Food Security Might Spur The Economy

Food Security Might Spur The Economy

How bad is the economy? Well, it couldn’t be much worse unless one thinks general bankruptcy at the sovereign level is an option.

Why is nothing being done about our crisis situation? The reason is that the government is concerned only about how to try and get re-elected right now, and fixing the economy is not going to help this objective very much.

The government believes the poor rural and urban voter, practically the effective voter list, does not understand economic issues beyond anything that affects it directly. Will they be proved wrong? We don’t, as yet, know.

So the concentration is, and has been over the last three years, on welfare measures. So now we have direct cash transfers using the Aadhar identification systems, the Food Security Ordinance turned bill, and so on. Nothing else really matters. Business and industry can wait. The value of the rupee versus the dollar and other currencies is presumed to be of little concern and beyond the understanding of the poor voter being targeted.

Food inflation is definitely a worry, particularly for the urban poor, because it buys its food and cannot just grow it. And because it constitutes an important 40% of the voter list. But unfortunately,  it has failed to do much to contain food inflation. Still, it is hoped, giving away almost free grain to 75% of the population will assuage this problem as well.

Are there remedies before the economy is thoroughly ruined? In economic terms, of course, and always. But the political will is singularly absent. Probably nothing effective therefore will be done while this government is still in office.

But certainly once the new government is elected, and turns its attention to growing the economy afresh, much can be done. It will, however probably take a BJP led government with Narendra Modi leading it. This because he is the only one amongst the various prime ministerial contenders, in the government, the opposition, and the regional parties, who has declared his intention to revive the economy as his number one priority and has a track record in being able to pull it off.

The rest are all determined to “alleviate poverty” along the lines of the present government, and we cannot expect any worthwhile change in tack from any of them.

Unless that is, as a nation, irrespective of who forms the next government, we are forced to take dictation once again from the World Bank and the International Monetary Fund in return for loans.And they ram through all kinds of liberalisation and economic reform as they did in 1991. As a people we will benefit. As a country we will begin to prosper again if this happens even if we should have thought of it ourselves.

Mrs Sonia Gandhi meanwhile, has championed and inspired the passage of the Food Security Bill (FSB). At a minimum it will become a massive demonstration of her personal commitment to the poor and hungry. If it delivers the electoral dividend it is expected to, then single-handedly it will have succeeded to wash away all the sins of the UPA government over the last ten years, and deliver UPA 3.

Audacious in its timing, a few months before the general elections, the government orchestrated the numbers, within its own ranks, and by virtue of its outside supporters in the BSP and the SP. It was in a position to push the FSB through, with or without the principal opposition.  

But, not wanting to be left out of this act of considerable populist potential, the principal opposition and others have joined hands with the government to give the Food Security Bill a comfortable win in the Lok Sabha.

Because of this eager cooperation, the FSB will also pass muster in the Rajya Sabha, where the government is not so well placed. Not only that, the BJP, not keen on Congress stealing its thunder, has pledged to deepen and widen several of its provisions, declaring them inadequate to the intended task in its present form.

So who is worried about the economy which is so badly off that the currency drops a couple of rupees against the dollar on a daily basis?

It is left to economists, some people in the media and elder statesmen with little electoral ambition left, to do the cautioning and championing in equal measure. And well they might. 

The Food Security legislation, with its scope of works guaranteeing negligibly priced grain and other items at prices fixed extremely low by 2013 rates, will cost billions of rupees a year to sustain. The international press is jeering at India’s beggar thyself strategy to give away $20 billion in food grains per annum, when it is so close to economic collapse itself. But then, which peasant or labourer looks at what the international media has to say?

Every estimate on the FSB’s projected costs rises exponentially over the last one. It will cover more and more people as the time goes on by dint of population growth and inclusiveness. And it will be, unless there are the amendments and codicils our bureaucracy is adept at, inflation- proof to the consumer.

But it will cost the government more and more to fund and deliver, and is seen as a considerable fiscal burden by most expert observers. It is probably the largest welfare scheme of its type ever undertaken in the world, with a poetic disregard for the burdens it will impose on our already tattered circumstances.

It will be a major budget point every year as it rolls out across the country.  But since it is going to be a big challenge to fund it right from the start, while attempting to keep any grip on fiscal issues, it might well spawn a beneficial side-effect.

Many countries in the past have bankrupted themselves over their militarism, the USSR being the most glaring recent example. We might end up doing it in typical Indian fashion, where our reach, in almost every direction, ends up exceeding our grasp. But then again, perhaps not.

We must, if we want to be positive, look at our fiscal burden which accounts for around 4 to 5% of GDP at about $85 billion, with optimism. We must think we can definitely afford to feed all of our poor and hungry at state expense. We must demonstrate a confidence that is not altogether misplaced. But we need to bring the deficit down, and put the growth statistics up after the general elections to pull it off.

The FSB is not our only unaffordable burden after all. But because we have so many high ambitions and hopes, we cannot afford to stagnate like this. We have our pressing infrastructure building needs that call for trillions of dollars, our defence industry needs that need billions more, our space programme, our business & industry, education, health, social- welfare, you name it, we need much more money than we have.

All of these aspirations need to spur our growth, particularly when we act cavalier with all parameters of the economy teetering on the brink.  

But opening up the economy and pushing reforms in the name of the poor and their subsidised food may be just the political justification this hypocritical country needs. And so there may be method in the madness after all.

If economic growth is restored to near the double-digits, and sustained for a decade or more, there will definitely be enough to go around. India will once again be able to finance its modernisation, infrastructure development, defence programmes, alongside its welfare and much else besides, without flinching. Unlikely as it seems from the hole we find ourselves in, business and Industry could be booming afresh, and the story at the bourses and on our farms could turn rosy too.

India could once again be thought of as a leading economy of the world. Our adversities and excesses by this reckoning could spur us on and thereby save us from disaster. But only if we decide to pay some serious attention to the income side of the ledger as soon as possible. 

(1,351 words)

August 28^th, 2013

Gautam Mukherjee