Wednesday, September 4, 2013

Indian Food Security Bill—A National Betrayal

Tejinder Narang

Sonia Gandhi with her five minute of parliamentary intervention on 27th Aug 12013 in Lok Sabha overruled the entire political and economic establishment of India, while MPs watched in silence her firm articulation for supporting  Food Security Bill (FSB). The entire cacophony of last five years on FSB was nullified in less than a day when she stressed “we have no option but have to manage to do it”. She proved her emotional mettle for the poor. Others proved their incompetence –economic consequences notwithstanding. None effectively responded.
Rating agencies like S&P indicated their intent to downgrade India’s rating. Eminent economist approximates annual cost to exchequer of Rs 3 lakh crores ($46 billion) vs official estimates of Rs.1.25 lakh crores ($20 billion) with Indian GDP of 1.5 trillion. There is a definite apprehension of back channel understanding of political collusion amongst all parties for reasons mentioned at the end of this blog.
Though Government is to be blamed for poor governance, Courts have also acted as blockers of reforms by indulging into judicial activism and CAG raised its own pitch of righteousness which de-incentivized proactive policy decisions.   

On 4th September 2013, two eminent economists Surjit Bhalla ( hereafter Bhalla) and Ashok Gulati (hereafter Gulati), Chairman CACP (Commission on Agricultural Costs and Prices of Government of India) made combo presentations of identical nature literally in Financial Express (page 6-7), bemoaning financial rot and  havoc of the Food Security Bill(FSB) Ref ( and
Bhalla has amplified his earlier calculations on 3% plus burden on GDP (which is plunging below 4%) by detailing losses of FSB and collateral wastages in hoarding/leakages of grains on eligible and non-eligible beneficiaries or Rs 3 lakh crores plus  ($46 billion) vs official estimates of Rs.1.25 lakh crores ($20 billion) with Indian GDP of 1.5 trillion in 2012-13. He assumes that  if one has to reach 67% population in reality, then the bucket will have to have grains much more than that, i.e., what is needed for 67%  population PLUS the leaked amount which is about 45-50% higher-- than what Government has presumed. That is how he gets this humungous estimate.
Minimum Support Price (MSP) is raised by 8-10% annually by Government of India, while release price of Rs 3-2-1 /per kg to targeted beneficiary  of Rice/wheat/coarse cereal like corn is fixed for three years. Expenses calculated by Bhalla will ascend by 8-10% annually in shrinking GDP.
Gulati is endorsing the same in a simplified and quantitative manner.  He says that poor man is shown the compassionate carrot of grains of 5kg/month while actual delivery is 2.5 kg. Per capita requirement in India is 10.7 kg/month. Balance 8.2 kg he has to buy from open market at much higher prices with cereal inflation of 17-18%. CACP numbers don't adjust for leakages. It highlights additional investments of Rs 1, 10, 000 crores or $17 billion needed to stabilize agro-production, create storage infrastructure at state/district level; and railways to carry the grain in time and quickly, and some expenses for modernization of PDS, and setting up of food commissions and grievances cells, etc.
Bhalla and Gulati are both right. It is very rare these days that someone speaks with bare facts.
How can Government continue to blindly support open ended procurement- when storage capacity does not exist and leakages galore. New Chairman of FCI has stated “Wheat stocks are stored in cover and plinth (CAP), which is a proven and time-tested method (Financial Express on 21 st Aug 2013 To call CAP storage—sacks covered with plastic sheets a “proven and time tested” demeans basic intelligence of any common man. About 11 million tons of new crop wheat is threatened by destructions in CAP storages by rain and weather in Punjab and Haryana (Business Line 14th July 2013.)
FCI website captures 38million tons of storage capacity including that of States warehouses, including 3.5 million tons of CAP. Officially FCI/State agencies have been carrying maximum 75-80 million tons of grains for last two years. An erroneous picture indeed it is!!

FSB is a doctrine of “paper entitlements” without committed obligation in the real sense, except for the Government to perform on best efforts basis. It does not empower people for food—it simply raises their expectation from the Government to deliver food. “Entitlement” does not mean commitment of “delivery or availability” to the beneficiary. It merely ensures a legal right to a “hungry” person for enforcement of his claim in a Magisterial Court, after following an elaborate procedure of lodging the complaint/ enquiry against Food and Civil supplies unit through State Food Commission.  It may then be followed up at High court and Supreme Court for final adjudication. Who incurs the cost of litigation is ambiguous. Are we promoting intent to litigate on 5kg of grains by a hungry person –theory of absurdity?

Contrary to the market reforms initiated in 1990-91, FSB restores the system of socialistic economy of 1960-70’s in the grain chain. Government monopoly of grain trade extends from 30%-35% as of now to potentially 95% under open procurement system (keeping 5% for seed). Private sector is crowded out all the more. The world is witness to Thai Government intervention and mismanagement of paddy/rice policy. India is drifting to similar state of affairs.

It burdens the state for setting up additional/doubling the official machinery with financial implications and creates additional jobs for retired bureaucrats for warming the chairs.

Three lakhs crore of yearly burden inclusive of Rs.68000 crores of leakages is an annual scam at the cost of taxpayers. Why the Courts are silent on this?? None cares for catastrophic consequences while Government becomes immune to any accountability with approval of Parliament. Otherwise CBI hounds for a loss one lakh rupee. Is there no SIT (Special Investigation Team) of Supreme Court for those who have depressed the entire economic growth of the country and made it a beggar of FDI/FII and rupee is becoming worthless currency with each passing day-- depreciated by 20% in three months from May to Aug 2013? Will the people not crave for savings in Gold whose local value is jumping up disproportionate to metal’s international value? This is yet another sign of economic sickness.
After “carrot” comes the “stick” of fuel prices hike to adjust the subsidy bill. Massive defence outlay of billions of dollars remains untouched in the name of “necessity” for National Security.  Why defence spending cannot be reviewed and pruned??   There is no reprieve from squeezing the sweat and blood of the poor man in the name of illusive reality of 5kg of cereals.
Congress and opposition (including BJP) have incredibly colluded in the passage of FSB by late night sittings in lower house and upper house to demonstrate that parliament is functioning.  In the open debate entire opposition expressed serious reservations on the bill.  But voting was done amicably to pass the bill at the cost of gravest threat to the National economy.  For last five years, at the hint of any scam or financial controversy—be it Vodfone tax case, 2G, Coalgate , CWG etc opposition disrupted the parliament to have its say. Entire opposition openly acknowledged that FSB is recurring liability of unsustainable financial nature, especially at this critical juncture of economic crisis when fiscal and current account deficits are leaping to 5% of GDP and need to be checked.  Yet, ruling elite and opposition worked in perfect harmony for perversity of Indian economy. This is ripping and robbing the Nation for winning brownies point for electoral support. Arun Jaitley, BJP leader in his speech in Rajya Sabha made a mere mumbling mention “what was the need to issue the Ordinance for FSB, when they (BJP) was ready for (passing) it any way”.  Chhattisgarh model of BJP is working well was an additional endorsement.  BJP has in fact worked against Narendra Modi who wanted a fresh debate on FSB amongst all states.
a.     The discreet agenda of mutual cooperation amongst all political parties appears to have been prompted by recent Supreme Court’s ruling that once a politician is convicted in any criminal case by any (lower) Indian court, he stands debarred from elections.  Politicians view that their “right to appeal” is diminished. Supreme Court is to be approached afresh to review of their ruling by the Government. UPA and Opposition need to cooperate.
b.     Secondly no political party intends to furnish details of its financial accounts under RTI (Right To information Act) including left parties. Amendment to RTI act is another “hand in glove” approach.
c.      CBI cases of Samajwadi Party (SP) , Bahujan Samaj Party (BSP) and DMK  are manipulated by UPA.This is in the public domain.
d.     There could be perhaps numerous other cases of backdoor understanding of political patronage to the detriment of financial security of the country.
Blaming Bernanke of US Federal Reserve for tapering the QE for sharp depreciation of rupee (about 20%) is the only excuse given by the PM. No attempt is being made to push export to earn FX when about 20 million tons of excess wheat is languishing with Government. PM did mention about good Monsoon as a hope of recovery—an act of nature. Government has nothing else to offer. Speech writers of PM have also lost sense of optimism.
All recent economic reforms stand deformed with psyche of socialism, defying the economic rationale in the name of poverty. Though Government is to be blamed for poor governance, Courts have also acted as blockers of reforms by indulging into judicial activism and CAG raised its own pitch of righteousness which de-incentivized proactive policy decisions.  
 Pray that some one hears this call of rescue in wilderness.
Earlier blogs on the progressive developments of Food security Bill can be accessed from the following links, published earlier.

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