Food Security

How we're confusing

Food Security Bill

with

Agricultural revolution vs distribution efficiency

Food security: Sonias NAC should learn from Modis Gujarat Liberalise farming to improve Indias food security: WEF experts Wake up, Mr PM! Our economy is running on empty Why did Moodys upgrade us when we are going downhill?

Are our policies rotting like our food grains?

Its not about feeding the poor: 10 myths about the Food Bill Sonias reckless food security largesse could bust the bank True cost of Dynasty: Sonia sends us a Rs 5,45,000 cr bill

A Rs 95,000 crore subsidy bill. Is it worth it?

Sonias dream bill food security, up for debate today Union Cabinet clears costly Food Security Bill Inflation isnt dying; we might be headed for stagflation Food security: Easy to feed poor, but not Gandhi family

Agricultural revolution vs distribution efficiency

Sonias NAC should learn from Modis Gujarat

Food security:

If true food security has to be backed by an agricultural revolution, Gujarat is the right place to learn lessons from.
R Jagannathan, Dec 20, 2011

f food security is as much about stoking an agricultural revolution as about redistributing available food to the poor, Gujarat is the place to seek answers from.

Remember, Gujarat is not a state blessed with lots of irrigated land. Most of its land is semiarid, and getting any crop out of it is a big effort. So what did Modi do right? Six things, principally. First, he focused on sustained water conservation and management programmes. Gujarat is one of the biggest users of drip irrigation in India today, and built many check dams, small ponds and minor irrigation sources. In 2008, Gujarat had 113,738 check dams and 240,199 little ponds dotting the state. Second, the state launched a massive and wellcoordinated extension effort telling farmers what to grow, when to grow, how to grow and how to maximise output. Third, Modi completely overhauled rural power supply. Even though supplies are subsidised, farmers get assured power. This contrasts with other states that offer free power, but irregularly and unpredictably. Four, says Shankar Acharya, agricultures allied sectors like livestock development were given a boost. This ensured steady and sustainable growth in rural incomes a prerequisite for comprehensive food security. Five, Modi also promoted non-food crops and horticulture, Bt cotton, castor, and isabgol. Contrast this with the endless debates we now have about the dangers or otherwise GM seeds. Six, Gujarat made huge investments in infrastructure especially rural roads, electricity and ports. A report by IIM professors Ravindra Dholakia and Samar Datta says it all in one paragraph. The phenomenon of high agricultural growth in Gujarat is not confined only to Bt cotton but is widely experienced in several sub-sectors, including animal husbandry, milk and egg production, fruit and vegetable production, and high value commercial cropsAll this in the last decade or so has been achieved through massive effort on rain water harvesting through check dams, farm ponds, recharging of wells, etc;

Gujarat is the one state in India that has consistently outperformed the rest of India in terms of agricultural production and a large portion of this credit goes to Narendra Modis long-term vision. Unlike industry where Gujarat has always had an edge agriculture is a freshly-minted success story. This is not the view of Modis acolytes or of BJP partisans, but the Planning Commission, which is run by the PMs pal Montek Singh Ahluwalia. According to a report in Business Standard, a Planning Commission working group set up to suggest booster shots for agriculture during the 12th plan which starts next April said that Gujarat and Chhattisgarh were the states to emulate. Narendra Modi In the period from 1999-00 to 2008-09, Gujarat reported a huge 11.5 percent annual average growth in agriculture (at 1999-00 prices). This dwarfs the national average of 3.5 percent during the five-year period 2007-12 and just 2.2 percent in 2002-07. Should one credit Modi for this miracle? Apparently, so. For, the real change happened after 2002 the year after Modi took over. Says the Planning Commission working group: A closer examination of the data in respect of Gujarat shows that the state made remarkable increase in raising agriculture production after 200203. The Planning Commission isnt the only one impressed with agricultures progress in Gujarat. Another fan of Modis achievements is Shankar Acharya, former chief economic adviser to the government of India and honorary professor at Icrier in Delhi. In an article titled Agriculture: be like Gujarat, Acharya gives six reasons why the state cracked the agricultural jinx.

providing stable electricity for agriculture on a regular basis to all villages; market-oriented reforms; opening of agricultural exports; provision of supportive infrastructure like ports, linking roads, storage, internet and telecom facilities at village level; and, significant effort on agricultural extension by covering a large number of farmers with soil health cards, advice on nutrients, pesticides, crop selection, etc. The big question: is the Gujarat model replicable? Dholakia and Datta answer with an emphatic yes.

Clearly, there is no short-cut to food security. We do not know whether Gujarat has been as successful in making food available to it poor as it has been in raising rural incomes and agriculture. But it has got at least one part of the food security equation right. Maybe the National Advisory Council of Sonia Gandhi would be better off taking a train to Gujarat to find out how key elements of food security an agricultural revolution, among them can be put in place.

ood, water and energy security rank among the top priorities for Indias economy today. All three are also highly politically-sensitive issues. Recently, a decision by state-run oil marketing companies to raise petrol prices for the second time in two months caused such discontent among the governments own allies, opposition parties and the public that now it seems the price hike might be rolled back to some extent. Petrol prices have been hiked 13 times since the fuels prices were deregulated in 2010. Yet, political pressures on pricing decisions on sensitive commodities such as food, water and energy dont improve the supply of these com-

the needs of the people for whom these resources are meant. Two, for the sake of improving food security in particular, cropping patterns need to change in India. That was the view of at least one panelist Suresh Prabhu, chairperson, Council on Environment, Energy and Water for India. Other experts also noted that poor planning had led to agricultures contribution to GDP falling to 18 percent from 30 percent two decades ago. Chengal Reddy, co-chairman of the Indian Farmers and Industries Alliance, noted that liberalisation and reforms, which gave wings to the industrial and services sectors, had still not touched the farming sector. Even today, farm-

Liberalise farming to improve Indias food security:

WEF experts
Poor planning has led to agricultures contribution to GDP falling to 18 percent from 30 percent two decades ago.
FP Staff, Nov 13, 2011

modities, which is at the heart of the matter. So, what can be done then? In a panel discussion on the Water, Food and Energy Nexus at the World Economic Forum (WEF) India Summit being held in Mumbai, experts said three things need to be done if India is serious about resolving its resource problems. One, government planning has to become more decentralised. Currently, a lot of key decisions on and resources and finances are made at the central government level, which fail to consider

ers dont have facilities to store, market, process and export most of their produce. That situation needs to change if India aims to improve its food security. Most panelists also thought biofuels were not an easy fix for Indias energy solutions. Nitin Paranjpe, chief executive officer and managing director of Hindustan Unilever, pointed out that while everyone is talking about renewable energy, the fact is that if India shifts to biofuel for transport, it will typically need 50-10 percent

more water and land than it uses now. Three, consumer awareness needs to be raised. People need to be aware of their consumption, especially of water and electricity. The panelists thought that subsidies, in general, had to be done away with, and consumers had to made more aware of how many units of water and power they actually consume. A farmer who consumes free electricity, for instance, will never feel the need to use it sparingly. That, in turn, causes wastage of power, which could have been used for more productive purposes.

All in all, there are no easy solutions to Indias food, energy and water problems. the panel discussion concluded. Long-term planning and thinking are needed to improve supplies. But governments, which always have one eye on elections, are not always the best long-term planners. So, more often than not, the economy tends to stumble through one short fix to another. Will this government listen to what the WEF experts are saying? Dont hold your breath.

running on empty

Wake up, Mr PM! Our economy is

or most of this year, as the engines of the Indian economy misfired repeatedly, the wise mandarins of the Indian government were in snooze mode. Preoccupied for the most part with political survival, they took their eyes off the economic ball, allowing policy initiatives to drift. The governing philosophy appeared to be modelled on that of Charles Dickens fictional character Wilkins Micawber: that something would turn up and bail out the economy.

Singed by the heat, the government has finally bestirred itself, but even today, it appears to mistake activity for action, and has sought refuge in knee-jerk populism. Woken up from its slumber, the Prime Ministers Office is now eager to signal that Manmohan Singh is not, as is widely believed, missing in acti0n. On Monday, his office directed key ministries to send on a list of bills (relating to their respective ministries) that have been held up in parliament, including the parliamentary standing committees.

After yesterdays shocking data, which showed industrial The government producYesterdays industrial production data flashes is also looking for tion to be warnings of an economy sliding into stagflation. ways to fire up the in contracstalling economy, tionary Venky Vembu, Dec 13, 2011 mode, a perhaps by providing incentives for raging fire has been lit under the Manmohan Singh govinvestments in the infrastructure sector. There are indications that Manmohan Singh will call ernment. With industrial production contracting, and with inflation still untamed, everything an inter-ministerial meeting tomorrow to discuss long-pending reforms in the infrastructure about the economy screams stagflation, which space. represents the sum of all fears for economists. In every way, it is a rotten place to be. Simultaneously, commerce and industry minisManmohan Singh ter Anand Sharma has convened a meeting with

industry leaders, who have long complained that policy paralysis has caused the economy to seize. Yet, even in this moment of crisis, the government seems excessively preoccupied with the political survival of the Congress, particularly given that elections to crucial state assemblies are coming up. And its reflexive resort to the economics of populism one of its first priorities appears to be get the Food Security Bill, with all its flaws, through Parliament makes no acknowledgement of the contribution of illfunded, improperly conceived welfare schemes to the widening of the fiscal deficit, which has fuelled inflation and is today cramping the government from stepping in with stimulus measures. Most of the economic problems confronting the government today can be traced to the fact that for the whole of this year, while inflation hovered at or above the 10 percent mark, the gov-

ernment outsourced the job of fighting inflation entirely to the RBI without any initiatives from its side. In the absence of supply-side initiatives from the government those stalled investments in infrastructure projects that it is now looking to revive- the RBI was constrained to overcompensate by hiking interest rates excessively. These same efforts that the government is contemplating today would have provided the government some breathing room today if they had been taken up a year ago, when the early warning signs of a slowdown were blaring loud and clear to anyone who was not in deep sleep. The risk lingers that the policy mandarins may continue to deploy monetarist tools in the short term by requiring the RBI to lower interest rates even if the RBI isnt convinced that the battle against inflation has been well and truly won. The risk of policy errors feeding the very real fears of stagflation remains high.

Why did Moodys

downhill?
The Moodys upgrade of Indias government bonds is a technical upgrade, not a real vote of confidence on the Indian economy.
R Jagannathan, Dec 22, 2011

upgrade us when we are going

hy did Moodys upgrade the Indian governments rupee-denominated debt ratings from junk to investment grade? Especially when the economy is going steadily downhill? Consider, all thats going wrong. The fiscal deficit is slipping badly. The target of 4.6 percent of GDP is likely to be overshot by at least 1 percent, and even the final figure may be a fudge, with oil subsides being underprovided for. With industrial growth falling 5 percent in October, with second quarter GDP growth slipping below 7 percent, and gross tax revenues slipping well below budget estimates, the Indian economy is slipping badly. The rupee has never been weaker and could fall all the way to Rs 60 (says CLSA). The currency has dipped more than 20 percent from earlier this year. Food inflation is slowing due to seasonal factors, but manufacturing inflation (core inflation) is yet to be tamed. Energy prices inflation has been artificially suppressed. Next year, the government is going to borrow even more if the Food Security Bill and other expenditure programmes take wing. We can go on and on, but we need to return to the basic question: what did Moodys see that we did not, that it should be upgrading shortterm and long-term government rupee debt ratings from Ba1 (speculative) to Baa3 (investment-grade) just before a huge budget slippage? Explaining its actions, Moodys points to its Rating Implementation Guidance, which says that Moodys will maintain a gap between a governments domestic and foreign currency debt ratings infrequently and only in compelling cases. The guidance was based on an analysis of the last two decades of sovereign defaults, which does not offer empirical justification for a rating bias in favour of either local currency or foreign currency government debt. While finance ministry bureaucrats are patting

themselves in the back for getting Moodys to sign on to the improved ratings, the real reasons for the upgrade are apparent in Moodys policy corrections not any improvement in Indias economic performance. One, when Indias foreign currency-denominated debt is rated investment grade (Baa3), it makes no sense to keep the rupee-debt rating lower. Normally, rupee ratings for the Indian government should have been higher than its foreign currency ratings since, technically, no government can default in local currency. It can always print more notes to pay back lenders. Moodys is essentially correcting its own anomaly. Two, with the external environment deteriorating and the rupee crashing to Rs 52-53 to the dollar, the government has been opening the sluice gates for external borrowing. In November it raised foreign investment limits for investment in government and corporate bonds to $15 billion and $20 billion, while the limit is $25 billion for investment in infrastructure bonds and $30 billion for external commercial borrowings. Thats $90 billion in various kinds of foreign and rupee debt that will ultimately have to be repatriated in dollars or foreign currency. Put another way, there is now little difference between a countrys ability to service its local currency and foreign currency debt. When you invite a foreign investor to buy government bonds denominated in rupees, you still have to return dollars to him when he sells it. This is what Moodys has to say. Financial liberalisation and especially currency convertibility has opened the possibility that domestically generated confidence crises spill over to foreign currency debt through capital outflows and exchange rate crises. This powerful factor pleads for aligning the foreign currency and the local currency ratings in financially open countries with similar levels of local currency and foreign currency debts. Though this statement is generic and not said about India in particular, this is what it means for us: the domestic crisis of economic confidence has spilled over to external confidence

(which is why capital is fleeing the markets), and hence the realignment of ratings for domestic and foreign currency government debt is not rally cause for celebration. In short, the Moodys upgrade in not a vote of confidence in the Indian economy, but a signal that domestic worries and external worries cannot be hermetically sealed from each other. A deterioration in either external flows or the domestic economic situation could lead Indian government bonds back to junk. Given our deteriorating external situation, with exports tapering off and the rupee falling, it would have been more logical for Moodys to

put the external situation on a rating watch instead of upgrading the local currency rating. As HDFC Bank chief economist Abheek Barua told Business Standard: Looking at the fiscal situation of the country, India does not deserve to be in the investment bracket at this point of time. But the situation in the eurozone probably saved us. Given the serious threats to the sovereign ratings in Europe, India is obviously in a far better situation. Hence Moodys chose to raise domestic ratings instead of lowering the foreign currency rating for now. In the future, though, all bets are off.

Are our policies rotting like our food grains?

10 myths about the Food Bill

feeding the poor:

What can be so wrong about subsidising food for the poor? Actually, the Food Security Bill is not about food security at all.
R Jagannathan, Dec 20, 2011

Its not about

ne of the questions one is asked by conscientious people is this: how can anyone oppose food subsidies for the poor and robust schemes to end malnutrition? This question comes from the heart, and so is worth answering in some depth. No one grudges the poor their food. The problem is with the Food Security Bill (FSB) which is actually testimony to the poverty of official thinking on food security. We should thus take this opportunity to debunk some myths about the FSB. Myth # 1: The Food Security Bill is the way to ensure food security. Nothing could be further from the truth. Food security comes from ensuring three things: creating jobs and income, ensuring higher food output by raising productivity, and creating a safety net to feed those who cant do so themselves in distress situations. What the Food Security Bill does is to make the exception the rule: offering food subsidies to almost all people (65 percent of the population) without an end-date. This is irresponsible populism. A government that does nothing in its seven-year tenure (so far) to improve agricultural productivity and which fails to invest in research and infrastructure suddenly wants to end food insecurity with a bill two years before an election. If it genuinely cared for the poor, what stopped the government from helping them in phases every year from 2004? By now hunger could have been eliminated. The FSB is thus an attempt to fool the electorate before the elections, with the bill being paid by all of us either as taxes or higher inflation. Myth # 2: The FSB is the only answer to hunger and malnutrition. This myth has been busted by UPA-2 itself, which has been arguing that Anna Hazares my-way-or-thehighway approach to corruption is wrong. If the Jan Lokpal isnt the only answer to the problem, why is it presumed that some NGOs working on food security have all the right answers? The FSB is just one approach to the problem and a flawed one and there can be better ways to ensure food security which will not bust the

bank. Myth # 3: Those who oppose food security for the poor are anti-poor. Why dont they oppose subsidies for the rich? There is some truth to this assertion, but the boot is on the other foot. The problem with the FSB is not that we should not spare resources for the poor, but that you cannot subsidise everyone for everything all the time. If UPA-2 and Sonia Gandhis National Advisory Council want to fund an expensive FSB, they can eliminate the huge subsidies on petro-goods (diesel and cooking gas, for a start, kerosene later), and withdraw tax concessions to the rich. But this is what the UPA has steadfastly refused to do. It is afraid of withdrawing any subsidies to the better off for fear of offending them, and then claims that those opposing the FSB are antipoor. Even a petrol price hike gets Congress partymen worked up enough to get it withdrawn. Pranab Mukherjee is shrinking from imposing a tax on diesel cars. The UPA is willy-nilly subsidising the rich and unwilling to back off from this. Myth # 4: The Union budget subsidises the rich with tax concessions. True. But this comment is also off the mark. The problem is politicians want to eat their growth cake and have it, too. The last budget (2011-12) put the total revenue forgone as a result of direct and indirect tax concessions at a stupendous Rs 5,11,630 crore. This sounds like an easy bank to raid to finance the ambitious FSB, but lets look at what these tax-breaks include: Rs 88,263 crore in corporate taxes forgone for encouraging exports, etc, Rs 50,658 crore in individual tax breaks (twothirds of it is the ubiquitous 80C deductions PF, NSCs, LIC premia which the middle class loves), and the balance (Rs 3,72,709 crore) constitutes excise and customs concessions of various kinds.

These are the taxes forgone on the rich and in favour of business. But are they really only that? Concessions to export houses create high-value jobs in the IT and other sectors (and prevent the rupee from crashing much more); concessions to companies to set up industries in backward areas and the north-east are the only way to create jobs there; concessions to middleclass salary earners are the only way to get them to save and buy insurance. And excise and customs cuts lower prices on all goods. Which benefits do we want to eliminate? The finance ministry has fought shy of withdrawing even the 2008 post-Lehman stimulus package, or raise customs duties on items like petroleum goods. The UPA can choose how it wants to tax the rich to feed the poor. It has ducked this choice and this is why we are in a financial mess, unable to fund any legitimate food security measure. Myth # 5: A centralised Food Security Bill will sort out hunger and malnutrition. This is a variant of the traditional myth about one cap fitting all. India is a continent-sized country it needs many approaches to problems. The fact is neither the proponents of the FSB nor its opponents know really what will end hunger and deprivation. The best solution is to try many things and adopt the best solutions after trial and error. The UPAs self-serving answer is to keep throwing money at the problem and hope it gets solved. But the FSB is not Indias first crack at hunger. In the past we have had the food-for-

work programme (a mix of NREGA-like work with payments being made in kind), the Antyodaya scheme (targeted at the ultra-poor), the mid-day meal scheme for children, and the anganwadi schemes for mother and child. Above it all, we have a leaky public distribution system (PDS) which works well in some states and badly in others. The only logical way to tackle hunger is to try different methods in different states and see which one works best and extend the model nationally. This is how the mid-day meal scheme introduced in Tamil Nadu and much derided by critics then was adopted nationally. We thus need a multitude of approaches to food security that are tried out in a decentralised manner before we extend it everywhere. The surest way to disaster is to implement a centralised, Stalinesque solution to a problem that varies across the country. The hunger problem is not the same in Kerala, Chhattisgarh and Jharkhand. They need different solutions. Why should a NACproposed solution be forced down everybodys throats? Myth # 6: Only the National Advisory Council knows best about food security. Nothing can be more arrogant that this (unstated) assertion where all other approaches to food security are deemed unworthy of consideration. The FSB is a patent attempt to garner the political gains accruing from the bill for the Congress party without taking the states into confidence. If Sonia Gandhi and NAC were genuinely concerned about food security and not just re-election, the first thing to do is consult states and ask them for suggestions since it is the states

that are going to implement the scheme. If Bihar wants to distribute cash instead of cheap food, and Chhattisgarh wants to distribute only rice under FSB, so be it. It is the attempt to corner all credit for the scheme and leave the debits for poor implementation to states that shows up the narrow political goals of the Congress in promoting its version of the FSB. Myth # 7: Food security can be divorced from income schemes. Like burning a candle at two ends, social security should either target the income-generating side of livelihood (which is what NREGA tries to do) or the consumption side (which is what the FSB tries to do). Ensuring that at least one works well will ensure the other. Both need to be backed with an efficient public distribution system which need not be publicly owned. However, what do we see now? NREGA is in the doldrums, since states and district administrations are unable to provide enough work for the poor. The scheme is riddled with massive corruption. Money is being spent carelessly, and the scheme is not achieving its basic goals ensuring higher incomes, and the creation of tangible assets in rural areas that will ultimately improve agricultural productivity. The right way to approach food security is to fix NREGA first even by extending it to six or nine months a year and then launching food security schemes in places where NREGA has not worked. By making both a creaky NREGA and FSB nearly universal, the UPA is actually saddling us with huge costs without delivering worthwhile results. An efficient NREGA would have generated incomes and created the right assets for agriculture making food security a reality without the FSB. Rushing from scheme to scheme without proper implementation is the road to wastage and failure. Myth # 8: FSB can be divorced from farmer welfare and agricultural productivity. India faces multiple problems on the food security front. Indias agricultural revolution is lopsided, with north-west India (and

some parts of the south) providing the food surplus, and the rest of the country consuming it. On the other hand, farming is sub-optimal and unremunerative in many parts of the country, even after giving farmers fertiliser, water and electricity subsidies. This year, many farmers in Andhra have declared a crop holiday to protest against low prices. The country spends less than a tenth of what is proposed to be spent on the Food Security Bill (Rs 2,00,000 crore annually, according to Ashok Gulati) on agricultural research. We spend years arguing about whether geneticallymodified seeds are good or bad, while poor people starve. But the same NGOs who want an FSB pronto are the ones delaying other parts of the agricultural revolution. Rural Indias economic problem is that there are too many people feeding off unviable agriculture when more people should be moving towards industry and urban areas. But the UPA is preventing this by making land for industry and urbanisation (Land Acquisition Bill) expensive to acquire thus slowing the process of people moving from unproductive jobs to more productive ones elsewhere. Why isnt UPA able to improve agricultural productivity? The answer is a battle of egos with Agriculture Minister Sharad Pawar. You cant provide food security without fixing agriculture, but for this you need Pawar on board. The Congress does not want to share political credit for food security with Pawar. Hence it chose to divest Pawar of his food supplies ministry. This is the main reason why we have an FSB and no corresponding agricultural revolution and real food security enablers. Myth # 9: Food security can only be ensured by government. This means stocking millions of tonnes of food in Food Corporation godowns and transporting it from Punjab, Haryana and Western UP to south and east India. Nothing could be more foolish. Food security is the result of enabling policies which improve both production and distribution locally. This calls for localised innovations in productivity so that food can be moved from western Ma-

harashtra to Nagpur rather than from Hisar or Bhatinda to Dibrugarh. Lower costs of production and transport will make FSB more viable. Myth # 10: The poor should get everything subsidised. This is the ultimate myth we need to kill. A subsidy makes a beggar out of the poor. It is demeaning. An income is what the poor need though no one denies the need for direct food supply schemes when the going is bad. Look at our current approach to any problem. Most farmers dont find farming remunerative,

so we give them cheap electricity, cheap fertiliser, subsidised power and discount diesel and a minimum support price for their produce. Plus, we dont tax the rural rich who are basically agriculturists. After subsidising everything that goes into food production by poor farmers, we then buy it at a high price and then tell the poor, look, we are giving you cheap food. What can be more demeaning to the poor than this? Is this logical? Is this sustainable? You judge.

he virtue of making donations of food (or annadhanam) to the poor has always been upheld in scriptural parables and in popular culture as worthy of emulation. It has traditionally been pitched as an effective way for the wealthy, even those lacking in empathy towards those less privileged than themselves, to earn karmic brownie points. Given the widespread income inequality that prevails in India, compounded by the castebased and feudal nature of our society and the sheer wretchedness of abject poverty that millions of Indians continue to live in, one can

the farm loan waiver to the rural employment guarantee scheme, which is leaking like a sieve and has had an unforeseen negative impact on rural wages and inflation the ill-conceived food security initiative has the capacity to bust the bank. The earlier initiatives were at least undertaken at a time when economic circumstances were somewhat more propitious. India had the cushion of higher economic growth, and our public finances were slowly, but steadily, getting into shape.

Sonias reckless
food security largesse

could bust the bank

make a persuasive case for charity as the quickest way to get food on the plates of the abysmally poor. Yet, in pushing the Food Security Bill, which provides for cheap, subsidised foodgrain as a legal entitlement to over 63 percent of the population, Sonia Gandhi, whose brainchild the bill is, has taken the government on the fiscally ruinous path of converting the government into a charitable organisation. Taken with the earlier charitable projects her government has devised from

But in terms of timing, the Food Security Bill betrays a cavalier attitude to the ill winds that are sweeping across the domestic and the global economies, and the very real risk of undertaking such a costly project at a time when Indias fiscal deficit is about to overshoot and the economy is slipping into a lower orbit of growth.

Sovereign rating agencies are beginning to get downbeat on Indias economic prospects. The corruption scandals of recent years, each more mindThe Food Security Bill is badly conceived, poorly boggling than timed - and could prove economically ruinous. the next, have already bled It betrays a regressive mentality that sees the the country government as a charitable organisation. dry by robbing it of revenues R Jagannathan, Dec 20, 2011

that should legitimately have come in. That, effectively, is money down the drain, and at a time when the need was for prudence in spending, this proposal to send spending through the roof with an ill-conceived scheme without fixing the leaks in the public distribution system only compounds the folly. There is a serious risk of Indias sovereign rating being downgraded, which will push up the cost of our external borrowings, and take us further down the spiral of an economic slowdown. Despite some initial opposition from some Cabinet Ministers to the scheme in itself an extraordinary thing, given that Sonia Gandhis proposals normally get a free pass the Food Security Bill has been steamrolled through Cabinet, working on a Sunday (another extraordinary thing), without addressing in any meaningful way the concerns relating to cost and implementation of the proposal. Even the most charitable estimates from the government put the additional subsidy burden at Rs 28,000 crore. But those estimates vastly understate the price that the state will pay for Sonia Gandhis liberal largesse. According to more forward-looking estimates, the total financial burden to the state exchequer could be of the order of Rs 2 lakh crore a year for the first three years. Writing recently in the Economic Times, A Gulati, chairman of the Commission for Agricultural Costs and Prices, and J Gujral, director with Infrastructure Development Finance Co, explain why the government estimates are overly optimistic.

The fact that so many Indians continue to live below the poverty line is itself an indictment of the failed welfare policies that the Congress has implemented for much of the time that it has been in power since independence. Without any reflection on the demerits of the politics of dogoodism, Sonia Gandhi has embarked on another fiscally reckless charitable project and has steamrolled her way through the Cabinet. The reflexive instinct to throw money to win political goodwill shows the governments utter lack of imagination in conceptualising models of economic growth that can empower and enrich people. It also blurs the distinction between a caring government and one that sees itself as an outpost of charity. Under the traditional models of charity, karmic good accrues to those who typically donate to the cause from out of their own wealth. But Sonia Gandhis model of the government as a charitable organisation works a little differently: it rests on her making donations by dipping into state finances as if they were merely an extension of her personal khazana, but the electoral reward that she reasons will accrue from it will flow to her. Sonia Gandhis political do-goodism and her bleeding-heart liberalism, subsidised by the state exchequer, is bleeding the country dry.

Rs 5,45,000 cr bill
The various freebies and subsidies given and planned by Sonia Gandhi is going to set us back and damage the economy. Can we afford Dynasty any more?
R Jagannathan, Dec 19, 2011

True cost of Dynasty: Sonia sends us a

espite the objections of many in the UPA cabinet and the advice of economists, Sonia Gandhi is shoving the Food Security Bill down our throats. It is tempting to conclude that all this is prompted by a desire to see the poor fed, but the truth is that the Food Security Bill (FSB) like many of its predecessors will end up achieving the exact opposite of what it wants to. It will achieve food insecurity and a devastated economy. The FSBs bills will fall due only later, but Sonia Gandhis old bills are already costing us plenty not least inflation and a busted budget. Let us add up the real cost to the country when Sonia Gandhis party feeds itself off someone elses money: ours. This is the true cost of keeping the Dynasty in power. The following are Sonia Gandhis political bills that have been paid by all of us taxpayers and consumers. # 1 Farm loan write-off of Rs 72,000 crore in 2008. All that the UPA needed to do to help farmers in debt was to waive interest, freeze the outstandings, and allow them to pay it all in easy instalments. But what could have been a bill of less than Rs 10,000 crore of interest waivers, which would have helped maintain a proper climate for loan recovery while providing real relief, ended up with a cost of Rs 72,000 crore for the exchequer. The political part of the bill is thus Rs 72,000 crore minus interest waiver costs say around Rs 60,000 crore. The cost of damaging the repayment culture is incalculable and will be paid by subsequent generations and banks. # 2: Subsidies paid for keeping diesel, cooking gas and kerosene prices low:Rs 2,23,203 crore in 2005-11. Add this years under-recoveries of another Rs 1,32,000 crore, and the total bill is Rs 3,55,000-and-odd crore. Lets further assume that all politicians would have subsidised petro-goods to some extent. But the NDA did not subsidise half as much. If we take 50 percent of the amount as subsidies that every politician would have paid to consumers, the subsidies paid only to humour Sonia Gandhi

would be around Rs 1,75,000 crore. # 3: The National Rural Employment Guarantee Act (NREGA) has cost all of Rs 1,00,000 crore so far, and by March, 2012, it will have cost around Rs 1,40,000 crore. Assuming, once again, a more sensible kind of populism would have ended up with only half the expenditure on such schemes, Sonias bill would work out to Rs 70,000 crore. The Sonia-Rahul re-election bill so far thus amounts to Rs 3,05,000 crore. Now, lets bring in the Food Security Bill. The official estimate of costs is around Rs 1,00,000 crore, but since these are likely to be underestimates intended to force a foolish bill through a reluctant cabinet, we should look at more realistic estimates. Ashok Gulati and Jyoti Gujral the former is chairman of the Commission of Agricultural Costs and Prices, and thus should know what he is talking about wrote in The Economic Times that the real cost of the FSB, taking both the direct cost of subsidies and the accompanying investment in infrastructure (godowns, higher food procurement prices, et al), should be reckoned at Rs 2,00,000 crore per annum in the next three-year period. Now lets assume that even this money is worth spending to feed the poor. But the existing public distribution system (PDS) leads to a leakage of nearly 60 percent. Says a World Bank study prepared at the instance of the UPA government: Leakages and diversion of grains are high. Only 41 per cent of the grains released by government reach households, according to the 2004-05 National Sample Survey (the latest data available), with some states doing much worse. In 2001, the Planning Commission has estimated this leakage of BPL (below poverty line) grains at 58 percent nationally. If 58-60 percent of Rs 2,00,000 crore spent on the Food Security Bill is going to be lost due to leakage and pilferage, this is a humongous Rs 1,20,000 crore loss every year. Since it is Sonia Gandhi who insists on the FSB in its current

form after rejecting every other alternative (including cash transfers to the poor), it means this bill ought to be sent to her and the National Advisory Council (NAC) she heads. Since we have two years of food security to finance before the next election, the real bill will be Rs 2,40,000 crore for 2012-13 and 2013-14. Add Rs 2,40,000 crore to the Rs 3,05,000 crore bill the dynasty has already racked up to keep itself in the good books of the electorate and to get Rahul Gandhi the gaddi in 2014, and the true cost of Dynasty is Rs 5,45,000 crore. NACs annual budget in just around Rs 4 crore. But the bill it is sending taxpayers is as much as Rs 5,45,000 crore. Can India really afford dynastic politics of this irresponsible sort? Lets return to the economics of the Food Security Bill (FSB) again. Its worth beginning with the old saying, slightly modified for our purposes: Teach a man to fish, and he will feed himself for life. Give him a fish every day, and you will have him eating out of your hands. You would have created a permanent dependency and ultimately run out of fish. This is what Sonia-nomics will achieve with the FSB: a population dependent on the dole, and an economy ultimately unable to feed itself. To be sure, lets give Sonia the benefit of the doubt and assume she has a heart of gold and weeps buckets at the thought of anyone going hungry. But nothing in the policies she has backed so far suggests she has her head screwed right. If there is a crisis, of course, you should provide food to the hungry. But this can only be a short-

term measure. Since Sonia has been in power for more than seven years, the crisis phase should have ended long ago and long-term solutions found to the problem of hunger and food supplies. Sonia Gandhi wakes up to hunger only when elections are in sight. But we shall let that pass. However, the damage caused by the FSB will be with us long after the UPA is gone. The Bill will result in the following dangers: 1) It will damage the exchequer and stoke inflation causing the subsidy bill to go higher and higher every year, leading to a pile-up of debts. India will be Greece by 2014. 2) The huge procurement targets needed to feed 75 percent of rural households and 50 percent or urban ones will call for regular increases in food procurement prices. This will again feed inflation. 3) If the monsoon fails in any particular year, we will have to import grain. International food prices are already well above Indian levels. If we enter the market which we have seldom done prices will go through the roof. High imports will send the rupee crashing raising prices again. This is a recipe for disaster. 4) High procurement means closing down three-fourths of the market system in grains since the government becomes a monopoly buyer everywhere. 5) Both poor and rich farmers will try to game the system. If the market gets you a price of Rs 20 a kg for rice, and you can get 35 kg of rice per family per month at Rs 3, who will not buy from the PDS and sell to the market? This is cash

transfer by another name: graft will be the only result. 6) The massive bill of Rs 6,00,000 crore for the FSB over three years is essentially money down the drain. It works against the fundamental argument about teaching someone to fish as against feeding him indefinitely. It will create dependencies, when the amount could have been spent to create rural infrastructure to improve agricultural productivity, and incomes. What we have essentially done is consumed the seedcorn of the future by spending money to feed instead of investing in rural infrastructure. Raghuram Rajan, who teaches at Chicagos Booth School of Business, said the other day at

a lecture organised by Business Standard that the root cause of poverty in India was poor rural productivity. But instead of raising productivity, Indian governments were busy offering palliatives through money transfer schemes like NREGA, higher support prices for food, and, now, the Food Security Bill. This can merely raise rural demand without improving agricultural productivity causing inflation. But with UPA-2 listen? Unlikely, for the government has just got its ears tweaked by Sonia Gandhi for delaying her Food Security Bill. UPA-2 is hastening our tryst with economic disaster.

A Rs 95,000 crore subsidy bill. Is it worth it?

Sonias dream bill food security,

up for debate today

In what appears to be a busy day in Parliament, the food security bill, whistleblowers bill and judicial accountability bill will be up for discussion in the House.
FP Staff, Dec 13, 2011

n what appears to be a busy day in Parliament, the food security bill, whistleblowers bill and judicial accountability bill will be up for discussion in the House. Food security bill

Judicial accountability bill Judges will have to declare their assets and liabilities, and also that of their spouse and children. A National Judicial Oversight Committee, Complaints Scrutiny Panel and an investigation committee. Any person can file a complaint against a judge to the Oversight Committee on grounds of misbehaviour. Motion for removal of judge can be moved in Parliament which will then go to oversight committee. Complaints and inquiries against judges will be confidential and frivolous complaints will be penalised. The Oversight Committee may issue advisories or warnings to judges, and also recommend their removal to the president. Whistleblowers bill Anybody who reveals the identity of the whistleblower would face imprisonment for three years or fine up to Rs 50,000. Department head to be held liable if whistleblower is revealed. CVC to have jurisdiction over all ministries, institutions. A false complaint would make the person liable to punishment with equal amount of imprisonment and fine.

It will cover 63.5 percent of the total population including 75 percent of the total rural population. Of this number, 46 percent would be priority households. In urban areas of the 50 percent of total population, 28 percent would be priority households. Priority households would be given 7 kg per person or 35 kg per family of government held grains. Subsidised rates would apply to 1 kg of millets, 2 kg wheat and 3 kg rice. Parliament The bill provides for cash benefits to meet nutritional requirements of pregnant women and lactating mothers and children up to 14 years. The bill is likely to cost Rs 1 lakh crore annually in subsidies. Pranab Mukherjee, Sharad Pawar and Montek Singh Ahluwalia have objected to this bill in a cabinet note. The PM had set up an EGOM on this. But since this is Congress President Sonia Gandhis dream bill, the govt had to finally give in to her demands. There are strong indications that the flagship social welfare legislation, whose drafting was overseen by Sonia herself, could be introduced in the ongoing winter session of Parliament.

aving the way for subsidised foodgrains for the poor, the government today cleared the National Food Security Bill that seeks to give legal entitlement of cheaper food to over 63 percent of the population that will cost an additonal subsidy of Rs 27,663 crore. Under the Bill cleared at a special meeting of the Cabinet, chaired by Prime Minister Manmohan Singh on Sunday evening, each person of the priority household, similar to Below Poverty Line families under the current Public Distribution System (PDS), would be supplied seven kg of rice, wheat and coarse grains per month

Pranab Mukherjee, has been deliberating on it. Agriculture Minister Sharad Pawar has been vocal about his criticism of the initiative due to financial burden and also about the avaialbility of foodgrains to meet the requirement under the proposed law. The government would require 61 million tonnes of foodgrains to provide food security as against 55 million tonnes required now under the PDS. Food Minister K V Thomas, who has met senior Cabinet Minister (including those from UPA

Union Cabinet

clears costly Food Security Bill

If passed it will provide subsidised foodgrain and guarantee rice at Rs 3 per kg, wheat at Rs 2 per kg and millet at Rs 1 per kg.
PTI, Dec 18, 2011

at the rate of Rs 3, Rs 2 and Rs 1 per kg respectively. According to estimates, the implementation of this would result in higher food subsidy by Rs 27,663 crore taking the overall figure to about Rs 95,000 crore. The Bill, considered to be the pet project of UPA Chairperson Sonia Gandhi, was announced in the election manifesto of the Congress Party in 2009 general elections. Since September, 2009 the empowered Group of Ministers, headed by Finance Minister

allies) last week to evolve a consensus in view of some differences voiced by Pawar and the Trinamool Congress seeking more time to study the Bill. Besides cheap foodgrains to the poor, the Bill also seeks to provide minimum three kg of foodgrains per month per person under the general household category at a rate not exceeding 50 per cent of the Minimum Support Price. The government has also made a special allowance for pregnant women and lactating mothers, children, destitutes and homeless.

he drop in the Wholesale Prices Index (WPI) from 9.73 percent in October to 9.11 percent in November is the first sign that slowing growth and a good monsoon are finally denting inflation. But keep your fingers crossed. The official release also raised the September inflation figure to double-digits to 10 percent which means the November figure too could revised upwards when the provisional figures are corrected a couple of months down the line. Inflation isnt over. A closer look at the numbers tells us why.

weight, or nearly 80 percent, are still rising. In the coming months, they could make all the difference. In November, the inflation rate for manufacturing crawled up from 7.66 percent to 7.7 percent and fuel and light from 14.79 percent to 15.48 percent. Given that the rupee has been heading south since July, imported inflation and costs are bound to continue feeding the inflationary push in energy prices and manufacturing in the coming months unless international prices crash due to the eurozone crisis.

Inflation isnt dying; we might be headed

for stagflation
WPI inflation may be falling, but it is far from being fully tamed. There are too many ifs and buts to the fall in inflation.
R Jagannathan, Dec 14, 2011

The November figure of 9.11 percent is lower but not as low as expected by analysts because food prices have fallen after a good harvest. Winter is when food prices fall anyway. So it isnt quite a triumph of anti-inflationary policy or monetary action. But food and primary articles, which account for a weight of around 20 percent in the WPI, are the only things falling. They fell from 11.4 percent to 8.53 percent and made all the difference. Manufacturing and fuel and light, which constitute 65 percent and 15 percent of the WPI by

The prospects for inflation in the New Year depend on the following ifs. If the eurozone crashes, and oil and commodity prices, fall, inflation will continue to fall. If the rupee continues to fall, it may negate the fall in commodity prices and boost inflation. If the UPA persists with its Food Security Bill, even the downtrend in food prices may reverse in the second half of 2012. If the monsoon next year is not as good, it will fuel a further rise in food inflation.

If growth continues to slow down, but cost pressures persist due to a falling rupee, we will have stagflation slowdown or stagnation with rising prices. If government revenues shrink due to the slowdown, the fiscal deficit will widen and build further inflationary pressures.

Net-net: Dont assume that inflation is over. It has been weakened, but is definitely not dead or even dying.

Easy to feed poor,

but not Gandhi family
The Food Security Bill will neither ensure food security not spare the budget. It is only intended to secure the political fortunes of the First Family.
R Jagannathan, Dec 14, 2011

Food security:

he Union cabinet is said to have deferred consideration of the contentious Food Security Bill (FSB) because several senior ministers Agriculture Minister Sharad Pawar, among them have questioned its viability. Just as well. The problem is not that the poor do not deserve food security, but a harebrained scheme is not going to deliver it. The FSB, as currently conceived, is a messy compromise between what Sonia Gandhis NGO mob wants and what the government thinks its finances can afford. Net result: the FSB captures the worst of both worlds. It will neither guarantee food security nor help the government keep its finances in some shape in a year in which the world is going downhill. In fact, we shouldnt call it the Food Security Bill, but the Sonia and Rahul Political Insecurity Bill. FSB is meant to secure the political fortunes of Sonia and Rahul Gandhi, never mind the cost. Feeding the poor is only incidental to its aims. To satisfy the National Advisory Council crowd, the FSB seeks to cover 75 percent of rural households and 50 percent of urban ones. (NAC wanted 100 percent.) To satisfy the budgets minders, it seeks to create two categories of subsidies very high subsidies for the ultra poor (priority households), and moderate subsidies for the rest (general households). The cost of FSB will be Rs 1,00,000 crore in subsidies - and this could be an underestimate. Priority households will get 35 kg of coarse grains, or wheat or rice at the 1-2-3 price: coarse grains at Re 1 a kg, wheat at Rs 2 and rice at Rs 3. The non-priority beneficiaries will get the same at half the minimum support price of these grains. The problem with 1-2-3 is that it is not as simple as A-B-C. The scheme will fail not only because it is too expensive, but because it is simply unworkable due to its complexity. As Pratap Bhanu Mehta argues in his Indian Express column, the more a scheme relies on

complex targeting, the more likely it is to fail. Mehta says that the FSB creates Orwellian categories like priority households and general category households. And it introduces new forms of differential pricing. In short, it willfully incorporates into its design three features that have made schemes in the past a failure: impractical targeting categories, administrative complexity, and incentives to game. In Mehtas view, the scheme should be universalised to give it a chance of success, but his objections do not go far enough. The more fundamental objection one should have to the FSB is to ask where it fits into the overall scheme of social safety nets for the poor. Currently, we have scores of them, all of them implemented poorly. The two most important ones are universal the Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGA, for short), and the mid-day meal scheme for school children. Then, of course, we have the current public distribution system (PDS). Here are the questions to ask: Is food security about delivering subsidised grain to the poor or creating income opportunities for them and improving the public distribution system (PDS)? If we do the latter, we dont need FSB to ensure food security. Is the physical delivery of grain more important than putting cash and choice in the hands of beneficiaries? Isnt it simpler to focus on improving agricultural productivity, and let people buy what they want at reasonable prices? If one aim of the FSB is to deliver nutritious food to pregnant mothers and early-age children, should this not be integrated with the mid-day meal and anganwadi schemes where cooked food is the goal? Should one create yet another system for pregnant mothers? Most important, why is it necessary to insure both income and food for the poor when one may do the job better? Should NREGA be streamlined and made more universal to generate year-round incomes, and perhaps include a

dole, too, to become the prime safety net for the poor? There would be no need for FSB then. Is it sensible to proliferate schemes with similar objectives when we can improve existing ones to improve their efficiencies? If more than 40 percent of the PDS grain is pilfered or gets into the wrong hands, shouldnt we be fixing this instead of starting yet another PDS under the name of FSB? Sharad Pawars objections to FSB that the scheme will drive up global food prices in case we need to import, that it will ultimately affect the interests of farmers, and that the subsidy scheme is fiscally unviable are valid, but can be overcome with some planning. But the ultimate truth is this: no government has the capability to manage so many complex schemes intelligently and efficiently. It is a myth that organisations can target multiple objectives successfully. Just as most individuals can manage at best one or two tasks well at the same time, government can also manage only one or two things simultaneously.

The UPA government has thrown caution to the winds and is trying to do too many things without thinking about their implications and implementation. Just look at the initiative overload it has convinced itself about: after NREGA, it has legislated the Right to Education, and now is planning the Food Security Bill and universalising health care. It is also planning to legislate tougher land acquisition and mining bills both of which will take a huge amount of executive time not to speak of the National Manufacturing Policy. Quite clearly, the driving force behind all these initiatives is the political interest of the First Family not national interest or the interests of the poor. Proof: you cannot have long-term food security without an agricultural revolution, but the food and agricultural ministries are on opposite sides of the FSB battle. Clearly, Sonia Gandhis political needs are trumping good policies. Bad politics is leading to bad economics. The bottomline: the country has enough resources to feed the poor, but not the voracious political ambitions of the First Family.

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