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Everyone loves food security

The Congress's bill could end up sponsoring the NDA's campaigns

Written by Sunil Jain |
May 6, 2013 12:39:19 am

The Congress’s bill could end up sponsoring the NDA’s campaigns

A good thing about the logjam in Parliament,it has to be said,is that it has prevented the ill-advised food security bill from being passed. It would,though,be naive on our part to presume the BJP stalled Parliament — the Congress’s blatant abuse of the CBI process was a big reason for this — only because it wanted to prevent this hugely pro-corruption bill from becoming legislation. Given the political system we have,where no party has the courage to take a stand against rampant populism,the BJP has always been in favour of the bill. And why not,given how every political party,including the BJP,benefits from it?

While one part of the government wants to move away from traditional systems of delivering subsidies to Aadhar-based direct cash transfers to the bank/ post office accounts of beneficiaries,the food security bill has always been a bit of a curiosity. Given that the bill is to be implemented through the existing ration shop-based system,the leakage levels in it are expected to be roughly similar,with around 40-50 per cent of grain siphoned off along the way. If implementing the bill is to cost Rs 6 lakh crore over a three-year period,as the Commission for Agricultural Costs and Prices (CACP) reckons,that’s a huge Rs 3 lakh crore to be siphoned off by various middlemen along the way. Nandan Nilekani,the man whose job is to clean up precisely this kind of loot,must be seething at the thought of a gargantuan new loot-in-the-name-of-the-poor scheme being promoted while he’s struggling to contain the loot in other schemes — thanks to various public agencies refusing to cooperate,phase one of Aadhar-transfers has been such a miserable failure,only Rs 40 crore got transferred to beneficiary accounts in 43 districts.

This may explain why the ruling coalition is in favour of the food security bill,but how does it explain the BJP’s complicity? If the bill is to be the vote-gatherer it is supposed to be,why let the UPA get away with it? If there are such leakages,why let the ruling party’s machinery get it? And since the food security bill envisages a dramatic jump in government procurement and also plans to meet the needs of the bulk of the population,it dramatically reduces the role of traders. Why would an avowed traders’ party allow this to happen,apart from the fact that driving out private traders can only spell disaster for any economy? There are a few simple reasons for this.

First,no political party wants to be seen as a spoiler,even if it knows the supposed benefits never reach the target beneficiaries. Second,and far more important,in most schemes that have to be implemented at the level of the states,it is the local government that manages to take the credit. That’s why you keep hearing Congress chieftains making statements about how the opposition is taking credit for the money being given by their government.

Third,and a lot more important,the way the bill has been designed,it is an open system to loot for all concerned. A fact little known,even by those who criticise the existing ration-shop system,is that a very large chunk of the money spent on food subsidies actually gets transferred to state governments by way of taxes. That’s right,Punjab and Haryana,the two states where the largest procurement takes place,charge a levy of 14.5 per cent on all transactions that take place in their mandis — and,by law,all sales of agricultural produce have to take place in the mandis. So,14.5 per cent of the Food Corporation of India’s costs comprise transfer payments to the states. In 2011-12,of the total of Rs 72,800 crore food subsidy bill,around Rs 10,000 crore was given to the states. In the case of Punjab,this worked out to Rs 3,600 crore and for Haryana,Rs 1,400 crore. Andhra Pradesh earned Rs 900 crore and Madhya Pradesh a similar amount even though the latter’s mandi taxes are a much lower 4.7 per cent. Since Punjab collected just Rs 20,410 crore of taxes that year,the mandi taxes accounted for nearly 18 per cent of the state’s taxes. In the case of Haryana,mandi taxes accounted for around 7 per cent of the state’s own tax revenues of Rs 20,010 crore.

Others have begun to learn and just a few weeks ago,Orissa hiked its mandi tax on paddy from 8.5 per cent to 12 per cent. While this will fetch the state just Rs 150 crore,that’s because the amount of paddy procured from the state is quite small.

So here’s where the BJP,indeed all opposition-run states,can play a game with the Centre. Assume the government says wheat will be bought at Rs 100 a unit (procurement prices for wheat are Rs 1,285 per quintal,but the idea is to keep the maths simple). Typically,the state government buys the grain on behalf of the FCI and then bills it for this. So if a state now announces a “bonus” of 20 per cent,it promises to buy the grain brought by the farmers at Rs 120 per unit. This is not just fiction,Madhya Pradesh offers farmers

11 per cent more for wheat and Chhattisgarh 22 per cent more for paddy — as a result,by the way,private traders have been completely driven out of the markets in these states. Naturally,the state government gets all the credit from grateful farmers instead of the Centre,which ends up footing 83 per cent (100 divided by 120) of the bill. It gets worse. If a Madhya Pradesh ends up paying 11 per cent more for the wheat and matches this by raising its mandi taxes by another 11 percentage points — that is,to 15.7 per cent — it is not out of pocket by even one paisa and it has got all the credit.

Using the Congress’s food security bill to fund the BJP’s election campaign,that should make the Congress pause.

The writer is managing editor,‘The Financial Express’

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