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Don’t heed the bureaucrat

posted Jan 3, 2012, 12:48 AM by Puneet Goyal
Bharat Jhunjhunwala examines how we could fix the Rs 60k crore food bill
Illustration: Tim Tim Rose

THE UNION cabinet has cleared the Food Security Act (FSA). Under this Act, about 75 per cent of rural and 50 per cent of urban households would be provided 7 kg foodgrain per person a month at less than Rs 3 per kg. The idea is to eradicate hunger and this underlying intention is wholly welcome. For, hungry people do not make a global power. But the proposed law is being opposed on the grounds of the unbearable fiscal burden it would create. India’s food subsidy bill is about Rs 63,000 crore today. This is expected to rise by another Rs 60,000 crore, including the administrative expenditure of Rs 5 a kg to be incurred by the Food Corporation of India. Some writers have said the burden could further increase by another Rs 1,00,000 crore on account of investments for increasing agriculture production. However, attributing this investment to the FSA is unwarranted. This investment is required for the country’s food security and should be made even in the absence of the FSA.

The argument of unbearable fiscal burden is also not acceptable. The bulk of our middle-class is the two crore government employees. And we pay them about Rs 5,00,000 crore a year as wages with a single employee of a public sector undertaking taking home on an average Rs 6 lakh for the whole of 2009-10. Against this huge amount, the FSA provides a subsidy of mere Rs 1,500 a person per year. Our middle-class intelligentsia does not find the burden of Rs 5,00,000 crore unbearable but says Rs 60,000 crore would kill us. But this doesn’t mean all is well with the FSA. There are shortcomings that need to be removed. For instance, the problem of identifying the beneficiaries would persist. Studies show that many poor are excluded from the below poverty line (BPL) lists while many betteroff families are included. Then, there is problem of delivery. A World Bank study found that only 41 per cent of the foodgrain reached the beneficiaries. About three-fourths of this, or 30 per cent of the total, would have reached the poor households. The other 70 per cent is either misdirected or described as leakage.

We need to understand the gravity of this leakage. Say, the government purchases 10 kg wheat at Rs 15 a kg. This accounts for Rs 150. An additional expenditure of Rs 5 a kg is incurred by the Food Corporation. So the cost now is Rs 200. Of the 15 kg, only 3 kg reaches the intended beneficiaries. They could have bought the 3 kg wheat from the open market for Rs 45. They get it for Rs 9, a relief of Rs 36. Thus, the government incurs an expenditure of Rs 200 to reach a relief of Rs 36. There is a suggestion that the proposed budget of Rs 1,25,000 crore for the FSA may be distributed among the 120 crore Indians at Rs 1,000 a person per year. Every citizen would then be able to buy about 66 kg wheat a year or 5.5 kg a month — nearly the same as proposed in the FSA. In addition, the rigmarole of classifying people into above poverty line (APL) and BPL households would be eliminated. The poor would no longer have to carry the identity of being poor with them everywhere. The money paid to APL families may be recovered by imposing an equivalent surcharge on income tax. Every citizen would not only be food-secure but would also be able to use the money to enhance his life security.

The principal problem with cash transfer is of the money reaching the beneficiaries. I had occasion to study the floods in Gorakhpur about a decade ago. It was found that the revenue officials were asking for about 20 per cent of the relief amount in cash before handing out the cheques. But we also have the example of the Provident Fund Organisation, which handles about three crore accounts and is successful except for minor corruption. This organisation could be given the additional responsibility of maintaining the accounts of 120 crore FSA beneficiaries. The UID project and an ATM system could make it easier.

A second problem is misuse of cash. Some families might use the money for liquor or other purposes. This problem is not solved by the distribution of grain. I live in Uttarakhand. My employees routinely buy grain from the government ration shop and sell them to the commercial shopkeeper. In any case, we cannot intervene in the personal decision to buy liquor instead of food. We must simply accept it. I made study of slumdwellers in Bengaluru in the 1970s. People collected empty tins of jams and preserves and converted them into tubes for incense sticks. I found drinking beneficial for them. They would return home in the evening carrying a sack of tins having trudged maybe 20 km on foot. They would be so tired that they could not sleep and could not go for collection the following day. Left with no recourse, they drank to sleep and were ready for the rounds the morning. We should not criticise such drinking necessitated by poverty.

A THIRD PROBLEM is inflation. An increase in the market price of grain could render cash transfer inadequate for providing the required amount of foodgrain. A simple solution is to index the cash transfer to inflation. Therefore, the arguments against cash transfer do not hold. These arguments are being made by the government-heavy middle-class to protect their own share of the money. Also, we have already implemented cash transfer schemes successfully. The Employment Guarantee Scheme transfers cash because the works done are mostly a sham. The Janani Suraksha Yojana provides cash incentives to pregnant mothers for hospital delivery. The Dhanalakshmi Yojana provides cash incentives for immunisation and schooling. These schemes do not indicate misuse of cash.

Cash transfer schemes are being implemented across the world today. The Familias en Acción scheme in Colombia provides cash incentives for a student passing high school. A World Bank study found a consequent 12 per cent increase in the number of students passing. About Rs 1,000 a month is provided to beneficiaries in the Philippines subject to hospital delivery, immunisation and schooling of a child. The Bolsa Familiaprogramme in Brazil provides cash incentives for health checkup and admission to school. The success of these programmes establishes that the poor are capable of handling cash properly. We could transfer cash in lieu of FSA with the condition that a person meets social objectives.

The food bill controversy is about the bureaucrat versus the aam aadmi. The bureaucracy wants schemes that perpetuate poverty while creating an impression of removing poverty so the benefits to them continue as welfare works. The politician is happy to go along as he needs the support of the government employees to get elected. This is the unholy nexus between the bureaucracy and the politician that must be broken. There is no case for expansion of an already bloated welfare mafia in the name of food security.

Bharat Jhunjhunwala is a former economics professor at IIM Bengaluru.