With
the state budget all set to be presented on July 12, TOI takes a hard
look at the government’s cheap rice scheme and its impact on politics
and employment.
Will cheap rice boil? Let’s look
at the math. Reducing the price from Rs 3 to Re 1 per kg will help a
family save Rs 60 per month. Till now, poor families got rice from the
Public Distribution System (PDS) at Rs 3 per kg or Rs 90 for 30 kg.
Under the new scheme, they will pay Rs 30. Significantly, the scheme
will cost the state exchequer Rs 430 crore a month.
Already,
the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)
provides Rs 174 for non-skilled and Rs 185 for skilled labour per day
for at least 100 days of employment for each rural household. What
add-on political leverage will the rice scheme provide? Or, along with
MGNREGS, will it hurt employment?
Experts agree
the scheme will have political benefits; few believe it can be sustained
in the long term. It would adversely impact the labour market and have a
cascading impact on various labour-intensive sectors, pushing prices
upwards. Conversely, the welfare measure could help the needy and bring
down foodgrain prices.
Political impact
The
politics of rice has had its origins in CN Annadurai’s DMK government.
Over the years, using rice to push a party has become a standard
operating procedure. Now, rice is distributed free of cost in Tamil
Nadu. When assembly elections were announced in the state earlier this
year, no political party dared ignore rice populism. The BJP government
gave every BPL family 20 kg of rice at Rs 3 per kilo. The Congress has
continued the game of one-upmanship. "It’s difficult to say if these
things help boost electoral prospects; they do help politically," says A
Narayana, faculty member, Azim Premji University, Bangalore.
"It’s
time political parties moved towards sustainable politics instead of
making people dependent. These gimmicks won’t yield much. Welfare
politics has failed in Spain. As Prime Minister Manmohan Singh said,
money does not grow on trees and, hence, politicians need to be
pragmatic. After the polls, they are in the business of governance, not
in the politics of governance," says Prof Harish Ramaswamy, Karnatak
University, Dharwad.
Exchequer impact
In
2011-12, the cost of subsidizing food was Rs 790 crore. This year, it’s
expected to be close to a staggering Rs 5,000 crore. To mop up revenue,
the state government mooted the idea of introducing cheap liquor and
licensing more liquor outlets, but gave the idea a silent burial
following widespread criticism. Chief minister Siddaramaiah says he will
cut wasteful expenditure, including handouts to religious institutions
and community organizations, plug loopholes in revenue collection, and
widen the tax net.
RS Deshpande, director,
Institute for Social and Economic Change, Bangalore, provides a welfare
perspective: "It (cheap rice) makes a difference to the psyche of the
poor, as it acts as insurance. Although it may notrun for long, it’s a
good scheme with quite a few positive spin-offs. It will bring down the
prices of foodgrains in the market. It won’t cost so much. The estimated
expenditure of Rs 430 crore per month is a computed figure; the real
figures won’t be that much."
Social impact
Some
commentators argue that the populist scheme will adversely impact the
labour market and agricultural productivity. Although there are no
studies to link decreased production to subsidies, in 2011-12, the
growth of agriculture and allied sectors in the state was negative
(-2.2%) and in 2012-13, it was a mere 1.8%. The agriculture sector’s
contribution to GSDP, which was just 16.1% in 2011-12, declined to 15.3%
in 2012-13.
"Our studies and analyses have proved
that consumption-based subsidies are cornered by the affordable more
than the poor. The rice scheme didn’t succeed in Andhra Pradesh. This
cannot be sustained for long. At best, it may stay for a year. Monetary
and administrative constraints will pull it down," says Amarnath HK of
the National Institute of Public Finance and Policy, New Delhi.
The
rice scheme may have overlooked food habits which vary across the
state. "There is a non-rice standardization happening. People,
especially in urban areas, prefer jowar, wheat and ragi. Jowar, which
was once restricted to North Karnataka, has penetrated the south now,"
says GK Karanth, a sociologist at ISEC.
A note of
caution comes from within the Congress. "Subsidies are necessary but
won’t solve the problem in the long term. I believe in long-term and
sustainable solutions which empower people," says agriculture minister
Krishna Byregowda.
Politics blooms, economics withers
View
Narendar Pani, professor, school of social sciences, National Institute of Advanced Studies, says it satisfies basic needs
* Isn’t cheap rice a bad idea?
No.
The purpose of all economics must be to provide citizens with the basic
needs of life. Food is so fundamental a requirement that any humane
society should provide it at a price that is guaranteed not to leave
even one poor person out. This is the reason why food is very heavily
subsidized in the advanced countries. We are, unfortunately, in a moral
crisis where we think nothing of subsidizing global investors to build a
new airport but get extremely righteous when politicians do the right
thing to ensure absolutely no one goes hungry.
* Will it actually make a difference to an individual or his family?
It
will make a difference to the poorest. The reduction in price from Rs 3
per kg to Re 1 will provide families with Rs 60 extra per month. Those
who think everybody in Karnataka can scoff at Rs 60 extra a month do not
understand the magnitude of poverty in some parts of the state.
* Should the government have spent the subsidy on other priority areas?
It
depends on the other priority areas. If it’s to be spent on water
projects, there may be a case to consider it. But there is nothing in
the expenditurepatternsof governments in recent years to suggest that
is their priority. If the trade-off is between elevated roads and food,
I’m afraid I am on the side of food.
* Will cheap rice create labour problems? Won’t this make people more lazy?
I
don’t think laziness is the result of having access to food. If that
was the case, the poorest starving nations in the world would’ve had the
highest productivity! Subsidized rice will provide a safety net at a
time when the economy is slowing down. It’s possible there will be
political benefit for the ruling party. But that should not stop us from
supporting the right decision.
Counterview
Gopal Naik, professor of economics and social sciences, IIMB, says it’s bad economics
* Isn’t cheap rice a story of political leverage?
When
implemented, it certainly will come at a very high cost without
substantial gain on the ground. This is an example of how competition in
populist measures between political parties will lead to a race to the
bottom. The reduction from Rs 3 per kg of rice to Re 1 will not make a
large difference at the household level, but the cost is high to the
exchequer.
* Will it actually make a difference to an individual or his family?
Even
if we assume the benefit is substantial for an individual, do we have
an effective delivery mechanism to reach a well-targeted group? First of
all, we don’t have a good mechanism in place to identify who should be
in the BPL list.
* Will cheap rice create more labour problems? Won’t this make people more lazy?
The
scheme has other ill-effects. The MGNREGS seems to have been adversely
affecting the agricultural sector. There is a backward-bending supply
curve operating for labour. The scheme does not have effective work
measurements and has been implemented haphazardly in many places. This
has led to many intermediaries in the chain, making the scheme
ineffective. It seems to have created an easy money route, making
agricultural work look hard and unattractive. The wages for agricultural
labour have gone up substantially, making agriculture less
remunerative. Agriculture production is likely to be hit, which, in
turn, will increase prices. This will again have an adverse impact on
the poor as they spend a large proportion of their income on food
products. It may also have an impact on long-term labour employment in
agriculture.
* Should the government have spent the subsidy on other priority areas?
Good
governance would deliver a lot more to the poor than many of the
schemes designed to help them. Without good governance, the schemes
hardly reach the targeted people and encourage corruption. We need to
improve the service delivery mechanism in rural areas so many of the
current schemes can be effectively implemented.