Part 2
Tejinder Narang
PERVERSION OF POLICY AND PROJECTIONS
(Net effect of FSO is to increase consumption by 1 kg per person per month to 3.1kg per person per month from the present 2.1kg per person per month—for which beneficiaries are expecting bonanza and UPA is claiming credit. Fiscal health of the Nation is threatened while it will make little difference in the real sense)
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Electoral compulsions of 2014 demand political populism for Congress led UPA. A think tank—National Advisory Council (NAC)--headed by Sonia Gandhi made recommendation for National Food Security Bill (FSB) in 2009.
The mandate of policy planning, feasibility, statistical determination, subsidy/investments/ returns thereof and final estimation in any economic environment is the forte of Indian Planning Commission. In the absence of reliable data/ conclusions of the Commission, numerous numbers are floating in the media articulated by respected economists and research agencies based upon diverse indicators of Government agencies. It appears that country’s planning commission is not privy to the detailing of this FSO.
1) Poverty, not necessarily means hunger.
NAC, which is neither accountable to the Government nor Parliament, is guided by Nobel Laureate Amritya Sen , Professor of Economics at Harvard university —born in Santiniketan, West Bengal (India) and a socialist economist, based in USA who visits India now and then to remember and lecture on poverty, hunger and malnutrition, and what the Government should do through NAC. Sen and his followers’ see massive starvation related deaths in India. Seething opposition has come from all market friendly economists including Indian born US economist Jagdish Bhagwati, a Mumbai born Professor of Economics at Columbia University USA who believe that there could be poverty but that is relative standard of richness and not necessarily hunger.
As per National Sample Survey Office (NSSO) of India—people suffering from hunger --or inadequacy of food are only 1.9% in 2008-09. The hunger may have been further mitigated in last three years below 1.9%. Malnutrition due to poor calorie intake, impure water, lack of toilets, healthcare, sanitation etc. and poverty is measured by different parameters. Thus reality is quite different from what is perceived by Sen and therefore the sense of the bill is deemed senseless.
NSSO for 2011 reveals about 95% of urban and rural households are in good/livable conditions and 63% have cell phones with rural penetration of 54%. With every second person in the country in possession of a mobile phone, where electricity has to be is provided for charging the phone--- assumption of wide spread poverty and hunger, applied for FSB/FSO, is clearly misplaced.
The latest report of Tenudlkar Committee report of Planning Commission issued in December 2012 reveals that poverty ratio in 2009-10 is 29.8% --a steep decline from 45% in 1993-94. By 2013-14 it may even be below 25%. Coverage of 67% population under FSB/FSO even for poverty is 225% than what is revealed by the statistics. Such an over estimation is a profoundly flawed. This colossal variation speaks much of the electoral intent than merely of a socio-economic perspective.
2) Carrying huge stocks
Since 2009, the process of building humungous inventories of grain commenced which touched 82 mmt in June 2012 and 77mmt in June 2013 (about$ 27 billion). Ideas of Food security are translating into scarcity in open market reflected by higher grain prices at retail level.
3) Quantity estimates
Indian current ‘per capita monthly consumption’ of wheat and rice in 2009-10 as per National Sample Survey Office (NSSO) report no 545 ( January 2013) is 10.15 kg (5.9kg rice and 4.25 kg wheat)—of which Targeted Public Distribution System (TPDS) or subsidized share is 2.12 kg(rice 1.408kg and wheat0.619kg). 43% of the Rural and Urban population is under TPDS.
Net effect of the FSO is to enhance the current consumption of 2.12to merely an entitlement to 5kg/per month per person for 67% population at average subsidized rates of Rs 2.5 Kg whose economic cost is about Rs. 22/kg and rising every year by about 10%. (If coarse cereal is accounted, the consumption for cereals is a little higher)
For compliance with proposed bill, 61 mmt of grains per annum (55mmt now) and buffer norm of 47mmt (32 mmt now) are needed. (CACP report).
Since there are 50% leakages, only 30 million tons of grains will be “consumed” by 800 million populations, which is 37.5kg per person per year or 3.1kg per person per month. Net effect of FSO is to increase consumption by 1 kg per person per month--- more than now (2.1kg/month/per person)—for which beneficiaries are expecting bonanza and UPA is claiming credit. Fiscal health of the Nation is threatened while it will make little difference in the real sense.
In value terms the current subsidy is Rs 90000 crores ($15 billion). Central Government claims the enhancement in subsidy will be Rs.35000 crores ($6billion) –total 1,25,000crores or $21 billion-- by accounting only the enhanced purchasing cost of higher tonnage and eq to 1.5% GDP from the existing 1% of GDP.
Nomura Fixed Income Research group report of 10.7.2013 says “We do not expect a substantial fiscal impact in FY14 as implementation will take time. Our current estimate of the food subsidy bill is Rs 1 trillion in FY14, slightly above the government’s budget estimate of Rs900 billion (0.8% of GDP)”.
Other analyst who calculate extra investments for launching the scheme, additional funding in agriculture to bring some stability in production, storage, movement of grain (railways), progressive increase in procurement cost also called MSP (minimum support price) by 10% every year, re-identification of beneficiaries, strengthening of Food & Civil Supplies of each state, storage and delivery costs, grievance redressing mechanism, audit/vigilance etc will be minimum additional Rs.80,000 crores ($13 billion). That would inflate the cost of the bill to Rs. 200000 crores or $33 billion, about 2.2% GDP and in three years 600000 crores or $100 billion- as estimated by CACP (commission for Agricultural Cost and Prices).
Nomura Research Group comments once fully implemented, the “total cost of FSO is likely to rise from 0.8% of GDP to 1.3-1.8% of GDP over the next three years due to a higher food subsidy bill and other ancillary expense. Many investors and savers should be concerned over this dire forecast”.
Much of India’s economic growth has been dogged by persistent inflation, which the Reserve Bank of India (RBI) has been targeting for a while. Inflation could worsen if the government (as well as the next government post-elections) is not able to manage food supply properly. India will be surely humbled by its fiscal deficit .
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