The Jholawala Who Got It Right

jholawala economics
Sense and Solidarity—Jholawala Economics for Everyone.
Jean Drèze
Rs 795.
Permanent Black

Jean Drèze, unlike other economists, has “lived experience” of India. This is clearly missing among most economists who practice economics (for the lack of a better phrase) sitting in their air-conditioned rooms, working in big cities like Mumbai and New Delhi, and just looking at data.

While looking at numbers is important, nevertheless, as Drèze writes in the introduction to his new book Sense and Solidarity—Jholawala Economics for Everyone, in the context of widows who get government pension: “What is no less useful is to spend some time with widows and the elderly and ask them about their lives. If you have a heart, their pain and helplessness will move you like no statistical evidence is likely to.”

And Drèze’s book does move at many levels. Even if you consider him to be a jholawala, you really cannot contest much of Drèze writes in this book, which is essentially a collection of columns which he has written over the years. Drèze defines a jholawala as a disparaging reference used by the corporate sponsored media for activists.

Take the case of godowns of Food Corporation of India hoarding food grains which are rotting, while the market price of rice and wheat has been going up. This scenario played out repeatedly up until a few years back.

As Drèze writes: “The food subsidy is essentially a deficit of the Food Corporation of India (FCI), whose operations are now chiefly geared to keeping food prices up rather than down. This has been achieved, temporarily at least, by accumulating massive amounts of food in FCI godowns.”

Drèze further says that the poor benefit very little from the price support measures of the government. The government buys rice and wheat directly from the farmers at a minimum support price. This tends to help the bigger farmers especially in the bigger states like Punjab and Haryana. It also leads to a lot of rice being grown in a semi-arid like Punjab. Also, it ensures that farmers like to produce rice and wheat and not diversify into other crops.

This is something that most non-jholawala economists would agree with as well.
Or take the case of the humungous bureaucracy that holds back India’s administrative system. Drèze gives the example of the sub-divisional magistrate of Latehar district in Jharkhand.

He talks about a scenario where the pension applications were being forwarded to the state government at a snail’s pace, simply because the sub-divisional magistrate had to sign each application six times. There were 13,000 applications pending, which meant 78,000 signatures were required from the magistrate.

Not surprisingly, it is such rules and regulations that lead to rent-seeking behaviour and increase the distance between good governance and the citizens of this country.
Drèze also goes into detail about the health care system in India. This is by far the best part of the book. Even though India’s growth rate has grown from strength to strength over the last quarter century since economic reforms were initiated, the country continues to lag on the health front.

When it comes to child mortality rates, India lags even countries like Bangladesh and Nepal, which have a much lower GDP per capita than that of India. As Drèze writes: “For instance, despite being about twice as rich as Bangladesh in terms of per capita GDP, India lags far behind Bangladesh in terms of child vaccination rates, breastfeeding practices, the incidence of open defecation, access to safe water, and related indicators. The same point applies if we compare India with Nepal, which is even poorer than Bangladesh.”

This is a big puzzle. Why does the country give such low priority to health? The public expenditure on stands at 3 per cent of GDP for low-and-middle-countries. In India, it is significantly less than that. What explains this?

The answer to this perhaps lies in the section in the book dealing with food security. Here Drèze offers the example of Tamil Nadu and Chhattisgarh and the success of the public distribution system, which sells food grains at a very low price to citizens in both the states. In case of Chhattisgarh it was a political calculation that worked very well for the Raman Singh led BJP. But the political calculation came with political will which ensured that people of the state got their fair share of rice and wheat at the price mandated by the government. And this led to a vocal demand for a functional PDS from the people.
As Drèze writes: “Vocal demand is very important for the success of PDS. This is one reason why the PDS works much better in Tamil Nadu than elsewhere; everyone has a stake in it. Chhattisgarh’s recent success builds on the same principle.”

The moral of the story is that once people get a taste of good governance, they are more likely to demand it than not. This is something that can be applied in case of India’s poor record on the health front. Only once there is political will to improve India’s standing on the health front, will things start changing at the ground level.

Also, it is time that the government spent more on the health front. Of course, the government doesn’t have an endless amount of money. Hence, it must allocate what it earns, properly, which it has not been doing.

Drèze talks about a huge amount of money being spent every year as fertilizer subsidy, with doubtful social benefits, and environmental damage. And above all this, it basically benefits rich farmers, who are a strong political lobby.

There are other reasons as well, including a big public sector. A big public sector was at the heart of the Nehruvian model of development. By the time late seventies and early eighties, a central government company was present in almost every sector. From condoms to colas, the government made it at all. Of course, the capital that went to the setting up of these companies could have easily gone towards more important areas like health and primary education. But it did not.

Not surprisingly, many of these companies ended up making huge losses. The government continues to subsidise the losses of many of these companies. One of the biggest of them is Air India. The company has made losses of Rs 35,891 crore, between 2010-2011 and 2015-2016. Another such company is Hindustan Photo Films Manufacturing Company. Between 2004-2005 and 2015-2016, the company has made total losses of Rs 14,960 crore.

Just between 2011-2012 and 2015-2016, the loss making public sector enterprises have lost close to Rs 1,40,000 crore. Now that is a lot of money. This does not include the loss making public sector enterprises run by the state governments across the country and the losses that they make. It also does not include the bad loans of the public-sector banks which are written off and the government has to infuse fresh capital into these banks. A lot of money is required to keep the unviable parts of the government going.
And at the cost of repetition, every rupee that funds these companies, essentially gets taken away from healthcare and other important areas like education.

To conclude, Drèze writes lucidly with a lot of passion on issues that really impact India. These are not issues that you will see corporate economists and analysts talk about, given that they are perpetually busy in selling the India growth story still going strong.
Of course, one may not agree with everything that Drèze has written. His views on Aadhar may not go down well with the supporters of the current government. Also, his views on cash-transfer may not go down well with many economists and analysts (including the reviewer) who look at it as a way of tackling huge corruption that prevails in India.

Nevertheless, most of the issues that Drèze writes and analyses, are the real issues that are holding back India and they need to be tackled sooner rather than later on a war footing.

The column originally appeared in Equitymaster on December 20, 2017.

Food Security Act is another opportunity for Rahul to say I don't want to be PM


 rahul gandhi
Vivek Kaul
The Congress led United Progressive Alliance (UPA) government is in a hurry to somehow introduce the right to food security during the course of this year. Media reports suggest that a special session of the Parliament may be convened to get the bill passed.
But there are several major questions that the Congress led UPA government hasn’t answered with regard to the right to food security. This has writer has discussed some of these questions in the past. (You can read them 
hereherehere and here).
Here are some more important questions that need to be answered before the right to food security can move from being just a Bill to an Act.
1. The current plan is to sell subsidised wheat and rice to nearly two thirds of India’s population through the public distribution system. This system comprises of around 5 lakh fair price shops. Estimates suggest that nearly 60% of the food that is supposed to be distributed through this system is either siphoned off or is simply wasted. Given that, the eventual plan is to move the right to food security to a cash transfer system.
In this those entitled to food subsidy will have to buy rice and wheat directly from the market, at the market price, and the subsidy will be directly paid into their bank accounts or will be given to them through business correspondents hired by banks.
So what happens to the public distribution system in this case? Will it be dismantled? And if that is done, imagine the kind of unemployment it will lead to. Are political parties (even those within the UPA) which are so opposed to foreign direct investment in retail, thinking about this? And these shops are largely located in rural areas.
2. If right to food security eventually does move to a cash transfer kind of system, where the subsidy is direct paid out to those entitled to it, what happens to the elaborate procurement system for rice and wheat that the government has put in place? Currently the government declares a minimum support price for wheat and rice. At this price the Food Corporation of India (FCI) and other state government agencies, operating on behalf of the government, buy wheat and rice from the farmer., which then stocked and distributed through the public distribution system. This system is expected to continue for implementing the right to food security as well.
But what happens once the right to food security moves onto the system of cash transfers? Those entitled to the right to food security will have to buy wheat and rice directly from the open market. And that being the case the government need not maintain the humongous stocks of food grains that it currently does. The government will have to just buy as much of rice and wheat as might be needed to maintain a buffer stock, which currently amounts to somewhere between 14 million tonnes to 22 million tonnes of rice and wheat.
In 2006-2007, 169.1 million tonnes of rice and wheat was produced in the country. Of this, 43.8 million tonnes or around 26% was procured by the government. In 2011-2012, 198.2 million tonnes of rice and wheat was produced. Of this 88.5 million tonnes or nearly 45% was procured by the government.
So procurement rice and wheat by the government directly from the farmers has gone up tremendously over the last few years. And this has happened primarily because of the fact that the minimum support price has been increased consistently over the years. Farmers have been encouraged to sell to the government. If right to food security moves onto a cash transfer based system, what happens to the farmers who have become now used to selling at a fixed price to the government,which they know off well in advance? How fair is it on them? Are these things even being thought about?
While the current system of procuring more and more rice and wheat directly from the farmer has led to severe distortions, but doing away with it suddenly, will have its own severe repercussions.
3. What happens in a drought like situation? In a situation where the production of rice and wheat will come down, how will the government procure the amount that will be needed to be distributed to those entitled to the right to food security? The easy answer is that rice and wheat will be imported. But as this writer has pointed out in the past “Rice is a very thinly traded commodity, with only about 7 per cent of world production being traded and five countries cornering three-fourths of the rice exports. The thinness and concentration of world rice markets imply that changes in production or consumption in major rice-trading countries have an amplified effect on world prices.” (Source: 
National Food Security Bill Challenges and Options, Ashok Gulati, Jyoti Gujral, T.Nandakumar, Commission for Agricultural Costs and Prices (CACP), Ministry of Agriculture)
What is interesting is that there is a Force Majeure clause in the Right to Food Security Bill using which the government can shirk any responsibility to provide rice and wheat at a subsidised rate.
The Bill provides for a 
Force Majeure clause (Clause 52) that “the Central Government, or the State Governments, shall not be liable for any claim by persons belonging to the priority households or general households or other groups entitled under this Act for loss/damage/compensation, arising out of failure of supply of foodgrains or meals when such failure of supply is due to conditions such as, war, flood, drought, fire, cyclone, earthquake or any act of God.
But it is precisely at this point of time that the right to food security, if there has to be one, should be working. As CACP report points out “It is worthwhile to note that precisely in these conditions a failure of market forces, volatility in prices and resultant distress is expected and at times like this the poor and vulnerable would depend on government to ensure their food security.” 

4. Also, what is the basic goal of selling rice and wheat at subsidised prices. Who is it supposed to help? As a recent article in the Mint points out “Apart from the extremely poor, who form a small fraction of the population, nearly everyone else can afford the rice and wheat they require, as Bouis points out. A February report of the National Sample Survey Office (NSSO) shows the proportion of people not getting two square meals a day dropped to about 1% in rural India and 0.4% in urban India in 2009-10. Interestingly, the average cereal consumption of families who reported that they went hungry in some months of the year (in the month preceding the survey) was roughly equal to the average cereal consumption of those who reported receiving adequate meals throughout the year.”
So the point is that government’s own data clearly points out that the number of those who cannot even afford to buy rice and wheat for their daily meals is less than 1% of the total population. Doesn’t it make sense to target this section properly than doling out subsidised rice and wheat to all and sundry? But then targeting just them really won’t help the Congress party led UPA to get the votes in the 2014 Lok Sabha election. And if that does not happen how will Rahul Gandhi, get another opportunity to say, I do not want to be Prime Minister?
5. One of the goals of the right to food security is to improve nutrition. How does selling rice and wheat at a subsidised price help improve nutrition? The NSSO data quoted above clearly shows that most Indians can afford the rice and wheat they need to buy. To improve nutrition more consumption of vitamins and minerals is required. Howarth Bouis , director of HarvestPlus, International Food Policy Research Institute (IFPRI), made a very interesting point in an interview to the Mint a few months back. “ Food prices have been going up over time but we have to make a careful distinction in the Indian case between cereal and milk prices on the one hand, and all other foods on the other hand. After the green revolution, yields of rice and wheat shot up, and prices actually came down. Maybe prices have risen in the past couple of years but over the past 40 years, prices have fallen. The story is similar for milk. But if you look at all the other food groups such as fruits, vegetables, lentils, and animal products other than milk, you will find a steady increase in prices over the past 40 years. So it has become more difficult for the poor to afford food that is dense in minerals and vitamins.”
This explains the real reason behind poor nutrition in India. And no amount of selling of rice and wheat at subsidised prices can cure that. If nutrition needs to be improved food inflation which has gone through the roof needs to be controlled.
There are other factors as well. As the CACP report points out “studies have shown that the challenge of improving absorption lies in linking nutrition with health, education and agriculture interventions. Access to sanitation facilities and women’s literacy in particular are found to be strong factors affecting malnutrition.”
These are some more questions regarding the right to food security which need to be answered. In its current form the Right to Food Security Bill is nothing but a vote gathering ploy for Rahul Gandhi and nothing else, the bleeding hearts of 
jholawalas notwithstanding.
The article originally appeared on on May 16, 2013

(Vivek Kaul is a writer. He tweets @kaul_vivek)