Dr Bharat Jhunjhunwala
Our economy is under pressure for the last three months. Rupee has been falling though the fall has been temporarily arrested for some time. Inflation shows no signs of reducing. And, the common man is restive as seen in the Chhattisgarh massacre. Yet, the weak condition of the economy should not prevent us from taking steps to ameliorate conditions of the poor. I welcome the Food Security Act for this reason. Problem, however, is that this effort will be sustainable only if the economy continues to grow along with. Burden of the Food Security Act may slow down the economy. International rating agencies continue to be negative towards the Indian economy. There is no time to spare.
However, one must ensure one’s wherewithal before embarking on such well-meaning projects. A shop owner will go under if he uses his limited capital to undertake charity beyond his means. He would neither be able to run his shop nor give in charity. That is the situation of our Government. It simply does not have the money to implement this program. This program will increase the borrowing requirement of the Government by about 25 percent. International rating agencies are already negative on India. A downgrade will push our sovereign rating to junk and may lead to an even bigger exit of foreign investors and to a full blown crisis.
The solution is to provide food security to the poor by improving the quality of present expenditures instead of increasing them. The Central Government is presently running four programs aimed at providing relief to the poor: Subsidy to Food Corporation to provide minimum support price, health and education, MNREGA and fertilizer subsidy. Objective of these programs is as follows: Subsidy to Food Corporation is given prevent loss to the poor farmer due to decline in prices of his produce. Expenditures on health and education are for reaching these essential services to the poor. MNREGA aims to provide minimum 100 days work. And, fertilizer subsidy aims to reduce the cost of production of the farmer. The Central Government spent Rs 292k crores on these programs in 2011-12. I estimate expenditures on these to be around Rs 360k crores in the current year.
The actual share of the poor in these programs is much less. Subsidy to the Food Corporation is mostly used to finance corruption and inefficiency of the FCI staff and provides benefits to the larger farmers who alone have huge surpluses to sell. Large part of the expenditures on health and education go towards providing facilities to the Government Servants and urban people such as through Central Schools. The share of Government Departments and the sarpanch in MNREGA is reported between 25 and 75 percent. At many places poor people get one-half or one-third of the committed money for signing muster rolls. Fertilizer subsidy, again, goes most to the inefficient manufacturers and to the rich farmers who are main users of chemical fertilizers.
Way out of the present situation is to reorganize these programs such that the money actually reaches the poor. My suggestion is that these programs may be scrapped completely. Only few activities such a regulation of the health and education sector may be retained. The Central Government would be able to save Rs 360k crores by doing this. The amount saved from closure of these schemes may be distributed among the BPL cardholders directly in cash. Each beneficiary can be given a sum of Rs 4,500 pm from this money considering that about two-thirds or 80 crore persons are in this category. A family of five would get Rs 22,500 per year. Additionally they can earn by not having to spend 100 days in MNREGA. Presently mostly irrelevant works are done in this program because the capacity of the village to absorb such labour-intensive works is very limited. The BPL families can earn about Rs 12,500 per year from this ‘released time’. The total receipts of the family would be about Rs 35,000 per year or Rs 3,000 per month. They can easily buy food, health and education from this money according to their requirements from the market at market rates. The Central Government will not have to spend any additional money to reach this huge relief to the people. The trick lies in cutting the benefits of the government servants and rich farmers and diverting the money to the poor.
Additionally the State Governments are spending about Rs 360k crores per year on providing health and education services. The total receipt by a family will be about Rs 5,000 per month if these programs are scrapped as well. Note this is equal to the monthly earning of many BPL families today. They will get this money for free and also have their time to earn more.
A change in mindset is required. The present policy of running these myriad programs is based on the assumption that the poor man is a fool. He does not understand the value of education and chemical fertilizers. Therefore it is necessary to provide specific incentives to him and cajole him into the use of these things. I think this attitude is demeaning. It assumes that poor people are fools and bureaucrats sitting in Delhi are wise. Need is to respect the wisdom of the poor and trust the in making correct use of this money. Indeed there will be cases where the money is used for buying liquor but this need not deter us just as we do not remove all IAS officers because few among them are corrupt.
The present crisis may be a boon in disguise. The country has been on a trip of foreign investment-led growth for the last two decades since Manmohan Singh implemented reforms in the early nineties. We squandered our own money in paying hefty salaries to government servants and leaking the revenues through corruption. We thought that foreign investors will build our economy. It does not work that way. Foreign investors will bite only if our domestic economy is healthy. One does not bet on an ailing horse. The present crisis would not have taken place had we relied on better use of our own money. Then there would have been no need for us to run after foreign investment; and been no outflow of foreign investment as it taking place currently. Hopefully this crisis will teach our policymakers to focus on better use of our own money.
Scrapping of the present programs that are supposedly run for the poor but actually run for the rich; and distributing this money in cash to the BPL households will solve the present crisis and lay a solid foundation of our future growth as well as comfort to the poor.
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