The introduction of a food security law is still far off, with the government yet to finalise a scheme. Speaking on the challenges to the idea, Kaushik Basu, chief economic advisor in the Union finance ministry, tells Jyoti Mukul a Ram Rajya in the current food distribution system is not possible. He also makes a case for a uniform global policy on currency, instead of targeting a single country. Edited excerpts:
Agriculture minister Sharad Pawar recently said it was not possible to give out 62 million tonnes (mt) under the proposed food security law to feed two-thirds of the population. Do you think it feasible to cover families even outside the below poverty line (BPL) category?
In addition to the 62 mt the agriculture ministry has estimated will be needed to make the coverage as comprehensive as recommended by the National Advisory Council, there are other welfare programmes that also need foodgrains. So, the total procurement need will exceed 70 mt. We usually like to keep procurement to less than a third of production. The total production last year was 218 mt.
So it is doable, provided we do not lose grain to leakages. Under the current system, operating through the PDS (public distribution system), we end up losing a lot of the targeted grain to illegal sales on the open market. By some estimates, pilferage and other losses account for two thirds of our target for wheat and a little less than half for rice. If such leakage cannot be effectively blocked, what we will need to procure is not 62 but 124 mt. This will amount to a creeping nationalisation of grain trade, which is not in anyone’s interest, and is certainly not fiscally feasible.
So, the short answer is, yes, it is feasible, provided we are willing to fix the leakages in the delivery mechanism we use to reach the poor. More, with a revised delivery mechanism, we need not route all the grain through PDS stores. Private stores can be brought into play. If this is done properly, the government can do with less procurement and still meet the targets. But this will need an intelligent design.
Should the target be kept lower and the coverage limited to BPL families?
I favour the idea of directly helping the poor and vulnerable. There are unacceptably high levels of malnutrition in the country. So, the coverage should indeed be comprehensive. But it has to be through a better system than the present wasteful one of giving the subsidy to the PDS stores, with the request that they hand it over to the poor. With 500,000 PDS stores, you will need Ram Rajya for efficient delivery to the people.
So, my advice, is do not compromise on the target or the coverage. Instead, using a system of smart cards or coupons, give the subsidy directly to the poor households. Then let them go to the PDS store or any other store with the subsidy and buy food. The PDS store will then function like any other store, their presence merely guaranteeing that some outlet is available for all the poor. Under this system, there is no incentive to adulterate the foodgrain meant for the poor and the government does not have to shoulder the full trading responsibility for getting food to the poorest.
Are state governments equipped to handle this? Should reform of PDS precede food security?
There is no need for a huge change for the mechanism I am recommending. What this calls for is, more than anything else, a change of mindset. With the new Aadhaar identification system, this new design can be brought into effect with very little structural change.
Right now, the food subsidy bill is so bloated because the it has to be high enough to allow for the large leakage and wastage of procured grain. My estimate is that if you can change the delivery mechanism, the subsidy bill will be only marginally higher than it is now.
You recently said foodgrains should be allowed to be exported but when stocks are needed to be maintained in the country, is it possible to export?
If you have food you are not managing to store and not able to distribute, it makes perfect sense to sell it in the international market. You can do a buy-back contract. It is possible today to sell a quantity at, say, the Chicago exchange and strike a deal to buy the same quantity one or two years later. You will not get the same grains, but you can get back the same quantity. Looking at the global shortage of wheat—Russia, Kazakhstan and Ukraine have fallen short of production—prices are high right now, and we can take advantage of this. We lose nothing. It is almost like storing our wheat in another country until we are ready and able to use it.
Agriculture growth had seen a slight improvement in the first quarter. Will it continue to rise?
Sowing has gone up for almost all crops and especially for pulses and sugarcane. Agricultural growth will be high in the third and the fourth quarters and the reason for my optimism that the Indian economy will grow by 8.5 per cent this year.
Industrial growth slowed sequentially to 10.3 per cent in the first quarter from 13.3 per cent in the fourth quarter of 2009-10. How did the industry fare in the second quarter and what are the prospects for investment for the third and the fourth quarter?
There was a slowing in August. The IIP (Index of Industrial Production) growth was 5.6 per cent. Capital goods showed negative growth. However, if you take the moving average of industrial growth and capital goods, the performance is fine. Overall, in the second quarter, our growth will be slow but it should pick up later in the third and fourth quarters. In the second quarter, it is like walking up a downward-moving escalator; because of the base effect, you have to be move extra fast. Right now, you also have the bleak global scenario, where European unemployment is 10.1 per cent and US unemployment is close to that. International demand is, therefore, not picking up at the rate we were expecting and that has had some impact on our growth.
Is India’s rising trade deficit a cause for worry especially with oil imports hovering above $80 a barrel and exports not picking up fast enough?
There is a concern but not worry. There are some short-run factors at play. India has picked up after the global slowdown faster than the other countries boosting our imports. In the industralised economies, the pick-up is happening very slowly and that is what your exports depend upon. The widening gap between exports and imports has been caused precisely because of this sequence of events. At this stage, I am not worried.
Are there signs of China slowing down and will it impact India’s exports to that country?
The Chinese economy is growing much faster. Indo-Chinese trade is growing very fast. India’s trade with China has now crossed India’s trade with the US. Part of this is because we started off on a very low base in our trade with China. Comparatively, our trade with the US is doing well even if the rise is less dramatic. So both the nations are important to us today.
Globally, concerns have been expressed on the rising Chinese Yuan. How real is the concern?
Exchange rate management is a serious international problem. The global economic structure is changing; but the world’s method of collective policymaking has not kept up with this. We need more collective agreement between countries in policy making. The G20 is working on that and the solution has to come from it instead of any single country being held accountable.
Domestically, do you think steps should be taken to stabilise rupee instead of letting it appreciate?
RBI should be ready with its policy instruments. It has in the past used market-based interventions to even out fluctuations in the exchange rates. We already have some capital controls in place and the balance of policies used by the RBI has been commendable.
Though the government seems to be on track to achieve a fiscal deficit of 5.5 per cent of GDP for the current year and 4.8 per cent for 2011-12, this is mainly on account of higher revenue, both tax and non-tax. Expenditure has grown by 30.4 per cent in 2010-11, against 22.8 per cent last year.
It is extremely important for us to manage the fiscal deficit as spelt out by the finance minister in his budget speech. With more revenue coming in, there are more demands for spending, but we have to manage a balancing act between these compulsions and our stated fiscal targets.
Do you think the government should continue with the disinvestment programme considering that the revenue situation is comfortable and money can be raised through disinvestment in subsequent years?
The disinvestment target this year is Rs 40,000 crore which is achievable. Even if there is no revenue need, we should stick to the disinvestment programme since the value of public sector companies goes up and it is good for market discipline. And it adds money to the government’s coffers even if there is no immediate need for the money.
