How To Feed A Billion. And Why It Pays

Shoma Chaudhury | Aug. 30, 2013, 2:19 AMArticle views - 186

The Food Security Bill is not a spend; it is an investment, crucial for India’s future and growth
On 26 August, after months of wasted sessions, the Lok Sabha finally passed a historic legislation: the Food Security Bill . Many Indians woke two days later to headlines that the rupee had nosedived and the Indian markets had been “food poisoned”. It was a smart phrase. It captured the horror industry and what investors feel about the Bill. But it also epitomised the damaging hysteria and misinformation around it. It captured one of India’s most harsh dividing lines.
In the summer of 2012, I travelled with economists Jean Drèze and Reetika Khera through some of Uttar Pradesh ’s most impoverished districts. They were on a fact-finding mission, going door-to-door in the searing sun, asking people whether they had enough to eat and whether the government’s Public Distribution System (PDS ) reached them. It was a deeply humbling experience. In hut after hut, one was confronted by the sheer absurdity of the Indian situation. In some of the country’s most forsaken landscapes — dust and bare scrub for miles, not even the possibility of employment anywhere — destitute, bone-thin families produced their pink and white ration cards with utter bewilderment. The first, a BPL card — below poverty line — entitled them to rice, wheat, and some sugar. The second, an APL card — above poverty line — got them only some kerosene oil. (How can one satisfy one’s hunger with kerosene, a woman asked in desperation?)
Often, they got neither. But what confused them the most was how one neighbour — living in exactly the same set of debilitating circumstances — had been picked for the pink card; and how others had been cursed with the white. Then, of course, there were dozens of families who had no card at all. Someone, somewhere, in some faraway city — beyond the realm of their imagination — had determined how many poor people resided in their village, and no matter how much their stomach ached or their children cried, they could not get themselves on the map. They could not get work either. The helplessness of it all was staggering.
Potentially, the Food Security Bill could change all of that. It promises a minimum of 5 kg of cereal per person, per month, to 75 percent of India’s rural households and 50 percent of its urban poor at a price ranging from Rs 3 – Rs 1 a kg. This is being billed as the largest welfare scheme in the history of the world. It is committed to ensuring 800 million people get at least a minimum level of food in their stomachs every day. Crucially, it also provides Rs 1,000 per month to pregnant and lactating mothers for a period of six months; and a nutritious meal to all children from age 0 to 3; and then, through the midday meal scheme, up to the age of 14.
Ordinarily, this should have been a moment to celebrate. Instead, bizarrely, a large section of India’s elite feels it has been robbed in broad daylight. There is widespread fear that India absolutely cannot afford such a scheme; that it will cripple an already devastated fiscal deficit; that it will turn India into a lazy, unproductive society, disinterested in searching for jobs; that India does not produce enough foodgrain to meet such a commitment; that just one drought year would break the back of the country; and that, assured of getting their food from the government, small farmers will stop tilling their farms altogether and India will be pushed to import foodgrain, further skewing the current account deficit. Yashwant Sinha, a senior BJP leader and India’s former finance minister, captured this zeitgeist when he said, “Why can’t people work and put food in their own stomach?” One day in Uttar Pradesh ’s Sonbhadra district would answer that question.
The Bill is certainly not a perfect one. But the visceral hostility to it is highly self-damaging. Firstly, its root lies in an essential failure of vocabulary. Critics of the Bill see this as profligate government “spending”. But to assess the merits and demerits of the Bill, one must first correct the lens: this is not a spend, it’s an investment, crucial for India’s future and growth.
Over the past two decades, economic planners and corporates alike have held up India’s “demographic dividend” — its millions of young people, second only to China — as one of the major keys to its buoyant economy . But mystifyingly, against all economic logic, they refuse to invest in this dividend. What we have, therefore, is this: almost 50 percent of India’s children — that is one out of every two children — suffer from severe malnutrition , at levels worse than sub-Saharan Africa. They also have almost no access to healthcare; clean water; quality schooling; toilets; or housing. What this means is that we are nurturing literally hundreds of millions of Indians who are bursting with aspiration but who have no tools to satisfy them. How can they possibly become productive members of the country’s economy until they have access to a basic platform of human dignity? (From a corporate point of view too, how can the buying power of India’s demographic dividend — its huge “market” — be unleashed, unless they are given basic rights and capacities?)
For many privileged Indians — who are willing to buy bathtubs for a couple of lakh rupees but who are aghast at their taxes being used to feed the poor — the idea ofmalnutrition is a value-neutral word. Unless one has gone chronically and repeatedly hungry to bed, it is hard to imagine what that can do to one’s body and mind. But this is not just bleeding-heart faff. Set aside the human and moral catastrophe of having hundreds of millions of people going hungry every day, but consider this: the impact ofmalnutrition poses a very real and imminent economic danger for the country. Malnutrition severely stunts intellectual, emotional and physical growth.
Studies also show that the effect of malnutrition is most acute in the age group from 0 to 3 and this cannot be mitigated in one’s adult life. In effect then, it’s not just that there is no employment to be had; the fact is we are complicit in systematically creating unemployable and under-par fellow-citizens. We are building a storm-bank of frustration. By guaranteeing food, by guaranteeing every pregnant mother at least a minimum level of nutrition, the Food Security Bill attempts to strike at the very heart of this fundamental economic problem.
As Pratap Bhanu Mehta , director of the Centre for Policy Research, put it in an excellent Indian Express column: “Has any modern society evolved without robust welfare protection?” He goes on to add, “It’s no accident that even so-called right-wing politicians from Bismarck to Churchill and Nixon have supported an efficient and humane basic income guaranteed by the State.”
Or as UPA chairperson Sonia Gandhi put it, “It’s not a question of whether we can afford to have this Bill, but rather can we afford not to?”
The question of what the Food Security Bill will cost though is indeed a highly aggravated one. Defenders of the Bill say the government is already spending Rs 90,000 crore on food subsidy : expanding the net of beneficiaries will cost an additional Rs 30,000 crore. This, they argue, is not something India cannot afford. Rs 1.2 lakh crore on securing food for one’s citizens amounts to only 1.2 percent of the country’s GDP. How can one grudge that when one compares this with other subsidies?
Development economist Reetika Khera , for instance, points out that tax exemptions given to Indian industry in 2012-13 alone amounts to a whopping Rs 5 trillion. India’s fuel subsidy — much of which is enjoyed by the rich — is approximately Rs 1.6 lakh crore. Tax breaks given to the gold and diamond industry in the last year is Rs 60,000 crore, nearly 20 percent of the revenue forgone. (For perspective: this industry employs 1.8 million people, which is less than 1 percent of the Indian workforce. The Food Bill would benefit 67 percent of the population at merely an additional cost of Rs 30,000 crore. ) The list could go on. The point is, shaving just a little from all this would help balance the books.
Or reverse the gaze. Examine the scams: just the irrigation scam in Maharashtra is worth Rs 70,000 crore. Tax evasions from private mining companies would cross many trillion. Why not urge government to fix this? Why is it that the market can withstand this waste with stoicism, but it panics at the prospect of providing food?
There are robust answers for many of the other fears the Bill triggers too. For instance, it is absurd to imagine that getting a mere fistful of rice in one’s belly every night is going to kill India’s aspiration and turn it into a lazy society. Can one really argue that India’s poor will not work towards better clothes, shoes, schooling and living standards for their children, because they have allayed the basic gnawing in their stomach?
As for India’s capacity to produce foodgrain: in good monsoon years, almost 700 lakh metric tonnes of foodgrain lie rotting in warehouses or in the open. If you laid these sacks out in a row, it would cover one million kilometres: a road to the moon and back. Often, rather than distribute this successfully to its poor, the government exports it at a loss to other countries to feed cattle and pigs.
There are many other well-grounded fears about the Bill, however, that deserve closer scrutiny. For instance, what indeed will the country do in a drought year? Are there hidden costs about infrastructure and delivery mechanisms that the government has not fixed before getting its Bill passed? Will these load the costs further in unplanned ways? Is it better to have direct cash transfers rather than undertake the unwieldy process of acquiring and distributing foodgrain to far-flung corners of the country? How will the Bill affect the farm sector? How will it fix the existing 40 percent inefficiency and leakages in the system? Is the design too centralised?
Many of these questions are posed and answered in the interviews and columns that follow.
The real significance of this Bill, however, is that in every democracy, the starting point must always be an articulation of rights and intention. A legislation itself can never be a magic wand: but the syllables of idealism rightfully belong to it. Enacting the Abolition of Untouchability did not mean the curse of caste disappeared overnight. Nor will the Right to Education ensure every child turns into a scholar in a day. Nor indeed can the Right to Information ensure governments will reveal all their dark truths. What legislations do is set forces into motion. They might take decades to mature but they create the correct moral framework. They give citizens the right to demand.
The outrage over the enactment of the Food Security Bill , therefore, should turn its glare not on the promise but the delivery: we should want our citizens fed, but we should demand it is done efficiently.
This is not an impossible task. On the same trip to Uttar Pradesh , we also travelled through the Sarguja district of Chhattisgarh . Here, miraculously, almost every citizen was getting their food entitlement. The state had taken some simple steps to make this happen. Most importantly, it had removed the unfeasible practice of giving targeted subsidies.
In the current PDS system, there are 13 parameters to determine who is poor: how many sets of clothes a person has, whether they live in a kacha or pucca house, whether they own a patch of land; possess a cow, and so on. This is then marked on a scale of 0-5 and a percentage of the poor who make it to that scale are computed as worthy to receive subsidies. It does not need a particularly fertile brain to imagine how boggling this sort of classification can be. Uttar Pradesh is proof of that.
In Chhattisgarh , however, rather than undertake the gargantuan task of looking for its poor, the state pretty much universalised its beneficiaries. This means whoever needs it, just asks for it; those who don’t, don’t bother. The state also took away fair-price shops from private operators and gave them to cooperatives, panchayats or women’s self-help groups; it raised the commission earned by these mediators; it set up computerised ledgers in godowns and, among other things, sent out a diktat that all food-related grievances must be settled by district magistrates within 15 days. According to Chief Minister Raman Singh, their leakage is down from 40 percent to four.
There is no reason why other states cannot replicate this. The return on investment promises to be very high. As a woman in Sarguja told us: “For the first time in our life, we are sure we have enough to eat. So instead of spending 15 hours a day trying to find money to buy roti and salt, we have started a cooperative and are running a dairy.”
Article 2:
The most important indicator of whether India will crash is the sweat on Raghuram Rajan’s brow.
The new Reserve Bank of India governor arrived in Mumbai this week with a bang, announcing a slew of reforms to free up and expand the banking sector and to draw more Indians into the formal financial system. The news impressed traders, who staged much-needed rallies in both stocks and the rupee on Sept. 5.
India’s economic crisis, however, is still simmering, and Rajan still resembles the proverbial frog in the pot: He may not realize he’s cooked until it’s too late.
Right now, markets are responding to his decisiveness -- a refreshing change from the political dithering inNew Delhi. The hope is that the respected University of Chicago economist, who accurately predicted the 2008 global meltdown, will turn out to be as good at managing crises as foreseeing them. India could yet get a handle on its problems. With bold steps to curb public borrowing, address the external deficit and contain inflation, Indian politicians could restore international confidence.
Banking reforms alone, however, aren’t going to bring foreign investors back or prevent the rupee from falling further. This is Rajan’s real challenge: He is stepping into a stew of financial chaos, missed opportunities and political paralysis that has been simmering for years. It’s no longer inconceivable that India could become the first of the BRIC economies -- Brazil, Russia, India and China -- to lose its investment-grade rating. And Rajan may not be able to do anything about it.
No Control
First of all, the RBI’s suave new governor has no control over what really ails India. Sure, he can try to defend the rupee and get a handle on India’s 10 percent inflation. He can use his international credibility to soothe markets as Ben S. Bernanke and the Federal Reserve withdraw stimulus. Even the most respected central banker, though, can’t stop politicians from spending without accountability. Rajan can’t root out corruption, make the government more transparent, or attack the red tape that is deterring investment and strangling growth.
Rajan can’t tweak tax policies to broaden revenue streams and encourage an explosion of startup companies. He can’t reform education and training programs, or see to it that India has as many toilets as mobile phones. He can’t spearhead the improvements in infrastructure that are needed to create more manufacturing jobs. He can’t strike grand bargains between the parliament in New Delhi and powerful state leaders, who are at odds on virtually every upgrade the economy needs.
The central bank has no say over barriers to imports and investment. It can’t nudge executives to improve corporate governance. It can’t reduce India’s reliance on foreign energy at a time of rising tensions in theMiddle East or hold off the competitive threat from China. All Rajan can do is treat the symptoms of India’s funk, not the underlying sickness.
The man who must address the core problems, Prime Minister Manmohan Singh, is a spent force. Those of us -- me included -- who hoped Singh would use his sizable re-election mandate in 2009 to renew the drive for reform have been sorely disappointed. After myriad scandals and years of policy drift, India’s economy seems barely better off than it was in the early 1990s, the last time the rupee fell this sharply.
The double-digit output India experienced in the past decade was, in some ways, a debt-driven mirage enabled by short-term capital flows. High growth rates papered over India’s cracks and masked the government’s failure to narrow the gap between rich and poor as well as translate rapid output into good-paying jobs. Now that growth has slowed to a paltry 4.4 percent, all of India’s problems are being exposed.
On Hold
However determined and decisive Rajan may be, the real reforms that India needs are on hold until May’s election. Palaniappan Chidambaram -- serving as finance minister for a third time -- understands India’s troubles as well as anyone. But he is a possible successor to Singh should the Congress party win at the polls. That means that the two men most pivotal to India getting its act together probably won’t be doing anything bold or creative between now and then.
For the next nine months, India’s rot will only deepen. That’s about 270 days to hit new lows on the rupee and for rating companies to mull downgrades. Wasting this time might seem less irresponsible if India had enjoyed a surge of reformist energy in the last 10 years. Instead, it’s been a lost decade for change.
Singh is in St. Petersburg, Russia, for a summit of the Group of 20 nations. It’s striking how the global climate changed markedly in the last year, before BRIC leaders even knew what hit them. More than most, India is paying the price for not noticing how hot the water was getting.