Is the new Food Security Bill going to take the rupee down further and raise the current account deficit?
No, it will not. First, we need to look at the broader picture of our economy and our tax structures. At only 15 percent, India’s tax-GDP ratio is among the lowest in the world. It is around 40-50 percent in the middle income countries and around 30 percent in the lower middle income countries. If we need more money in our exchequer, we simply have to pay our taxes. The affluent class that complains about the food subsidy resents the collection of taxes and that is a problem. I agree that India should lower its deficit financing but then we have to pay more taxes. For now, I think it is possible to raise the extra money we need for the Food Bill by imposing a 1-2 percent food cess on all those who earn more than Rs 10 lakh a year.
Will the new Food Bill mean an additional spending of Rs 50,000 crore?
That is not correct. This is how the math actually adds up. The current expenditure on the PDS and Antyodaya schemes is not Rs 75,000 crore as the finance minister misleadingly says, but actually Rs 90,000 crore. If the new Bill becomes law, it will at most add another Rs 25-30,000 crore to the spending. We forget that a lot of corrective action is happening through the linking of food distribution to the Aadhaar cards. There won’t be individuals with 80 ration cards to their name anymore once more people are linked through the Aadhaar cards. That will reduce leakages in our food distribution. The government can also reduce the expenditure by cutting down on the buffer stocks of food. Right now, we have 80 million tonnes of grain stores, much of which rots in godowns and adds hugely to the cost of food distribution. If the government cuts down this storage by half, it will reduce the food bill further.
If food subsidies aren’t mainly responsible for the deficit, then what is?
Our deficit at the moment is on the current account: the difference between what the country imports and what it exports. It doesn’t have much to do with domestic expenditure, but with our borrowings and imports. We don’t import foodgrain, we export it. What contributes largely to our deficit is oil imports.
So what has made our economy so sick?
Our economy is sick because there has been hardly any real growth. The manufacturing sector has been in a mess for a long time. We are importing coal and still cannot generate enough electricity to power industry. Large infrastructure and industrial projects are also held up because we have not been able to acquire land. The Land Acquisition and Rehabilitation and Resettlement Bill, which is expected to be introduced in Parliament, is actually anti-growth and anti-farmer and will not sort things out for the economy, the way it stands now. The number of clearances and officials any land acquisition has to go through will delay an average project by as much as two years. And there is no provision that makes it mandatory to tell the farmer exactly what compensation is being offered so that he can make an informed choice on whether or not he wants his land to be acquired.
On the other hand, agricultural growth has remained almost static from 1996 to 2010. The per capita foodgrain production has actually gone down from 200 kg per annum to 190 kg. It gained marginally from good rains in the past three years. The schemes to boost agriculture are so badly designed that they only lead to corruption and benefit bureaucrats. This is why our economy is sick. We do need the food bill but we also need to make provisions for it to not deepen our deficit and then focus on fixing what’s really wrong with our economy.