Thursday, August 22, 2013

Food Security Bill For Imposing Financial Emergency?

Food Security Bill won’t eliminate hunger, will not help win elections and won’t add to high spending--28.08.2013

The LokSabha has passed the Food Security Bill. Sonia Gandhi claims it will save the needy from hunger and malnutrition. TheBJP claims she is merely buying votes in the coming general election. Critics claim the Bill will strain the exchequer unbearably.

Wrong, wrong and wrong again. This farcical exercise will not improve food security; will not ensure electoral victory for the UPA; and will be an affordable folly.

NSSO surveys show that the proportion of hungry people fell from 15.3% in 1983 to 2% in 2004. By now, it is probably 1%. So, forget the notion that hungry Indians are crying out for cheap grain. No, per-capita consumption of cereals has fallen steadily in all income groups, including the poorest. They are shifting to superior foods: proteins, milk and tea.

Schemes a Dime a Dozen

Besides, the NDA launched the Antyodaya programme for the very poorest back in 2000, providing wheat at 2 and rice at 3 per kg. The Bill simply repeats the dose - nothing new at all for the poorest.

While Indian hunger is very low, malnutrition is extensive. Arvind Panagariya and Jagdish Bhagwati's book India's Tryst with Destiny reveals that WHO norms for malnutrition, widely cited by other economists like Amartya Sen, are laughably faulty. The last National Family Health Survey showed that, by WHO norms, 15% of even Indian elite children were stunted! Kerala's life expectancy is 74 years and infant mortality is 12 per-thousand births. Senegal,Africa, has life expectancy of 61 years and infant mortality of 51 per-thousand births. Yet, according to WHO norms, 25% of Kerala's children are stunted against only 20% in Senegal. Ridiculous! Indians are just shorter than Africans, not more "stunted".

Malnutrition versus Hunger

However, Indians do indeed suffer from very high levels of anaemia, even among the richest, one-third. Pregnant mothers and children suffer from protein shortages. If drinking water is unclean and bacterial, people cannot absorb additional calories even if fed more food. Clearly, better nutrition requires clean drinking water more than cheap cereals. It also needs additional protein, iron and vitamins. These could be supplied through ultra-cheap soybean flour fortified with iron and vitamins. But solving malnutrition this way will not get many votes. Sonia Gandhi would rather seek more votes through a subsidy covering two-thirds of all voters. Hence the Bill.

The BJP condemns the Bill as a pre-election gimmick. But it will surely fail. Many states already provide cereals more cheaply than the Bill. Tamil Nadu provides 20 kg of free rice to poor families. Other southern states provide rice at 1 per kg. ChhattisgarhMadhya Pradesh and Rajasthan are going to have state elections, and all three now offer wheat or rice at 1 per kg.

So, in several states, the additional subsidy of the Bill will not mean cheaper food for consumers, simply less subsidy at the state level. Chief ministers will get the credit for cheap cereals, not New Delhi.

The Bill may mean cheaper cereals in some states, like BiharJharkhand and Uttar Pradesh. But the Public Distribution System (PDS) is in terrible shape in these states. To the extent the PDS improves, the chief ministers will get the credit.

This was exemplified in the 2009 general election, when the UPA claimed that NREGA had created new jobs at higher wages. But in the poorest rural states where NREGA was supposed to have the most impact - Bihar, Chhattisgarh, Odisha, Madhya Pradesh and Uttar Pradesh - the Congress won only 20% of the seats. A big New Delhi scheme simply did not translate into votes for the Congress. The same will be true of the Bill.

Penny Wise, Pound Foolish

Finally, is it affordable? The government says it will cost an extra 25,000 crore per year. Economist Prachi Mishra suggested it could be 50,000 crore per year. Other estimates go up to 3% of GDP, but look very exaggerated. Please note, even as the Centre's food subsidy goes up, the subsidy borne by several state governments will go down correspondingly. Taking central and state subsidies together, the additional outgo will be quite modest.

An additional net outgo of, say, 25,000 crore will be only 0.25% of GDP. This will not be fatal for the fiscal deficit, which has been hit far more by oil under-recoveries. However, it is silly for the government to procure wheat at 13 per kg from a farmer, spend 10 per kg on inefficient movement and storage, and sell it to the same farmer at 2 per kg. Why not just give the farmer cash instead?

Forget all rhetoric about the Bill being a pathbreaker. Advocates say people now have a legal right to food. Really? So everybody turned back by a ration shop is going to register a police case? And the courts will hear all these cases though they don't have the time to deal with murder and rape in less than 10 years? Fantasy!

Any attempt at legal enforcement of this right will overload a system already collapsing under the weight of older obligations. Such overloading leads only to cynicism and corruption, not Utopias.

Food Security Bill will eat into finances, growing subsidies to hurt investments: RBI--ET 23.08.2013

MUMBAI: RBI has weighed in on the ongoing debate on the viability of the proposed Food Security Bill, warning the government would find it difficult to contain spending on the proposal within the budgeted amount even in 2013-14. Further, the central bank, which released its annual report on Thursday, also asserted that the rise in the quantum of subsidies would hamper investments

The Centre plans to spend 90,000 crore on food subsidy in 2013-14, of which 10,000 crore is earmarked for the National Food Security Bill, which aims to provide foodgrain to poor families at subsidised rates. The government issued an Ordinance before the monsoon session, but it is yet to be ratified by Parliament. 

Growing Subsidies to Hurt Investments 

"The impact of the National Food Security Ordinance on food subsidies is manageable for 2013-14, in the years to come it will add to the fiscal pressure," the central bank said. However, it goes on to express doubt on whether the pressure on spending can be managed even in the current fiscal. "Key concern is that it is difficult to contain food subsidies within budgeted amount even in 2013-14 when the Act will just begin to get implemented." 

"Over the next few years, the growing subsidies could restrict investment opportunities, including those in agriculture sector," it warned. 

The central bank said the full impact of the rupee's depreciation of about 11% in the first four months of FY14 is incomplete and will put upward pressure as it continues to feed through to domestic prices. "RBI will try to condition the evolution of inflation to a level of 5% by March 2014," says the annual report. The wholesale price index, India's main inflation gauge, rose 5.79% in July from a year earlier, compared with 4.86% in June and at its fastest pace since February. 

Expressing concern on the widening current account deficit (CAD), which is at 4.5% of GDP, the central bank said the high level of CAD is "unsustainable under the present growth scenario" while suggesting that "there is still a scope for curbing non-essential imports as well as to improve trade balance". 

The import of oil needs to go down and bottlenecks in the production of coal and iron ore should be addressed to control CAD. "To mitigate external vulnerability, short-term debt needs to be contained, imports of oil and gold need to be moderated and structural impediments need to be removed in areas such as coal and iron ore," it said. Iron ore production has come to a halt in large parts of the country because of the Supreme Court's orders.
The central bank also highlighted the fiscal burden facing the government, which will have to inject capital into public sector banksas they gear up to adhere to Basel III norms.RBI estimates show that PSU banks will require Rs 4-4.25 lakh crore of capital by 2018.

RBI has also voiced concern over risingstress in the books of banks, particularly on account of loans to infrastructure sector. "Utmost attention is needed to contain financial stability risks that are rising with the deteriorating asset quality of banks. Although the average leverage ratio for the corporate sector remains comfortable, stress is building up in some sectors, especially infrastructure, where firms are finding it hard to raise fresh equity given an already high net debt-to-equity ratio. If infrastructure sector issues are not quickly resolved, it can have a domino effect on the asset quality of banks."

RBI data shows that bad loans and restructured standard loans to infrastructure sector stood at 17.3% of the total loan book.

The Reserve Bank of India has also called upon state governments to ensure debt restructuring does not become a perpetual feature considering its downside risk to the stability of state finances.

Corruption, indecision hurting India's growth: Sam Pitroda

KOLKATA: Sam Pitroda, who is the adviser to the Prime Minister on public information infrastructure and innovation, today said that corruption and indecision were affecting the growth story of India.

"When UPA government came to power at the Centre, then the country's growth rate was eight per cent. During UPA-II, the growth rate started tapering down which had been largely a result of corruption, indecision and policy paralysis," Pitroda said at the SNC-CII event here.

Pitroda said, "in the last few months, everything seems to be unsettling. People's perception is that the government is not taking any decisions which should have been the case. The public notion is that there are multiple power centres and nobody knows who is in charge."

"At the end it is the Prime Minister who had to take the decisions. But for that a strong government at the Centre is needed. It is difficult in a coalition framework," Pitroda said.

Saying that India was now at the crossroads, Pitroda viewed that the crucial question before the Indians was how the country would navigate to emerge as a winner.

"Poor sentiment and confusion are ruling the minds of the people of the country. Today, the Indian dream seems to be in doubt. Today, we are very concerned as our growth story is going offtrack," he said.

Pitroda said for an inclusive growth targeted at reducing poverty and distribution of wealth, the country would have to grow at a rate of 10 per cent for 25 years.

"The present design through which the country is governed will have to change as it will not be able to deliver for 1.3 billion people," he said.

"Something happened in 1991. But this is a bigger challenge as everything is getting affected," he observed.

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