there any ground to this?
To me these sound like pretexts to retain one’s privileges and resist any form of social solidarity. It would be hard to provide any evidence to substantiate these claims. In fact, being more secure and better nourished typically helps people to be more productive, not less. I am not aware that Tamil Nadu or Himachal Pradesh, where the social security system is relatively well developed, have lazy or unproductive populations. On the contrary, their social initiatives have contributed to economic growth as well as to human development.
Critics believe India will get trapped into importing foodgrain to meet this commitment. Do we produce enough food to meet this commitment?
India has been exporting foodgrains recently, and gigantic foodgrain stocks are also available. I don’t see this as a problem in the foreseeable future. In fact, in all likelihood, the problem of excess stocks is going to continue for quite a while.
It can bring some security to poor people, including small farmers who are extremely vulnerable to crop failures, illness and other contingencies. Some aspects of the Bill, such as maternity benefits and children’s entitlements to nutritious food, can also help to reduce undernutrition.
What are some of the main failures of the PDS that this Bill addresses and what part of that does it fail to address?
Recent experience shows that broad coverage, low issue prices and clear entitlements can go a long way in ensuring the effectiveness of the PDS. The main reason is that all this creates a strong public demand for a well-functioning PDS. The Food Bill is a good move in this respect. Of course, more is required, including the sort of PDS reforms that have been implemented with good effect in Chhattisgarh and Tamil Nadu.
The Bill directs state governments to undertake some of these reforms, without getting into details. Perhaps it should have been more specific, but there is also a case for some flexibility.
What are some of the other loopholes in the Bill that you feel make it faulty; that you would have wanted to do differently?
There are plenty of flaws and loopholes. In fact, I am as much a critic as a supporter of the Bill. Aside from limited entitlements, especially for children, important flaws of the Bill include excessive powers for the Central government and weak provisions for grievance redressal.
But perhaps the most important flaw of the Bill is that it does not really create enforceable entitlements for anyone, because the selection of eligible households is left to the discretion of the government. Anyone who is left out can always be told that he or she is not eligible. The Bill should have made it mandatory for state governments to specify exclusion criteria, and deemed everyone else eligible.
Critics argue that the Bill violates the federal structure. What is your view?
I am not aware that the Bill violates the principle of federalism in a strict legal sense. But I do see a danger of over-centralisation, particularly when it comes to the PDS. Many states are doing a reasonably good job, at the moment, of reforming the PDS on their own. Some nudging of other states by the Centre may help, but excessive interference from Delhi could also be very counter-productive.
Are the reservations chief ministers like J Jayalalithaa have had, that it will add an extra Rs 1,000 crore to the Tamil Nadu exchequer with the benefits being marginal since her state already provides rice for free, valid?
Some of Jayalalithaa’s reservations are valid, others are not. She was right to demand that existing foodgrain allocations should continue for states that would lose otherwise from this Bill. It was also reasonable to demand that the Bill should specify at what price the current allocations would be maintained for these states. But when she asked for the entire allocation to be available at Rs 3 a kilo, she was effectively pitching for a cool windfall of Rs 1,300 crore per year for Tamil Nadu. This would be difficult to justify.