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Economy

WTF, Food Security Bill?

The recently introduced (not yet passed) food security bill has demonstrated that the government has officially lost the plot. The bill proposes a cost of less than Rs. 5 per kg. of coarse grains to poor households and half the MSP (Minimum Support Price) to everyone else. There are limits on the number of kg distributed but come on, how difficult will it be to get any number of “cards” required to get what you want?

ET puts the cost at 6 lakh cr. in three years. While this figure may sound exaggerated, the issue is – what are we doing exactly? First, with MNREGA, the government – and thus, the taxpayer – pays Rs. 100 or more per day to rural workers, for no productivity. I mean they can dig if they want to, but they can’t use a machine. Those are the rules. So free money.

And now, free (or close to free) lunches and dinners, with grains offered at ridiculous prices. What this will do is:

a) reduce the productivity of people – free money and close to free food is there, why work hard? The wage increase will not result in a productivity increase, and in fact will reduce productivity where there was some.

b) Increase the demand and thus the price of food. If the government acquires great quantities for food security, we will have to fight for what is left over. Which will raise prices, and then the government will raise the MSP for subsequent years to match, and so on.

c) Destroy the deficit. How does the government pay for this? Total government revenues this year, till date, are about 20% less than last year, which expenses are 10% higher. The difference is compounded by higher borrowing costs – higher interest that the government is paying on borrowing. Additional spends on food security will bring no extra revenue – there are no taxes that the government will get as a result. That means the entire spend will add to the deficit. Assuming even half the figure stated by ET, that’s 100,000 crore a year extra, which is 20% of our existing deficit. Who pays? Again, the government will borrow, and their borrowing will spook markets which will demand higher rates, and that will crowd out corporate borrowing, and they’ll pay even higher rates, and so on. This does not augur well for our markets.

Finally, note this part:

Labour in FCI is highly organised and an unskilled worker (loading and unloading job) earns around Rs 35,000 per month. Hundreds of them get more than Rs 1 lakh a month and the highest is about Rs 1.85 lakh per month.

Wow. When such high wages are being paid for loading and unloading, what’s the point of even hoping for any level of productivity in the system?

The only positive is political – the voter in the rural areas will vote for the party that gave free food. We can perhaps afford this in good times, but in bad times it is just disastrous.

The government is giving horrible signals – that it simply doesn’t care about the long term consequences to the country.

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