The National Food Security Bill is one of the most ambitious social security programmes of the United Progressive Alliance government after the rural job scheme. As the government awaits a report from the standing committee of Parliament on the Bill, a group of food and farm experts and the Commission for Agriculture Costs and Prices (CACP) chairman Ashok Gulati in a discussion paper released last week trashed the draft Bill on the grounds that it would inflate India’s food subsidy and hamper normal functioning of the grain market. In an interview with Sanjeeb Mukherjee, he says that instead, the government should aim at a cash transfer of food subsidies across the country in the next two years. Edited excerpts.
What do you think is the basic flaw in the current draft food security Bill?
The fundamental flaw in the food Bill is that it is trying to achieve equity ends through price policy by giving grains at highly subsidised prices. This will grossly interfere with the functioning of grain markets, leading to large leakages (already, as per our calculations, leakages from the public distribution system amount to about 40 per cent) as well as efficiency losses, and is going contrary to emerging diversification in agriculture. Remember, the key role of price and trade policies is to allocate resources efficiently and thereby promote growth. This will be scarified by the Food Bill in its current form, and this will be a huge loss. The right instrument to achieve equity ends is income policy. That's why we support conditional cash transfers (CCT) in our paper, which is also the global best practice to help the poor and needy.
How much will the government's financial burden rise once the Bill is implemented?
The direct hit in terms of food subsidy alone, as is being calculated currently by the government, will be around Rs 1.2 lakh crore in the first year, which is likely to go up to Rs 1.5 lakh crore by the third year, given that MSP (minimum support price) will keep rising and issue prices will remain frozen. But if one includes the expenditures on other programmes mentioned in the Bill to tackle malnutrition, or the need to develop infrastructure for storage and movement of grains (including augmenting the capacity of railways), and the need to stabilise foodgrain production, the total bill (direct and indirect) will easily cross Rs 2 lakh per year.
Now the Bill is with the standing committee and simultaneously, the government has started the process of cash transfer of food subsidy. Do you think the Bill could be altered to address the new concerns?
Yes, we do feel that the idea of CCT can still be accommodated by bringing in enough flexibility in the Bill for innovations at the state level or even at the district level. It is not a zero-one game. Flexibility will allow many shades, depending upon the landscape of local conditions. We feel that first the idea of CCT can be introduced in cities with a population of more than 1 million, which have ample IT and financial infrastructure, and where Aadhar can be easily introduced, along with functioning of micro-ATMs. Then, it can be gradually expanded to grain surplus states, and lastly in grain deficit areas. Some areas (remote ones) may still need to be served with physical deliveries of grains.
In the draft food Bill, distribution of cash is an option to be considered only if there is shortage of grain supplies. Do you think it is the right approach?
How will you distribute cash in case of failure to distribute grains if you have not developed the financial infrastructure for that? This is like running to dig the well when there is a severe drought. That will not work. Our thinking and suggestion in this paper is that this freedom to choose between grains and cash should be given from the very beginning, and in fact, the whole scheme of helping the poor should be geared towards CCT.
The government has also devised a Plan B for the food Bill which expands the coverage of beneficiaries from 64 to 68 per cent, but reduces the quantum of grains to be distributed from 35 kg per month to 25 kg. Do you think it will be better than the current draft Bill?
For us, the fundamental question is not 35kg or 25 kg, but it is to make switch from price policy to income policy--instead of giving highly subsidised grain, give them cash with some conditions such as sending their children to school, getting them skilled, immunised, etc. Then it can work much more effectively, as it did in several countries ranging from Brazil to the Philippines. The glitches will come, as they do in any large scheme, but they will be much more manageable than the scheme of physically distributing 65 million tonnes of grains each year, half of which may never reach the intended beneficiaries. So we see huge savings in CCT, and thereby potential of augmenting the level of support to the poor through better investments in education, skills development, public health, etc.
‘India can grow as fast as China if domestic issues settled’
The share of manufacturing in India’s gross domestic product can go up to 30 per cent if the country implements labour reforms and relaxes regulations, according to Nick Bloom, professor, Stanford University. He tells Dilasha Seth in an interview that India could grow as fast as China if the country sorts out its domestic challenges.
With India’s economic growth down to 5.3 per cent in Q2, what are the deterring factors according to you.
Domestic issues are India's real problems rather than external ones. So my anology is like, India is like a boxer with a hand tied behind its back. The government has tied the hand behind with labour regulations, permits, licensing, etc. So, if the second hand is unleashed, then India can grow faster. Imagine that you are a businessman, and want to open a factory. It is really hard with so much of regulation, so you move to Singapore, Hong Kong or US.
Are you saying that if India addresses these domestic hurdles, it can tread a high growth path like China?
If the domestic issues are sorted out, India’s growth rate could be at least as fast as China. The government could increase growth by getting rid of most of these regulations. India’s growth rate is lower than China’s, as China is a more free market. There are much less labour regulations and the rule of law is very strong. So what can drive India’s growth in the medium rate is going to be how much the government can do to push through the retail FDI (foreign direct investment) and the land acquisition Bill.
The manufacturing sector has been a drag on the overall economy...
India has a very small manufacturing sector. Every country around the world, which have achieved a massive growth rate, is through manufacturing. No one has really been able to achieve high growth like agriculture to services,.
The National Manufacturing Policy aims at increasing the share of manufacturing from 15 per cent to 25 per cent in the next decade. Do you think that is doable?
India’s labour is way cheaper than China’s .So people are moving out from southern China to inland parts of Indonesia. They would happily invest in India and India’s share in manufacturing could possibly go up to 30 per cent if it eases the labour regulations, allow FDI and ease the licence procedure.
If I am a big multinational company and thinking where to set up my factory, I think of two options--India and Vietnam. India has cheaper wages than Vietnam, but Vietnam is a lot of relaxed place. There is some corruption, but I can get my way and run my basic business. But if I go to India, I would sign a partnership with the government and I am worried about the uncertainty. I think there is a huge pool of people who wants to invest over this side. If you see the amount of money pouring over Vietnam and Indonesia and China, a part of that could come to India.
With about a week to go for the fiscal cliff, things are still unclear in US...
The Republicans and Democrats are fighting like King Kong and Godzilla. I think if they go over fiscal cliff, it will be a horrible beginning of 2013. They need to make a permanent resolution; but the really big long-run problem in US is the healthcare expenditure. There is no long-run solution.
Then Europe is really bad. Greece is number 100 in World Bank’s business index. It’s terrible. They need a major reformist leader.
How do you look at the fact that it is states’ prerogative to allow FDI in multi-brand retail in India?
That is good. I think if some large states like Maharashtra introduce it, and prices fall by 50 per cent, other states will also follow. So you just need one big state do it.
