Friday, August 30, 2013

Elephant Stops Dancing

Economy on rocks,  not necessarily, thinks the Finance Minister even when the Re breached 68. We are still at an inflexion point as Rupee is yet to touch the downslide to 70 a dollar, as predicted by Dr Tarapore a month and odd ago in the Business Line. The inflation differential between the two countries India and US has been steady over the last two decades at 3.6% notwithstanding the great recession since 2008.  This exchange rate adjustment, that is largely market driven, need not be seen as a weakness of the economy. There is a large domestic economy, if carefully nursed, could reverse the trend though not in the immediate future. We cannot very much alter our import basket governed by the crude oil that is rising, and edible oil whose consumption in India far outstrips the production necessitating its continuing import and the heavy capital equipment required for infrastructure sector, in the short run. In sluggish manufacturing sector intensity, expecting recovery in the short run would be a wild goose chase.


If we look at the emerging economies’ trends ever since Ben Bernanke announced the QE programme of unwinding bond purchases, global GDP all along etching its hopes on them, now looks tamed at 2.1% even in 2013. Chinese economy, though sent some shivers at the beginning of the year, started quick recovery and would seem to be steady on stabilising and may be at 7.7% growth. Among the BRICS, the other major, Brazil is looking for World Football Cup to come to its rescue. It is down from 3.5% to 2.5%. Unfortunately, India does not have an event like the Commonwealth or world tournament to milk the opportunity.  

After a long slumber on the policy front, India’s economic Czars announced a slew of reforms that would move like the wheels of Lord Jagannath’s chariot. They have been announced at a time when the sectors are not poised to respond. Now, the rating agencies that have been on a simmering hope would appear too keen to downgrade India’s sovereign rating. Although on some such hopefuls, the EIA predicted GDP growth at 6% for Asia and Afroasia (excluding Japan) in June 2013, is likely to shift it at 5.5-5.7%. Although the RBI in its July 30 Monetary Policy predicted a downtrend to settle at 5.5%, even the most optimistic projection does not now seem to cross 5%.

The silver lining in the cloud of despair is that the NRI deposits are growing with the downfall of Re. Even in the backdrop of double digit consumer inflation index, domestic savings have not fallen yet; and the employment rate also remaining steady. The core sectors grew by 1% last month. Electricity generation showed improvement by 6.2% with the rise in hydel power backed by steady inflows in the command projects. More than average rain fall also predicts a hopeful growth of the farm sector. There is enough money rolling in rural areas still, thanks to the MNREGS and a few rounds of State elections that fuelled free money make a merry go-round.

What is at danger, however, is the likely bourgeoning of fiscal deficit fuelled by the implementation agenda of Food Security Act 2013. The Centre’s expected funding of the order of Rs.900bn in 2013 on Food subsidies alone that has an embedded 40% leakage if we go by the CACP study, rings alarm bells of consequence. RBI’s Governor Subba Rao without mincing words said that the Act would ‘eat into the finances’; while the incumbent Raghuram Rajan said: “there is blatant flaw in the policy making.” While the tigers are mauled alright, the elephant would stop dancing and get chained in the cage.
Can also be seen on VITALINFO




Thursday, August 29, 2013

National Food Securty Act 2013 - A commentary

Food Security Act 2013 and its Implications for the Future 

At the time when the book is about to be published, Lok Sabha passed the Food Security Act 2013 on the 27th August 2013. I thought it appropriate to put this post script at the suggestion of the publisher’s editor.

The Act made its way in an otherwise turbulent political environment where the Government has been facing the House with explanations on various scandals; the fall of the rupee with the resultant deterioration in the current account deficit and on top of it,  the fiscal deficit set to reach an unsustainable level, if the Food Security Act were to get implemented. All the parties supported the bill as none would like to be dubbed as anti-poor with the impending General Elections. The purpose of this chapter is to discuss the pros and cons of the various provisions in the Act in terms of its implementation. 

World Food Summit (13–17 November 1996) defined Food Security as: “Food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life.” Although India could distance famines, it could not stall starvation deaths. Its lead in paddy and wheat production would seem to be at the cost of production in millets and other course cereals and pulses and oil seeds. Both calories and proteins remained below the recommended dietary levels. The country acquired the dubious distinction of housing 300mn poor, by whatever definition one defines the poor. There has been a multiplicity of schemes that targeted such poor only to ensure that they remain at that level for granting political largesse through bureaucratic extravaganza. This contextual frame helps one to look at the Food Security Act 2013 of Government of India that provided staple food grains to all the BPL families uniformly across the country. There has been a drubbing by the Supreme Court over the mounting food stocks in FCI warehouses and people reporting starvation deaths in one or the other part of the country that speeded up the legislative process.

The Right to Food as a fundamental right cannot be ensured by a series of intentions. In a country of diversities in both economic (size of the poorer sections of population and their identification differ across the States) and political spectrum, where the resources for taking care of the poor have to be provided by the States more than the Centre, a Central Act like the Food Security Act is more a political gimmick than economic tool. This Act, to quote K.R. Venugopal, “is like dropping a coin in the Bay of Bengal and searching for it in Indian Ocean.” Several fundamental needs like water, sanitation and power are as much essential as mere food and without them the food security could turn out as insecure. Even after 66 years of independence we have more than 40 percent of villages not having access to safe drinking water and secured health. 

It is unfortunate that the key observations of FAO in its paper on the State of Food Insecurity in the world 2011 have received only lip service: 

"A food-security strategy that relies on a combination of increased productivity in agriculture, greater policy predictability and general openness to trade will be more effective than other strategies;

Safety nets are crucial for alleviating food insecurity in the short term, as well as for providing a foundation for long-term development;
High food prices present incentives for increased long-term investment in the agriculture sector, which can contribute to improved food security in the longer term. (IFAD, WFP and FAO, 2011)." 

Schedule II of the Act contains provisions relating to reforms to the agricultural sector that needed attention. Assuring sustained increase in production consistent with the growing requirements of the Act and the resources that the States should provide for implementing the Act are vital components of the agenda but receive scant attention.  As the CACP points out “Assured procurement gives an incentive for farmers to produce cereals rather than diversify the production-basket…Vegetable production too may be affected—pushing food inflation further.” If these cereals do not find attractive prices and specific support prices for those that are part of the food security system, there would be serious consequences for the farm economy.
“Priority Category”: Definition of the poor has come into serious controversy lately. The criteria have to be fully in public knowledge. While the Act specified that the records have to be transparent and in the public domain, there is no timeframe for doing so by the States. So is the case for another requirement under the Act: “that the States shall put in place the needed information, communication and technology systems in place.”

The list of the eligible families should be displayed at the village Panchayat level and at the ward level in the urban municipalities. Any divergence of opinion has to be resolved at the village/ local level within one week of placing the list on notice. Such list could be prepared through a survey done by NGOs or educational institutions at the block/ Mandal levels.  

All those who are within the exempted income category for payment of income tax should become eligible for food entitlement under the food security provisions. 

All the tax-payers shall be the excluded category for two reasons: they have the ability to buy the food because they have regular income; they are also otherwise covered by some social security provision or the other.  

Nutrition security is the whole while food security is a part of that, and therefore the law that is being contemplated should really have been a food-cum-nutrition security law rather than a mere food security law.

It is also worth noting at the outset that an important strategy for defending and expanding the rights of the poor in any scheme that seeks to guarantee a particular right is to fine-tune it to the other related schemes in a manner that all related schemes pull together all the rights that govern all the participants in such schemes. Such a synergy will guarantee all rights essential to the poor, each right reinforcing the other. Food and nutrition security is no exception to such a synergy. In fact the most important paradigm that should govern a law that guarantees food-cum-nutrition security is to define such security as the sum total of the entitlement that a poor household would access through its entitlement in all the food and nutrition related schemes that the Government implements or proposes to implement and not merely through a single programme like the TPDS. Unfortunately, the Act failed to provide this comprehensiveness.
The Food Security Act 2013 guarantees 5 kg of rice, wheat and coarse cereals per month per individual at a fixed price of Rs 3, 2, 1, respectively, to nearly 75 percent of the rural and 50 percent of the urban population.
The government estimates suggest that food security will cost Rs 1,24,723 crore per year. But that is just one estimate. Andy Mukherjee, a columnist with Reuters, puts the cost at around $25 billion. The Commission for Agricultural Costs and Prices(CACP) of the Ministry of Agriculture in a research paper titled National Food Security Bill: Challenges and Options puts the cost of the food security scheme over a three-year period at Rs 6,82,163 crore. During the first year the cost to the government has been estimated at Rs 2,41,263 crore.
Economist Surjit Bhalla in a column in The Indian Express put the cost of the bill at Rs 3,14,000 crore or around 3 percent of the gross domestic product (GDP). Ashok Kotwal, Milind Murugkar and Bharat Ramaswami challenge Bhalla's calculation in a column in The Financial Express and write, “the food subsidy bill should...come to around 1.35 percent of GDP, which is still way less than the numbers he [ Bhalla] put out.”

When we look at the Budgeted Receipts of the Government for 2013–14, presuming that such receipts would come even at the declining growth expectations, they are just Rs 11,22,799 crore. The government's estimated cost of food security comes at 11.10 percent (Rs 1,24,723 expressed as a percentage of Rs 11,22,799 crore) of the total receipts. The CACP's estimated cost of food security comes at 21.5 percent(Rs 2,41,263 crore expressed as a percentage of Rs 11,22,799 crore) of the total receipts. Bhalla's cost of food security comes at around 28 percent of the total receipts (Rs 3,14,000 crore expressed as a percentage of Rs 11,22,799 crore). Where do you find the money to implement the schemes?

The CACP estimates an expenditure of Rs 6,82,183 crore in the first three years of launching the scheme, with Rs 2,41,263 crore in the first year itself. If the scheme is initiated in 2013–14, the gross fiscal deficit of the Centre would substantially shoot-up to 6.7 per cent of GDP, a level not reached since 1993–94.[1] The States’ finances are moving at alarming debt rates.

Implementation is at the doorsteps of the State Governments while the stocks are with the Central Government and the coordination between the two would require to be non-partisan and wholehearted.
This apart, the administrative expenses for setting up the State Food Commission, District Grievance Cells, and the Vigilance Teams and for the implementation of ICT across the State right up to the village level and integrating with the entire distribution system cutting across panchayats, cooperatives, private licensed traders, etc. have to be incurred by the State Governments. CACP has also indicated that additional expenses have to be incurred for scaling up of operations, enhancement of production, investments for storage, movement, processing and market infrastructure, etc.”
There is no ballpark figure in the approach papers.

As against the NAC recommendation of 35kg of food grains per month, the Act provides for only 25 kgs in the PDS in one-fourth of the most disadvantaged districts or blocks in the country in the first year given the fact that an average household of 5 would need the energy equivalent of around 60 kg of food grains per month. Therefore the law should have specifically referred to all the food and nutrition-related schemes as also schemes where the potential exists for the use of essential commodities (like in the MGNREGA) together and examine how much a poor household would access through all these programmes through organically integrating them at the delivery level. Complementarities of the existing programmes require recognition and integration.


It is important to add that all these programmes need to be predicated on adequate, decentralized production of food grains which essentially means that India’s dry land agriculture must receive priority attention by way of a second green revolution in the vast areas of the country that do not have assured irrigation facilities. This emphasis is found missing in the Act.

It is essential to change the provision in the MNREGA in regard to this basic issue from guaranteeing just 100 days of employment to the entire household to guaranteeing 100 days of employment to every adult in a household.  While on this, a point has been made that the second most important objective of MNREGA, provision of livelihood opportunities has been almost forgotten goal. It is important to realize that people should be earning while contributing to production and not just for attendance. The skewed nature of MNREGA as voiced in the farm sector created serious imbalances in terms of availability of labour at the time when farmers require labour. Even the small and marginal farmers are now shifting to technology and such shift would also have long-term implications to soil fertility. The deeper the plough the larger would be the deprivation of soil fertility. The vicious cycle of productivity sets in. This should be avoided through appropriate policy intervention.  

The households living below the poverty line, identified through transparent and liberal criteria as such, through surveys conducted at the grassroots level by agencies of decentralized governance, with assistance from civil society groups, need a properly targeted, functioning, and affordable Public Distribution System (TPDS), in addition to a proper wage employment guarantee programme as described supra, to cope with their food security needs.  To ensure this, the price of food grains in a well-run TPDS should be determined on the basis of the employment levels and wage levels obtaining at the relevant time. The size of the family should be the unit to determine the food requirements of the household, ensuring interpersonal equity within the household concerning scales. Such requirement should be guaranteed to a poor household as its non-negotiable entitlement.

An average household needs to be supplied 720 kg of cereals per annum to ensure its cereals security (60 kg x 12). The bulk of it must come from the cereal wage component of the MGNREGA wage. At 200 days of employment the cereals that can be accessed will be 500 kg (200 x 2.5 kg). In such a scenario the TPDS should provide the balance. The law should have therefore calibrated what the cereals policy should be in the MGNREGA’s wage composition first before determining what it should be in the TPDS, for the vast unorganized labour that participates in the MGNREGA. If the MGNREGA would not provide for an optimum number of days of guaranteed employment or the cereal wage component, then the burden of cereals security would fall entirely on the TPDS to the extent of supplying 60 kg per household per month on an average or to the extent of non-provision of employment. Sixty kgs is mentioned as an average because household sizes would obviously differ but the overall national need will have to be calculated on the basis of the total poor households to be guaranteed food at this scale. Such planning for all poor households is essential since not all the poor would be participating in the MGNREGP.  

It need hardly be added that cereals alone do not mean food. To begin with, at least, pulses, edible oil and iodised salt need to be added to this basket, with emphasis on the supply of nutritious cereals like jowar, ragi, bajra and other “minor” millets. The quantity of entitlement and the affordable price fixed should be kept frozen for the period during which the household remains below the poverty line, the elimination of such poverty itself being the acid test of the quality and implementation of the development and anti-poverty strategies drawn up by the State.  

Anthyodaya Anna Yojana scheme being implemented through Anganwadis and the mid-day meal programme have been rightly clubbed with the provisions of the Act but the mechanisms are totally ill-equipped and we have in the recent past instances in Bihar, and elsewhere, the disasters of several children getting killed after swallowing the meal at mid-day in the school. 

The Targeted Public Distribution System (TPDS) should thus be looked upon as an alternate market for the poor, but it can function as a market relevant to the poor only when insulated from factors of violent fluctuations of supplies and price. It is also desirable to dispense the ration shops and introduce food coupons with the entitlements clearly indicated so that the poor can draw their entitlement when they have income in their hands and at any time during the day. There is merit in this argument for building into the new law. While the Act does provide for cash transfers, food coupons and other schemes, this would appear as an administrative protectionist window.

The Scheme is open-ended and has no specific directions to target the needy. It also does not have any specific deadlines for setting up various institutions mentioned in the Act like the District Grievance Cells, State Food Commission, Vigilance Committees and the setting up of ICT to cope with the tasks outlined in the Act for the related departments. 

The saving grace of the Act has been that the responsibility for “creating, maintaining, modern and scientific storage facilities at various levels shall vest with Central Government.” The open warehouses under the tarpaulins and the poorly maintained FCI warehouses amply demonstrate the inadequacies of the concerned departments to address this responsibility different from those that exist currently.  

This Act can have the dubious distinction of fixing no accountability for failure to implement any of the provisions of the Act excepting to state that malaises in implementation would be dealt with as per the criminal procedure code. We are aware as to how long would such proceedings take and the impunity with which the errand can move about until the cases are settled. The Act makes good politics and bad economics in one stroke. Who can love the poor more than the politicians of India for in them rests the vote bank still? Everybody wants food security but along with it think of providing safe drinking water as a couple of glasses of safe drinking water are as important as nutritious food. The lactating mothers need it all the more. This should join the mission mode for ensuring food security.  

  1. K.R. Venugopal, A Comment on the NAC’s Innocence of Food Security Issue, EPW dated 27th November 2010
  2. K.R. Venugopal, The National Food Security Act, 2010, ‘Social Change’ (Journal of Council for Social Development), December 2010. 
  3. Summary of Discussions of Round Table on the Draft Food Security Bill, September 2011 held under the auspices of APSA on the 9 October 2011.
[1] Charan Singh, Food Security Bill, Where is the Money? The Hindu Business Line, 7 August 2013.

Tuesday, August 20, 2013

Rich Economist Debate over the poor

Rich economists debate over India’s poverty and food security at low levels.

B. Yerram Raju

Planning Commission estimates poverty before the passage of Food Security Ordinance at 37.2% and after the passage it gets an estimate of 24% of the population with an annual decline of 2 percent in the Eleventh Five Year Plan. These estimates need to be also viewed in the context of continuing rise of food inflation that hurts the poor more than the rich and the rising subsidy basket, the rising minimum wages, with MNREGS wages not excluded. While this being so, the two economists of consequence to India: one, a Noble Lauriat, Dr Amartya Sen, batting for the food security initiative and the other Jagadish Bhagavathi, a NL aspirant arguing on the other side spat at each other over the assessment of poverty and the incongruities of the Food Security Bill. The Financial Times not excluding, all the financial dailies have carried these items with alarming glare in the media. This context makes me read through the poverty prevalence in our country in this brief column.

It is obvious that both the economists did not visit even a single village during the last five years. There has been increasing monetization both through the subsidies that the governments doled out and the five windows of elections – to the panchayats (local bodies), cooperatives and the General Elections as also mid-term elections to the State and Central legislatures. Private monetization is more than the public monetization.

NCAER – CMER study commissioned by Financial Express in 2010 (FE dated 30th June 2012) says: “The study finds that around a fourth of urban BPL households own a two-wheeler, a third own a colour TV and almost two-thirds a pressure cooker. Findings from rural India also throw stereotypes into the waste basket, with every one in ten BPL persons having a two-wheeler, every fifth BPL village kitchen having a pressure cooker and around 6% owning a colour TV. There is also interesting and upbeat news on the education and employment front. Almost one in five urban BPL households has at least one well-educated—graduate or above!—member and over 13% of them are led by a salaried chief wage earner (CWE). Only under a tenth of rural BPL households have an illiterate CWE. While these findings throw established formulas into a spin, others are along expected lines.” The position in 2013 has only improved and not deteriorated.

‘Poverty, politics and patronisation go together. Most villages do not suffer the agony of starvation or hunger. Most houses have electricity; most villagers have mobiles in their hands and those that have Business Correspondents even have cash in their hands. Statistics hide more than they reveal and more so that of the Planning Commission. Whatever are the measurement criteria that either the Planning Commission or some other agency adopts, quality of life in villages improved. Urban slums today are after the bottled water and are not content with the corporation water carriers.

While the Expert Committee (Dr Rangarajan – Chair) estimated a huge requirement of food subsidy to provide food security at the current level, the Costs and Agricultural Prices Commission estimated the food bill at an expenditure of Rs.6.8trillion the first three years of launching the scheme, with Rs.2.4trillion in the first year itself. This would take the fiscal deficit to the unsustainable level of 6.7% of the GDP during the current year surpassing the 1993-94 level. States have little inclination and capacity to support the food bill – particularly in States where poverty level even as per the suspect estimates is higher than the national average like Bihar, Orissa, Eastern UP and also in tribal tracts of the country. The States do not want to accept the poverty decline now announced by the Planning Commission, for their share in central resources would go down. Food Security Ordinance waiting to pass through both the Houses that ignores the requirements of millets, an essential ingredient to fight malnutrition, has no prospect to succeed in the current formula pattern, no matter how debasing the fight between the two world renowned economists reaches. It is a Good Governance action that enables reach of the poor to good health and good education at affordable cost far superior and better than the present that is the need of the hour. It is a resolve to fight endemic delays in implementation of well-intentioned schemes to reach at the lowest administrative cost that is very much required.
Published on Business Advisor , Digital Journal dated 10th August 2013.


Friday, August 16, 2013

Greasing the economy's wheels

67th Independence Day:

Greasing the Economy’s wheels.

B. Yerram Raju

Nobody can understand the ‘level playing field’ better than the FM. Level the prices of dollar, diesel, petrol, electricity from any source – hydro, thermal, gas, nuclear, and 10kg bundle of firewood, people will have limited choices in all the alternate forms of energy needed for fueling economic growth. We would like to level the bus fares and rail fares with the air fares so that the common man can travel by air. You pay as much for a kg of rice as for vegetables and after all we believe in equality. Ensure that same price you would pay for a kg of meat as well. Grow more organic, pay more for vegetables than for meat. People don’t flock at the non-vegetarian tables in dinners and get-togethers.

Keep earning more to pay more; the GDP grows. With such growth, it is possible to find answer for the joblessness. Increase the minimum wages – whether it is MNREGS or other sectors, it adds to the GDP and growth gets recorded. Human development index may be lower in rank for India: in any case, the countries that have large GDPs and higher growth rates do not have high ranks in HDI.

The stock prices of oil firms is more important for the economy as they play in international market for purchase of oil and gas and also for keeping parity between the rising private sector and the public sector in energy markets. When subsidies on oil account diminish, the FM can see a queue of rating agencies like S&P, Moody’s, Fitch, etc to give the country higher rating and the country would be able to attract foreign investors that may tide over the current account deficit. Disinvestment targets would be reached before the vote-on-account budget next February.

Don’t for a moment bother about the poor. We know them better. We know how to take care of them. We gave them ‘aadhar’ cards; we are prepared to give them mobiles linking them to banks to draw cash. We can make our banks lend to them, for we can write off their loans in the next budget – a promise we are sure to hold in the elections. We gave them already gas – 9 cylinders a year. These poor know that we would give cash, clothes and a can of beer, the elixir of life for their votes. They are the largest numbers for us to bank upon. We gave each Parliamentarian, whether they attend or not, the annual grant of no less than a couple of crores of rupees of cash after free travel and house, free fuel for his/her car and a dignified life so that they can keep their constituencies engaged in perpetual dependence. 

Government employees, for sure, would be with us: we are giving them increasing dearness allowance and we are prepared to announce even wage increases much before the elections and this would also help our GDP grow faster.

We have even changed the Governor of the Reserve Bank to give confidence to the corporate sector, that in the next monetary policy, money becomes cheaper and we from the government can also borrow at low cost. We have already reached 68% of GDP in our public debt. We have enough space to borrow and we have now the IMF to support us for further debt. We are keenly looking at the Election code as to how the electorate can be wooed without hurting the politician. After all, all the parties are united when it comes to Right to Information Act provisions to exempt the politicians from any disclosures. We know how to abort the law. We stood the test of times; so many scandals of himalyan size did not bother us. We had the right answers for every scandal. We know how to take care of ourselves. With such a track record on our side, people, we are confident would be with us in this hour of distress when the economy is down the dumps and when their savings fetch them only a farthing.

People have short memory. They will forget our lapses when they have to vote for us for their choices are limited if not none. No matter if we increase diesel price by Rs.5 a litre. There will be street shows for a few days. Situation becomes normal and life moves on like water in the river Ganges. There is an army of environmentalists who fight pollution in Ganges. We have environmental protection laws too to take care of them. We ruled for decades and we know the pulse of India and of Indians abroad as also those foreigners who matter to us. We would assure that we would grow!! We know when and where to grease the wheels of the economy, like none before.

The author is an economist and can be reached at

Thursday, August 15, 2013

Journey of Indian Re - the long and short of it

Journey of Indian Rupee: the long and short of it.

For 14 years rupee was linked to British currency.

1948-1966: US$1: Rs. 4.79

1966: $1: Rs.7.57

1971 rupee was directly linked to US$.

1975 rupee got linked to three major currencies: US$, Japanese Yen and German Mark.

1985: $1: Rs.12

1990- $1: Rs.13

1991: $1: Rs.17.90

1993: Exchange rate freed for market to take its course.

$1: Rs.31.37

$1: Rs.40-50 during 2000-2010.

$1: Rs.61.80

What a fall my countrymen?

Speed of action required to:
Fight endemic corruption and promote institutional wealth and punish endemic corruption. Would the next elections do these?