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Friday, August 30, 2013

Why is Narendra Modi Opposing Food Bill - Congress Vote Bill



“ Teach a Poor Man How to catch fish
Don’t GIVE him the fish instead ”

Yesterday Food Security Bill was passed in the Lok Sabha, ‘unanimously’. Quite likely it would be passed in the Rajya Sabha too and it is possible that while you start reading this, it may have got the President’s legal consent and would be converted into an ‘Act’, a legally enforceable law. Amidst the ruckus in the Parliament over this Bill and various parties showing reluctance to pass this Bill in the Parliament, there were widespread protests in Social Media against this Bill, the same section of population which I would like to call as ‘aware educated Janta’. I would not give details of nuances such as what impact this Bill will have on Fiscal Deficit, or on Foreign Institutional Investor sentiments or on the Rating Agencies or any of those. I would just say what impact this Bill would have on a common educated person like you or me. Before I get into the details, I would start by saying what Food Security Bill means and entitles a person.
What does Food Security constitute of ?
  • Once the Bill is enacted, it would legally entitle the person being under the purview, Rice at Rs 3/kg, wheat at Rs 2/kg and Coarse Grains at Rs 1/kg, subject to a limit of 5kg per person per month.
  • This price would go a revision after a period of 3 years. 75% of the rural population and 50% of the urban population based on their income levels would be entitled for this benefit.
  • This covers around 2/3rds of India’s population and would benefit 80-82 Crore people
  • The benefit would be available except for during a period of War, Natural Calamity or any such period of emergency.
  • A pregnant woman would get free meals during pregnancy and 6 months after the delivery
  • They would also get maternity benefits of upto Rs 6000
  • Children under the age of 14 would get free meals
  • In case, there is some issue and grains cannot be supplied, the Government would then have to provide Food Allowances to the beneficiaries in place of grains

These are the main highlights among others of the Food Security Bill or Act as it would be in sometime. So why is the intelligent population of the country vehemently opposing it when it entails so much benefit to such a large population? Answer is simple but long. I would try to cover it in a few broad reason
  • Financial Cost of the Bill – This charity would cost Government of India an additional estimated Rs 1.24 Lakh Crore in the starting year which would increase in the coming years. The Government is already suffering from Cash crunch. Their expenses are more than income. So where would this money come from?
    • Loans – Government can borrow from banks, financial instiutions. Government would have to pay huge amount of ‘Interests’ on these loans which further increases Government’s expenses
    • Taxation – Government can charge more and more taxes from you to cover this gap. You may feel that your income is not high so you will not be affected. But the truth is everyone in this country, even beggars pay taxes. Even a matchbox you buy has hidden taxes in it. Some pay more, some do pay less. So in a way Government promises to give you cheaper grains  by taking money for you.
    • Consider this scenario. Government scheme saves you Rs 200 per month as you would normally buy grains which are Rs 40 per kg on an average. Now government would increase Service tax from 14% to 15% (assuming all other taxes are not increased). You book tickets, go to restaurant, watch movies in cinema halls, cost of everything goes up due to higher tax and you end up paying much more than what you benefit. Ofcourse this scheme would benefit those who do not spend too much but most likely you are at the receiving endC

  • Productivity – Bhagwad Geeta teaches us to keep doing our jobs without being concerned about the Outcome. FSB actually teaches the opposite, it asks you to not worry about the work/action but be assured of Fruits. FSB would hit productivity of this nation by leaps and bounds. Here is how it would.
    • Labour – My friend described this interesting incident to me. He visited his village in the interiors of Karnataka. He said, astonishingly no men were working there. There was hardly any energy. Upon enquiry it was discovered that those locals were happy at the announcement by state CM Siddharamiah providing rice at Rs 1/kg, and they would get some money from MNREGA every month which they could use to buy rice at Rs 1/kg and fulfil the other basic need for ‘Drinking’. So once the FSB comes into picture, this would create a scenario where a significant portion of the Rural population turns lazy
    • Research & Development – I read a news report, which said, a man in USA has created an engine which would enable trains to run at a speed of 1200 km/hr. That means a distance of Bangalore to Delhi can be covered in just 40 minutes. Further the engine is so efficient that it requires fuel, only to propel the vehicle and would run due to inertia, and can be stopped/controlled using magnetic brakes. I do not know if this would be implementable, but certainly with time it would materialize. On the other hand, in India, we are not spending any money on Science and Research so high chance that such inventions which makes life of human beings easier and convenient, would not be made in India because the money which could have been used in opening of world class Research facilities is being spent in Food Security.
    • Job Creation – The same money could have been used in setting up Public Sector companies which would have provided employment to huge number of people and in turn contributed to more productive outcome.

  • Inflation – I showed how Food security bill would cause taxes to go up in the long run and thereby increase prices of the commodities and you end up paying more. However that is not the only way due to which prices would escalate. There are other factors too which will further move up the prices
    • Labour Cost – In the above example, I discussed how 1 populist scheme has rendered the labours lazy, incompetent and unwilling to work. This would result in lesser labours in the market who would be willing to work. Since workers are less, their wages would go up as they demand more due to shortage of labour. This would drive up the prices of whatever work or service they are involved in.
    • Food Inflation – It is said that the farmers would get Minimum Support Price to sustain them. That is, government would buy grains from farmers at a higher price, so that they do not suffer and then sell it to public at a very low price and the loss would be borne by the Govt. Since Government would have to buy large blocks of grains from the farmers, to fulfil this huge demand of Food Security Bill (covering 82 Crore people), the residual amount for the Retail/Wholesale Suppliers would be very less which would drive up the prices
    • Inflation due to higher Disposable Income – Many people, who were satisfied with basic meals with their limited income, would now have more income to spend. Hence the money which they used to buy food grains would now be spent on buying other items which would drive up the prices of these items.

So it can be concluded that Food Security Bill, despite its benefits, incurs much more dangers to the country than the benefits. Now I would focus on some of the problems which would emerge if at all this Bill is to be legally enforced across the country
  • Delivery Infrastructure – Ours is a 1.2 billion strong country. This Bill aims to benefit 80 Crore + people. It is highly unlikely that we have a robust infrastructure in place which would be able to deliver the output to the originally intended recipient. It is one thing to think of good of others and another thing to ensure that. Most of the states have raised their hands (including some Congress ruled states) saying that they do not have the adequate infrastructure in place to make this delivery program a success. Storage of such large quantities of food grains is another issue. Last year thousands of metric tonnes grains were left to rot in the open due to lack of proper storage facility
  • Rampant Corruption – This scheme has all the ingredients it needs to fill the pockets of corrupt bureaucrats and politicians. With no transparency in the Delivery mechanism and lack of proper storage facilities, the Bill could act as a catalyst for Black marketing. With an estimated cost of 1.2 Lakh Crores in the 1st year, estimated to grow upwards, this scheme has the potential to turn into one of the largest scams to have ever happened in the History
  • Quality & Compromise – FSB aims to fulfil the bellies of Indians, but is it adequate? We for once do not know what would be the quality of grains that would be used to distribute. Secondly is it feasible for someone to survive just with Rice or Wheat. Food Security Bill does not address the problem of a Balanced Diet. Human Body needs Carbo Hydrates, Vitamins, Proteins, Minerals and other nutirents. With Food Security Bill one only consumes Carbo Hydrates, other nutrients are ignored. So if the aim is to just fill/stuff bellies, FSB serves it purpose but if it is to provide adequate nutrition, FSB falls way short of target.

So to summarize it, FSB is a half baked, half cooked scheme which has much more grave disadvantages than advantages. The intention might be to provide Food for All but coming at a time near the elections; it appears more like Food for Vote. Political parties (including BJP) supported the Bill in Lok Sabha and it was a disappointment for their supporters. BJP played the wrong hand here by supporting the Bill, since its traditional supporters, unlike Congress are the educated middle class who would bear the brunt of this populist scheme and large numbers of them expressed their disappointment in Social Media over BJP supporting it.
I am not against providing Food for the poor, but it should not be done by burning hands of middle class and lower middle class people. More importantly it should not be done by promoting un-productivity. Rather than being charitable, the Government would do well to make the unprivileged class earn this food. Their being productive can contribute to the nation Building exercise. If this is not done, it would just seem as if government is keen to feed the Lazy millions and a lot of money is being poured into them without getting any benefit for the country. Therefore it would not be wrong to say that Food Security bill is a Poison Pill.