The math proves that Sonia’s Food Security Bill is a big hoax

by R Jagannathan Jul 6, 2013

Sonia Gandhi’s Food Security Bill (FSB), everyone acknowledges, is a political signal from the Congress to the electorate on the eve of elections. That it will damage the fiscal situation and also give inflation another push is something most economists accept. We are, of course, talking of economists who go beyond the moral argument which holds that when it’s a question of feeding the poor, the budget can go take a walk.

However, it’s now time to look even at the moral arguments closely. And expose the Congress party’s claims that this bill is the answer to the problems of eliminating malnutrition and hunger. It was never intended to be that. What the math points to is not a budgetary fiddle, but a gigantic political hoax.

Congress President Sonia Gandhi.

A good place to begin the argument is Surjit Bhalla’s brilliant article in The Indian Express today which points out that if the Bill is proposed to be implemented as professed, the real cost is 3 percent of GDP. His calculation is that after the FSB is implemented this year, it will cost us Rs 3,14,000 crore in a full fiscal year.

Just in case the number doesn’t impress you, that’s more than the entire cost of all NREGA spends since 2005-06, the Rs 72,000 crore farm loan waiver, and many other government giveaways put together.

In short, the Food Security Bill is the mother of all giveaways and hugely damaging to the economy. It is guaranteed to cripple us for years, whether or not it helps reduce malnutrition.

Of course, the first thing to do is question Bhalla’s math. But his critics have no chance here. This is how he arrived at the FSB cost figure of Rs 3,14,000 crore.

Start with the pre-FSB year of 2011-12, when the food subsidy bill was Rs 72,000 crore. In that year, 44.5 percent of the population accessed the public distribution system (PDS), taking an average of Rs 2.1 kg per head in subsidised food per month, according to National Sample Survey (NSS) data.

Under the Sonia-backed FSB, the per head entitlement will be 5 kg of rice or wheat or coarse cereals at Rs 3, Rs 2 or Re 1 a kg,

Bhalla takes the weighted market price of rice and wheat (assuming the PDS user takes his 2.1 kg monthly average) at Rs 19 a kg, from which he minuses the average price paid at the ration shop (Rs 5.5 per kg), leaving a subsidy of Rs 13.5 percent to be paid by the UPA.

Now, adjust 2.1 kg per head (actual drawal from the PDS per head per month) to 5 per kg under FSB, and adjust again for the fact that the per head subsidy under FSB will be Rs 16.5 per kg (against Rs 13.5 per kg earlier), and adjust once more for the fact that subsidies will now cover 67 percent of the population (against current PDS’s the 44.5 percent).

Do the math and Rs 72,000 crore of 2011-12 food subsidy before the FSB bloats to Rs 3,14,000 crore after Sonia Gandhi’s electoral munificence.

There is clearly nothing wrong with Bhalla’s calculator, bur then how do you account for P Chidambaram’s claim that food subsidy will be only Rs 10,000 crore more than the normal subsidy?

In his budget speech last February, Chidambaram piously wished quick passage for the FSB and said: “Hon’ble members will be happy to know that I have set apart Rs 10,000 crore, over and above the normal provision for food subsidy, towards the incremental cost that is likely under the Act.” Overall, he provided just Rs 90,000 crore for food subsidy, including the Rs 10,000 crore.

How does Chidambaram pitch in with just Rs 10,000 crore more, when Bhalla’s calculation makes the total cost Rs 3,14,000 crore – a Rs 2,24,000 crore difference?

Even accepting that Chidambaram may have planned to implement the bill for only half this year (from 1 October 2013 to 31 March 2014), it would still give us a total additional provision of only Rs 20,000 crore for a full year.

So, clearly, Chidambaram’s babus in North Block are mathematically challenged or they hoped the bill would never pass.

But we all know that Sonia Gandhi always intended to get it passed. Hence the recent ordinance in case parliament does not pass it.

There is only one other explanation possible: that neither Sonia nor Manmohan nor Chidambaram ever planned to cover 67 percent of the population.

If only half the population, or even one-third, will be actually covered by the FSB, the math would be significantly different – but even in this case the subsidy figure would not be the Rs 90,000 crore mentioned in the budget. Some others put the bill at Rs 1,25,000 crore – an amount still not budgeted for.

Little wonder Bhalla is calling the UPA’s bluff: “This is an open challenge to Sonia Gandhi, Manmohan Singh and P Chidambaram. Your minions are stating that the ordinance-induced food subsidy bill will only increase by about 25 percent and will amount to 1 percent of the GDP. I get a conservative increase of 336 percent, or a total subsidy level of 3 per cent of GDP with an honest implementation of the bill, sorry ordinance. One of us is massively wrong. I believe it is not me. But prove it otherwise.”

Bhalla need not waste his time challenging the Congress and Sonia Gandhi. The only conclusion one can draw is this: the Food Security Bill is either a huge political hoax, or a gigantic fiddle with the budgetary arithmetic. Or both. The betting should be on both.

Source: http://www.firstpost.com/economy/the-math-proves-that-sonias-food-security-bill-is-a-big-hoax-934057.html