In the end, populism trumped economic pragmatism. This was expected. The passage of the Food Security Bill in the Lok Sabha on Monday might fail to eliminate hunger and poverty from the land. But it would certainly make the political class smug in the belief that it has done its bit for the poor. Neither the mechanics of delivering cheap food to over two-thirds of the population nor any clarity about the funds required for such a gigantic administrative and logistics challenge seem to have been factored in by the proponents of the bill. All that seemed to have mattered was the fact that the parliamentary elections were due in the next eight months or so and the people had to be offered the soporific of cheap food so that they could be induced into voting for the UPA yet again. Even if that does not seem likely, given the series of humongous corruption scams and misgovernance of the last four-plus years, the UPA leadership cannot be blamed for not trying. Besides, the centre was merely trying to appropriate credit for a number of schemes which were already being implemented by the states. Also, the provision of cheap food rations to the poor was being done most efficiently in states like Chhattisgarh, Madhya Pradesh, Tamil Nadu, Gujarat, etc. If Chhattisgarh provides cheap grains to ninety per cent of the people, Tamil Nadu has universalised the scheme. However, the centre’s legislation seeks to broaden the entitlement net to cover two-thirds of the total population. This would entail a sharp increase in the subsidy bill, from the present Rs 90,000 crore to above Rs1,30,000 crore. How and from where P Chidambaram would raise the additional amount is unclear. But the reaction of the markets a day after the Lok Sabha okayed the bill was significant. The sharp fall of the rupee and of the Sensex on Tuesday left no one in doubt that the bill was yet another assault on good and pragmatic housekeeping by the union finance minister. Given the tremendous pressure on the twin deficits, the additional burden of some Rs 30,000 crore on the national treasury is bound to exact its price in terms of reduced funds for infrastructure development and increase further inflationary pressures in the economy. Even otherwise, the increased procurement of food grains for distribution under the scheme will distort the market conditions. There might once again be a shift to wheat, paddy and coarse crops at the cost of cash crops. Indeed, inflationary pressures due to increased procurement might force imports of foodgrain, thus pressuring global food prices. Though several speakers participating in the debate in the Lok Sabha raised doubts about the readiness of the centre to undertake the gigantic task, for purely electoral reasons, most went along with and voted for the bill. Identifying and providing ration cards to 75 per cent of the rural and 50 per cent of the urban population is a huge administrative challenge. But since the responsibility of implementing the scheme would fall on the states, the centre did not seem to be concerned about the nitty-gritties of handling such a huge challenge. That even in relatively well-administered states like Tamil Nadu there are leakages, it is hard to imagine that the vastly expanded entitlement scheme would not test the acumen of the administrative machinery in every state and union territory.
Any number of surveys and studies by experts have lamented the huge leakages in the far less ambitious public distribution system. Even if the new scheme would be implemented through the biometric ration cards, universal coverage would have caused fewer administrative glitches and lesser chances of leakages. Meanwhile, the expansion of entitlements/ freebies at a time when the economy is slowing down, is not a wise decision. The biggest single day depreciation of the rupee in nearly two decades, which closed at 66.24 to a dollar, and the near 600-point fall in the Sensex confirmed that markets are a better judge of the economy than politicians. Unbridled populism instead of reforms to control the twin deficits has received a huge thumbs-down from the markets. The UPA
leadership might be desperate to open the purse strings in its all-out attempt to buy votes, but whoever comes to power in 2014 will have to sort out the economic mess. The economic scene has become further bleak after the passage of the food bill in the Lok Sabha. Hopefully, the remaining few months before the elections will not be used to enlarge the entitlement net further. That could be ruinous for the national economy.