Sunday, March 31, 2013

Food security bill: Corruption by another name

On the same day as the central cabinet approved the food security bill two weeks ago, Delhi’s chief minister, Sheila Dixit, stood up courageously to defend the rising price of electric power in the Delhi assembly. She explained patiently to the legislators that you cannot have something for nothing--electricity costs money and those who use it should pay for it. In the end she succeeded. By not raising the power subsidy, Delhi’s chief minister was able to increase investment for roads, public transport, education and health care in Delhi state’s annual budget.

The contrast between the two actions of the centre and the Delhi state could not have been more dramatic. Sheila Dixit’s actions will lead to productive jobs, better skills and long term prosperity of the people. The food security bill, on the other hand, will condemn India’s poor to perpetual poverty.

The proposed food security law plans to distribute grain to two thirds of India’s population at a 90% subsidy, which will cost the nation over Rs 100,000 crores.  Giving people virtually free food will keep them dependent on a ‘mai baap party’, trapping them into a permanent vote bank. It is a brilliant strategy of the Congress Party at the centre—both the voters and the party will thus have a vested interest in keeping people poor and dependent.

If the same Rs 100,000 crores were to be spent in providing public goods--roads, schools, power, and law and order--it would opportunities. It would encourage entrepreneurs to start businesses, which would create sustainable jobs and raise the state’s tax revenues. These taxes, in turn, would make it possible to invest in more public goods. Thus, a virtuous circle would be created and lift the society’s standard of living. But the Congress Party would lose out for people would move out of poverty and the party would lose its vote bank. The party needs for people to remain poor.

There are other serious risks associated with the food security bill. The fact is India just cannot afford this colossal spending. The latest budget of the central government shows how vulnerable are the nation’s finances. This new spending will increase India’s fiscal deficit and could well lead to a downgrade of the country’s sovereign rating to junk status. A downgrade of the rating will raise the cost of money available to India from the world market and also discourage foreign investment at a time when it is much needed.
Moreover, past experience shows that less than half the food in such programs reaches the intended beneficiaries. Hence, half of the 50 million tonnes of grain are likely to get diverted to the black market by this bill, and this could result in another scam which this scam tainted government cannot afford.

Worse, this bill will tempt people to lie about their financial status and weaken public morality even further. For example, 83% of Karnataka’s people call themselves poor based on BPL cards issued. But government records show that less than a quarter of the people in the state are, in fact, poor. West Bengal also discovered last year that forty percent of its BPL cards were fake. In Uttar Pradesh, the situation is much worse. A law that turns people into liars would have horrified our founding fathers. They had a profoundly moral vision of the Indian republic--so much so that they placed the wheel of dharma, the Ashok Chakra, in the nation’s flag. When a government forces its people to become dishonest, it wounds public dharma and undermines the trust between the rulers and the ruled.

When we were young our parents taught us the importance of honest and  hard work. We learned that if you did not work you did not eat. But when the government starts giving people something for nothing, it weakens the work ethic. It undermines the ethic of responsibility and dharma taught to us by our parents. When the government starts giving away to people subsidized food, diesel, cooking gas, NREGA jobs, it sends the wrong message. It teaches them that they can get something without working for it. This is another form of adharma.
The reforms of 1991 were based on an unwritten social contract which created a new basis of trust. The contract was that the government would stop running businesses and focus instead on governance and public goods. Entrepreneurs and markets would do a more efficient job of managing businesses and this would lift the economy’s growth rate. This has, indeed, been happening. As a result of high growth, almost two hundred million people have risen out of poverty and another two hundred million have joined the middle class in the past two decades.

 Thus, the private sector has done its job. But the government has not lived to its side of the bargain. It has done a very poor job of providing infrastructure. Instead of investing in roads, electricity, and other public goods, it has focused on giving ‘bribes for votes’ to the people. These bribes are subsidies on food, electric power, diesel, cooking gas, NREGA jobs etc. Unlike investment, subsidies do not result in production. When spending is not backed by production, it leads to inflation. Thus, ‘bribes for votes’ policy has contributed to inflation in our county

 Giving away virtually free food and power, waiving loans to farmers, creating ‘make work’ jobs, as the UPA government has been doing, has undermined the social contract. Markets meanwhile have helped to accelerate social change and re-shaped public character. A new class of citizens has risen who are now demanding a corruption-free state. They are angry over poor governance and corruption, and this has widened the gap between people’s aspirations and government’s performance.

The UPA’s campaign managers for the 2014 elections may think that India’s vast majority is untouched by the new dharma, but the recent protests against corruption and violence against women have shown otherwise. This cynical food security bill, instead of winning votes, may thus only add to the woes of the UPA, which will discover to its peril in 2014 that voters will think of the food security bill as amounting to corruption by a different name.