Finance Minister Arun Jaitley recently stated that there was no room for mindless populism in Budget 2014. In this article, the first of two, mindless populism will be defined and estimates provided; the second will contain further facts, and remedies.
The following simple definition of populism may be considered representative. Populism means expenditure programmes aimed at subsidising a large, preferably majority, of the voting population. In many countries, populism would be social expenditures targeted at the middle class. In India, these schemes would be those targeted at the absolute poor. However, what the Congress party did not realise, or appreciate, is the simple fact that the absolute poor were less than a quarter of the population in 2011-12, and possibly less than a fifth at the time of the 2014 election.
There is another element to the “mindful” nature of populism. Indian politicians should be aware that as per capita incomes have increased manifold, so has the percentage of the population subject to income tax. So this financing class worries about the efficacy of the delivery of subsidies to the poor, and to themselves. Mindless populism is now a deep negative for getting elected in India. Don’t believe me, believe the Congress which, despite many populist programmes, has just managed to register the largest loss for any incumbent national government anywhere at any time. In 2009 it won 206 seats; in 2014, just over a fifth of the seats. That is a world record for the BJP and Narendra Modi to be proud of, and for mindless populists to beware.
The longest running, and most expensive, of the social programmes for the poor is the food subsidy programme populistically called the Public Distribution System (PDS) — a scheme that has been in operation since the late-1970s. The total expenditure on this policy in 2014-15, thanks to its having been enshrined as law by the Sonia Gandhi-led previous government, is slated to be Rs 1,25,000 crore. The Tendulkar-defined poor today are likely to be around 250 million. So per poor person, the populism of the Congress dictated that the government would spend Rs 5,000 on food subsidies alone — that is, not including NREGA (let us call it by its original name rather than introducing the Mahatma into the controversy), not including fertiliser, not including diesel, not including kerosene, and not including LPG.
Incidentally, these excluded items together account for approximately Rs 1,75,000 crore.
Let us just concentrate exclusively on this PDS subsidy. Is expenditure of Rs 5,000 per poor person, “mindless” populism? The answer is a double emphatic yes. That is, it is not mindless populism but “mindless squared” populism.
In the run-up to the 2014 election, the welfare schemes of the UPA government came up for much discussion. Last year, at the time of the food security bill, Sonia Gandhi’s dream project, which the BJP enthusiastically supported, it was believed that all was right with the PDS scheme, except perhaps implementation — and the BJP said they were doing PDS delivery much better than the Congress, and all one had to do was to look at Chhattisgarh, where three-time elected Chief Minister Raman Singh had completely revamped the corrupt food delivery system.
The table vindicates the BJP claim. It shows the PDS consumption for rice and wheat in selected states of India in 2011-12 (NSSO data). In Chhattisgarh, the delivery of PDS rice to the poor was close to the highest in the country — 4.2 kg per poor person. Not reported, per poor person PDS delivery of wheat was 0.5 kg. Thus, Chhattisgarh had nearly achieved the FSB target of 5 kg of foodgrains in 2011-12. Note, however, that both Tamil Nadu and Odisha are also PDS “success” states. But these three states are the only exception. Nationwide, the poor received only 1.9 kg of rice and 1 kg of wheat in 2011-12.
But there is another curious fact that emerges from just a casual perusal of the table. While PDS delivery increased substantially in Chhattisgarh, Odisha and Tamil Nadu, the absolute consumption of foodgrains declined in these three states, as well as in all of India. And the decline is not small — more than 10 per cent in Chhattisgarh. The same pattern of declining total consumption is observed for the non-poor. This fact has several implications, especially for the consideration of mindless populism.
First, what this reveals is that the need for the food security act was never there, neither for poverty reduction nor for the attack on “hunger”. Foodgrains are what economists call an inferior good — as your incomes go up, and increase beyond the absolute poverty hunger level, your foodgrain intake goes down. For a poor person suffering from chronic hunger, cereal consumption does increase. However, past a certain biological need, cereal consumption plateaus, and then declines. From the data it appears that this peak plateau was reached sometime around 2000, and what can be said with near certainty is that the average poor person was not suffering from hunger in 2011-12, that is, while some fraction of households in India do suffer from hunger, this percentage is likely well below the Tendulkar poverty level of 22 per cent in 2011-12.
Second, as Dean Spears’ research has convincingly shown, which is also medically and biologically intuitive, digestion of food is a function of the quality of water intake and the quality of available sanitation. Hence, the desirability and advocacy of toilets before temples. So “thrusting” food down people’s throats (rich or poor) will not help wastage, or stunting, or health, if the appropriate and healthy sanitary environment is not present. For the lawmakers to be unaware of the inefficiency of food intake in the context of open defecation (lack of sanitation) shows a sinful disregard for facts that matter.
Third, and a final calculation, on the cost of mindless food populism. Out of the 273 million poor in 2011-12, only half (145 million) received any PDS delivery of rice or wheat. The UPA government spent Rs 73,000 crore on food subsidy that year. Both rice and wheat subsidies to the poor added up to Rs 12,000 crore. In other words, the government spent more than Rs 6 to transfer Re 1 to the poor. Where the rest went is for you to figure out, but even a 2:1 ratio qualifies as mindless populism. What we have here is mindless cubed populism!
The writer is chairman of Oxus Investments, an emerging market advisory firm, and a senior advisor to Zyfin, a leading financial information company
- No Proof Required: Plagiarism at the World Bank?
At a minimum, the World Bank is guilty of following the not so scholarly tradition of Western scholars to ignore scholarship from elsewhere, even when…
- Goebbels and fake news — spot the difference
The Opposition is trying to create an alternate narrative about the political and economic reality under the Modi government...
- The little-revenue tax
LTCG is a bad idea. The best policy for the taxman is one that maximises revenue, not one that maximises his morality, or his employment,…