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 Economic Freedom
Endless populism: Economic insecurity or food security?
Liberty Institute, India Friday, July 1, 2011

Ravi Shanker Kapoor
Can India afford the the continous saga of political populism of its leaders? The Food Security bill, will make the country more insecure, says Ravi Kapoor.

The draft Food Security Bill has become a big irritant between Prime Minister Manmohan Singh and the Sonia Gandhi-led National Advisory Council (NAC). While the latter is trying to expand the role and scope of government as much as possible in food-grain distribution, Singh is trying to limit the populism to whatever extent it can.

The Prime Minister may be fighting a losing battle, for his own ministers are seem keener to follow the NAC chief’s orders than to obey his commands. Food minister K.V. Thomas, for instance, told The Economic Times in an interview (May 30), “[The Food Security Bill] has been drafted under the direction of Madam Sonia Gandhi.”

The Prime Minister's Economic Advisory Committee (PMEAC), headed by former Reserve Bank governor C. Rangarajan, has serious differences with the NAC on a variety of issues. But it must be noted that the PMEAC’s resistance to the NAC’s big state measures is feeble and based on practical considerations. While the NAC wants three-fourths of the population to be the beneficiaries of subsidized food-grain, the PMEAC favors such subsidies for 46 per cent of rural population and 28 per cent of the urban people. So, nobody is talking about, let along opposing, the moral hazard of Leviathan statism; there is no ideological or principled opposition to the giant strides being made in government spending.

On the face of it, the government does not suffer from any extraordinary fiscal strains. In fact, fiscal deficit stood at 4.68 per cent of gross domestic product (GDP) during 2010-11, which compares favorably with the projected 5.1 per cent.

What these pretty figures conceal is the fact that much of the supposed improvement was because of the auction of 3G spectrum which fetched the government over Rs 67,700 crore. Every year the government cannot have such surge in non-tax revenue.

In absolute numbers, the deficit was Rs 3.69 lakh crore, which is much higher than Rs 139,231 crore, the corresponding figure during 2004-05, when the Manmohan Singh government assumed office. The rise in deficit is despite good economic growth during these years and impressive rise in tax collection because of better compliance. Big state adventures have eroded the exchequer.

So, how will the proposed legislation be funded? The cost has been estimated in the range between Rs 80,000 crore and Rs 1 lakh crore. This would be more than double the amount spent on the rickety public distribution system (PDS).

Instead of looking for novel ideas for improving food-grain distribution and increasing the role of private sector for efficiency, the government remains stuck with linear thinking. Among other things, it is trying to transform the inherently inefficient Food Corporation of India (FCI) into a modern, competent machine to address the gigantic task of grain distribution. As Thomas said, “Compared to earlier periods, the recruitment in Food Corporation of India has risen by 10 per cent. We have modernised FCI go-downs through computerization. Sitting in my office, I know the quantity, quality and distribution of grain from each go-down. We have put CCTV cameras to watch operations. We have also enabled e-transactions; every payment above 1 lakh will be e-transacted. To complement all this, PDS will be improved through Aadhar.”

In short, the idea is cure socialism with more socialism. The endeavor is doomed, for the capabilities of FCI are grossly inadequate. A recent study conducted by, among others, chairman of the Commission for Agricultural Costs and Prices (CACP) Ashok Gulati said that FCI’s efficiency was half that of private traders.

Further, the proposed food security legislation can be pervasive enough to drive out private companies. The study also recommended that the government, instead of embarking on a massive exercise in food-grain distribution, should explore the options of cash transfers and food coupons.

“Strangulating the private sector could impact other key areas in agriculture, including seed and storage where its role would become even more crucial now,” the study said. Ad hoc government policies have already adversely affected the private sector in a few states.

The Left-leaning activists of the NAC are not satisfied by higher government expenditure and the attack on the private sector; they want more; the council reportedly wants complete ban on food-grain exports.

More radical Leftists are dissatisfied by even the NAC’s recommendations. Jean Dreze, who is credited with conceiving the rural employment guarantee scheme, is not comfortable with the existing NAC proposals. Populism is endless.

This article was published in the Liberty Institute on Friday, July 1, 2011.
Author : Mr Kapoor is a journalist and commentator on current affairs, based in Delhi.
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