Rahul Gandhi

Rahul Gandhi’s latest jai kisan rhetoric doesn’t quite work

rahul gandhiRahul Gandhi 2.0 is angry-and this anger is making him take ‘potshots’ at the Narendra Modi government almost every other day. Okay, I know it is politics. And I know that he is not angry. And I know that he is trying to rediscover himself. And I know that he is trying to ensure that the party of his ancestors doesn’t become totally irrelevant in the days to come.
Rahul’s latest jibe at the Modi government came yesterday when he said in Punjab: “Does the farmer not make in India?…Your government did nothing when hailstorms destroyed their crop?”
This after he had told a farmers’ rally in New Delhi earlier this month that: “We[i.e. the Congress led UPA government] increased the MSP of wheat from Rs 540 to Rs 1400…The MSP has not changed, no benefit to farmers.”
These statements are in line with the dole based politics and economics practised by the Congress party over the years. The trouble is the country has had to pay a huge cost for this. Allow me to explain. 
The MSP is the price at which the government buys rice and wheat from the farmers, through the Food Corporation of India (FCI) and other state government agencies. The MSP of rice was increased rapidly by the Congress led UPA government starting in 2007.
Between 2007 and 2014, the MSP of rice jumped up from Rs 580 per quintal to Rs 1310 per quintal, an increase of 12.34% per year. In case of wheat, the MSP started increasing from 2006 onwards. Between 2006 and 2014, the MSP of wheat jumped up from Rs 650 per quintal to Rs 1400 per quinta, an increase of around 10.1% per year.
The Table 1 shows the buffer stocks and the strategic reserves that the FCI needs to maintain at various points of time during the course of the year. 

Table 1


Now look at Table 2 which shows the stocks that FCI maintained at various points of time in 2014. A comparison of both the tables clearly tells us that FCI is stocking significantly more rice and wheat than what it is required to do. Interestingly, after the Narendra Modi led NDA government came to power, FCI has been going slow on procurement. In the earlier years the FCI was stocking even more than what it currently is. 

Table 2

As on 

Rice

Wheat

Total (in lakh tonnes)

Jan 1, 2014

146.98

280.47

427.45

April 1, 2014

202.78

178.34

381.12

July 1, 2014

212.36

398.01

610.37

Oct 1, 2014

154.22

322.63

476.85

Source: www.fciweb.nic.in


What the comparison of the two tables clearly tells us is that as the MSP prices have been increased, more and more rice and wheat have landed up with the government than what is required by it to run its various food programmes. In fact, the data clearly shows that before 2008 FCI bought as much rice and wheat as was required to maintain a buffer as well as a strategic reserve.
During and after 2008, the purchase of rice and wheat simply exploded. The reason for this is fairly straightforward. In the financial year 2008, the MSP of wheat was raised by 33.3%. In the financial year 2009, the MSP of rice was increased by 31.8%. And this led to farmers producing more rice and wheat in the years to come. This rice and wheat landed up with the government. FCI did not have enough space to store these grains and that explains why newspapers regularly carried pictures of rice and wheat rotting in the open, even though food inflation was rampant
The MSP policy run by the Congress led UPA government has now led to a situation where Indians farmers are producing more rice and wheat than what is required. In fact, influenced by this steady increase in the price of rice and wheat states like Punjab and Haryana, which have a water problem, are growing huge amount of rice and wheat. These crops are huge water guzzlers. Further, farmers are not growing enough of vegetables and fruits, where the prices have increased at a fast pace.
Also, when the government becomes dole oriented that leaves little money for it to do other things. At the end of the day there is only so much money that even a government has. As an editorial in The Financial Express points out: “This year, the government plans to spend around Rs 2.3 lakh crore on the food economy, including the food subsidy, and a very small fraction of this is for either crop insurance (imagine what that would do for farmers right now) or for creating irrigation facilities (imagine what that would do when the monsoon fails).”
Rahul Gandhi yesterday talked about the government not doing anything for the farmers after the hailstorms destroyed their crops. His government was in power for ten years what did they do on the crop insurance front? Why was the entire focus of the Congress led UPA government in making the farmer dependant on the government?
Interestingly, Rahul’s mother Sonia has written to the food minister Ram Vilas Paswan seeking a relaxation in the quality of wheat that the government buys from the farmers. As per the current regulations FCI does not buy wheat with a moisture content of greater than 14%. The Times of India reports Paswan as saying that: “permitting more moisture content beyond this level would mean the grain would be unfit for human consumption.” The newspaper also reports a food ministry official as saying: “There is no procurement of grains with more moisture content than the permitted limit. The procurement is being done as per the food safety standard law.”
This is a fair point. The government can’t be procuring wheat which is unfit for human consumption. Also, there is something majorly wrong in the state of the nation, where more than 65 years after independence, the main opposition leader suggests that the government buy wheat which is essentially not fit for human consumption.
This scenario would have never arisen if a crop insurance policy that covered a major section of the farmers had been in place. Who is to be blamed for this? Narendra Modi who came to power only 11 months back? Or the Congress party run by the Gandhi family which has been in power in each of the decades since independence? The answer is obvious.

The column originally appeared on The Daily Reckoning on Apr 30, 2015

Jibe specialist Rahul Gandhi needs to understand why ‘Make in India’ matters

rahul gandhiVivek Kaul

In his new avatar, Rahul Gandhi, the current vice president of the Congress Party and successor to the throne that has been kept warm for him over the last ten years, has become a jibe specialist.
His latest jibe has been at the ‘Make in India’ programme. “The prime minister talks about ‘Make in India’. No one does more ‘Make in India’ than the farmers of Punjab. They have made this country stand (on food grains production),” the Gandhi family scion, who recently returned from a 57 day foreign sojourn, told the media earlier in the day today (April 29, 2015).
This potshot was uncalled for, simply because no nation has gone from being a developing country to becoming a developed country without the support and the rapid expansion of its manufacturing sector, which is what the ‘Make in India’ programme is all about.
As Cambridge University economist Ha-Joon Chang writes in Bad Samaritans—The Guilty Secrets of Rich Nations & the Threat to Global Prosperity: “History has repeatedly shown that the single most important thing that distinguishes rich countries from poor ones is basically their higher capabilities in manufacturing, where productivity is generally higher, and more importantly, where productivity tends to grow faster than agriculture and services.”
India has failed to latch on to a manufacturing revolution. The services industry was India’s big hope. But services by their very design have certain limitations. As Chang writes: “There are certainly some services that have high productivity and considerable scope for further productivity growth—banking and other financial services, management consulting, technical consulting and IT support come to mind. But most other services have low productivity and, more importantly, have little scope for productivity growth due their very nature (how much more ‘efficient’ can a hairdresser, a nurse or a call centre telephonist become without diluting the quality of their services?).”
Also, for the services sector to flourish a strong manufacturing sector is required because that is where the demand comes from. Hence, as Chang puts it: “This is why no country has become rich solely on the basis of its service sector.” This is something that Rahul needs to understand.
India needs a strong manufacturing sector which it currently lacks. The reason is simple. Only a vibrant manufacturing sector can create enough jobs for the 13 million Indians who enter the workforce every year. The ‘Make in India’ programme is a step in that direction.
In his interaction with the media Rahul further said: “When the poor do ‘Make in India’, is it not ‘Make in India’? Is it something else?” What does this statement even mean?
Rahul’s concern for agriculture may be genuine, but a simple point he needs to understand is that there way too many Indians dependent on farming. Agriculture forms around 18% of the gross domestic product and employs more than 50-60% of Indians, depending on which estimate you trust.
Only 17% of who work on farms survive only on money they make from their farm. Everyone else does some extra work. As Mihir Sharma writes in Restart—The Last Chance For the Indian Economy: “Our agriculture simply does not earn enough; and it has too many people…We no longer need to ensure that enough food is grown; for decades, we have been growing enough food. The country that invented granaries cannot build enough to store its vast stockpiles of grain; and yet we plant and harvest more.”
A major reason for this has been a rapid increase in the minimum support price(MSP) of wheat and rice, during the Congress led UPA government. The MSP is the price at which the government buys rice and wheat from the farmers, through the Food Corporation of India(FCI) and other state government agencies. Rahul told a farmers’ rally in New Delhi earlier this month: “We increased the MSP of wheat from Rs 540 to Rs 1400…The MSP has not changed, no benefit to farmers.”
But what the Gandhi family scion does not realize is that this rapid increase in MSP has led to other major problems. As Sharma writes: “It distorts the choices that farmers make—those who should be finding ways to grow vegetables, which grow more expensive every year, are instead growing wheat we no longer need.”
It has also led to a situation where a state like Punjab which is essentially a semi-desert is growing a large amount of rice through the extensive use of underground water. This has led to water table falling rapidly over the years.
Given these reasons, Rahul Gandhi needs to get his economics right. The country has suffered enough over the decades for the garibi hatao politics of the Congress party. Sadly, Rahul and Congress continue to practice the garibi hatao politics of doles. What we need now are jobs and more jobs. And those jobs can only be created through the rapid expansion of the manufacturing sector.
This bit of wisdom is nothing new. It was known nearly 300 years back as well. As Chang writes: “[Robert] Walpole [the first British prime minister] knew this nearly 300 years ago, when he asked George I[the British King at that point of time] to say in the British Parliament: ‘nothing so much contributes to promote the public well being as the exportation of manufactured goods and the importation of foreign raw material.’”
Being in the opposition, Rahul obviously needs to criticize the government. The ‘Make in India’ programme in its current form is a little more than a marketing slogan. If this slogan needs to be turned into a reality, there is a lot more that needs to be done—from improving the ease of doing business to labour sector reforms. Nothing much seems to be happening on these fronts.
Why can’t Rahul criticize this for a change? It might just turn out to be a real reinvention than the forced “angry young man” image that he seems to have adopted in the recent past.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on Apr 29, 2015

 

Rahul 2.0 needs some basic lessons in economics

rahul gandhi
Rahul Gandhi recently came back to India from his foreign sojourn of nearly two months. And in his new avatar, Rahul is angry. One of the things he is angry about is the fact that the Narerndra Modi government after coming to power decided to go slow on increasing the minimum support price of wheat and rice. The MSP is the price at which the government buys rice and wheat from the farmers, through the Food Corporation of India(FCI) and other state government agencies.
Rahul told a farmers’ rally in New Delhi on Sunday: “We increased the MSP of wheat from Rs 540 to Rs 1400…The MSP has not changed, no benefit to farmers.”
Between 2005-2006 and 2013-2014, the MSP of wheat was increased at an average rate of 14% per year. The Congress led United Progressive Alliance(UPA) was in power throughout this period. In comparison, between 1999-2000 and 2005-2006, the price had gone up by 4% per year.
The decision to raise MSP did not have any method behind it. It was totally random. A report released by the Comptroller and Auditor General in May 2013 pointed out that “No specific norm was followed for fixing of the Minimum Support Price (MSP) over the cost of production. Resultantly, it was observed the margin of MSP fixed over the cost of production varied between 29 per cent and 66 per cent in case of wheat, and 14 per cent and 50 per cent in case of paddy during the period 2006-2007 to 2011-2012.”
Nevertheless, political decisions do not follow economic logic. But the question is did this decision to constantly keep increasing the MSP benefit the people of India at large. The answer is no. It was the major reason behind the high inflation in general and food inflation in particular, that was seen between 2008 and 2014. As economist Surjit Bhalla put it in a November 2013 column in The Indian Express “For each 10 per cent rise in previous years’ procurement prices, there is a predicted 3.3 per cent increase in the current year CPI…When the government raises the MSP, the prices of factors of production involved in the production of MSP products — land and labour — also go up.”
Food inflation hurts the poor the most. Half of the expenditure of an average Indian family is on food. In case of the poor it is 60% (NSSO 2011). What Rahul and the Congress party need to understand is that everyone associated with agriculture does not own land. As per the draft national land reforms policy which was released in July 2013, nearly 31% of all households in India were supposed to be landless. The NSSO defines landlessness as a situation where the area of the land owned is less than 0.002 hectares.
Any price rise, particularly a rise in food prices which is what an increase in MSP leads to, hurts this section of the population the most. Is Rahul not worried about them? They may not be farmers who own land, but they also farm land in this country.
Also, Rahul needs to realize that only a small section of the farmers have a marketable surplus, which they are able to sell to the government. This is primarily because the average holding size of land has come down over the decades. The State of the Indian Agricultural Report for 2012-2013 points out that: “As per Agriculture Census 2010-11, small and marginal holdings of less than 2 hectare account for 85 per cent of the total operational holdings and 44 per cent of the total operated area. The average size of holdings for all operational classes (small & marginal, medium and large) have declined over the years and for all classes put together it has come down to 1.16 hectare in 2010-11 from 2.82 hectare in 1970-71.”
This means that only a small section of the farmers make money only from agriculture. Only 17% of farmers survive on income totally from agriculture. The rest do other things as well to make money. And given this they are hurt by the food inflation because of a rapid increase in MSP.
The Congress led UPA government also increased the MSP of rice at a very rapid rate.  In 2005-2006, the MSP for common paddy(rice) was Rs 570 per quintal. By 2013-2014 this had shot up to Rs 1310 per quintal, an increase in price of around 11% per year. In comparison, between 1998-1999 and 2005-2006, the MSP of rice had increased at the rate of 3.8% per year.
This rapid increase in MSP led to a huge amount of food grains landing up with the government. The FCI did not have enough space to store all this grain. “Between 2005 and 2013, close to 1.94 lakh tonnes of food grain were wasted in India, as per FCI’s own admission in the Parliament,” a Crisil Research report points out. Rice formed 84% of the total damage.
While rice and wheat rotting in government godowns, there wasn’t enough of it going around in the open market.  The CAG report referred to earlier points out that in 2006-2007, 63.3 million tonnes of rice landed in the open market. By 2011-2012, this had fallen by a huge 23.6% to 48.3 million tonnes. The same is true about about wheat as well, though the drop is not as pronounced as it is in the case of rice. In 2006-2007, the total amount of wheat in the open market stood at 62.1 million tonnes. By 2011-2012, this had dropped to 61.4 million tonnes.
Also, with MSPs being increased every year at a rapid rate, “the cropping pattern,” the Crisil report points out, was also “biased towards food grains like rice and wheat,” and this led to their “excessive production”.
This is what the Congress led UPA’s policy of constantly increasing MSPs, actually did.
To conclude, as the old English saying goes, “the proof of the pudding is in eating it”. If the policy of the Congress led UPA government of increasing MSPs at a rapid rate was so good, why did the Congress party end up with only 44 seats in the 2014 Lok Sabha elections? Maybe Rahul Gandhi has an answer for that.

The column originally appeared on The Daily Reckoning on Apr 23, 2015

Modi needs Rahul

narendra_modi
Rahul Gandhi is back. Back from his 57 day foreign sojourn, during which, if Congress leaders are to be believed, he was thinking about how to revive the Congress party.
And now that he is back he has come out all guns blazing against the Narendra Modi government. The Gandhi family scion has blamed the Modi government for being very close to the corporates and not being worried about the farmers. In a speech in the Lok Sabha yesterday he accused the government of being a “suit, boot ki sarkar.”
For the time that Rahul was not in the country, several leaders of the Bhartiya Janata Party(BJP) took potshots at his absence. Amit Shah, the president of the BJP, had recently said at the two day National Conclave of the party in Bangalore that: “Instead of raising non-issues and fictional issues, they[the Congress party] should find out where their leader is.”
After Rahul returned to India, Sambit Patra, a BJP spokesperson said: “He (Rahul) is confused. He does not know what he wants to do with his life, whether he wants to continue in politics. He has to answer to the people.”
Such statements are a part of the broad strategy of BJP of talking about a Congress mukt Bharat (an India without the Congress party). “Congress Mukt Bharat is not merely a slogan, but the determination of the people of India,” Narendra Modi said in January 2014, when the campaigning for the 2014 Lok Sabha elections had started. Since then, many leaders of the Bhartiya Janata Party(BJP) have used this slogan on many occasions.
Nevertheless, a slightly strong Congress party might work to the advantage of the BJP. And a Congress mukt Bharat may not necessarily be good for the party. Why do I say that? Take a look at what happened in the recent elections to the Delhi assembly.
The BJP got 32.2% of the votes polled. This was marginally lower than the 33.07% of the votes that the party had polled in the assembly elections held in December 2013. The Congress had polled 24.55% of the votes in December 2013. This collapsed to 9.7% in the recent elections. The gainer was the Aam Aadmi Party (AAP). The vote-share of the party jumped from 29.49% to 54.3%, helping the party win 67 out of the seventy seats in the assembly.
What this clearly tells us is that the entire collapse in the vote for the Congress moved to the AAP. This in a way ensured that the anti-BJP vote did not get divided and helped AAP win almost 100% of the seats in the assembly. If the Congress vote hadn’t collapsed as much as it did, it would clearly helped the BJP win more seats in the Delhi assembly. Hence, a stronger Congress would have helped the BJP in Delhi.
Now, along with this let’s look at an interesting piece of analysis on the 2014 Lok Sabha elections carried out by Neelanjan Sircar, a Postdoctoral Research Fellow at CASI at the University of Pennsylvania. In his analysis Sircar found that: “Consider the constituencies in which the BJP and Congress were the top two vote getters; there were 189 such constituencies, and the BJP won 166 of them for a whopping strike rate of 88 percent. By contrast, the BJP’s strike rate was even (49 percent) in the remainder of the constituencies it contested.”
What this clearly tell us is that when it’s on a one on one with the Congress, the BJP does well. But the same cannot be said of a situation where there is a multi-party contest. In a multi-party contest, a strong Congress party can help in dividing the anti-BJP votes. While this may not matter in the bigger states like Rajasthan, Gujarat and Madhya Pradesh, and smaller ones like Chattisgarh and Himachal Pradesh, where there is a direct contest between the BJP and the Congress, it matters in many other states like Bihar, West Bengal, Tamil Nadu and Assam, where the electoral contest is multi-party.
In fact, in the first past the post system (an electoral system where the candidate winning the most votes wins, even though there might be more votes against him in total) that India has, a divided opposition can really help the ruling party. And for that divided opposition to become a reality, the Congress party needs to be on a slightly stronger wicket than it currently is.
This rule comes with a corollary. The BJP has to hope that the Congress does not come together with other opposition parties like it did in Bihar in August 2014, when bye-elections to 10 assembly seats were held. The vote percentage of the BJP plus the Lok Janshakti Party was at 37.9%. The vote percentage of Rashtriya Janata Dal plus Janata Dal (United) plus the Congress party came in at 45.6%. So, all said and done, the anti-Modi vote does remain strong. And it can create huge problems for the BJP.
But the other parties coming together is not a possibility in every state. Take the case of West Bengal where the Trinamool Congress and the Left Front are unlikely to come together for the assembly elections scheduled in 2016. A weak Congress party will mean that its votes will move to the Trinmool Congress and that can’t be good for the BJP.
The BJP cannot be expected to form the government in West Bengal. But in the 2014 assembly elections it got 17% of the votes polled. Given this, the party can expect to win more than a few seats in the state assembly.
Further, the assembly elections in Bihar are due later this year. It is important that the BJP does well in the state given that it elects 16 members to the Rajya Sabha. West Bengal also elects 16 members to the Rajya Sabha.
The BJP currently has only 47 members in the Rajya Sabha and hence can be held to ransom by the opposition parties in the upper house, whenever it wants to pass any important legislation. The Land Acquisition Bill is an excellent example of the same.
In order to increase the number of members in Rajya Sabha the party needs to do well in the state assembly elections scheduled over the next few years. And for that to happen, the BJP needs a stronger Congress party. In short, Modi needs Rahul.

The column originally appeared on The Daily Reckoning on April 21, 2015

Rahul Gandhi’s ‘suit boot ki Modi sarkar’ jibe stinks of hypocrisy

rahul gandhi
Vivek Kaul

Rahul Gandhi, the Gandhi family scion and the vice-president of the Congress party, is back from his two month holiday (57 days to be exact). And if nothing else, he surely has discovered his political machismo during the period. Speaking in the Lok Sabha today (April 20, 2015) Rahul said that the Narendra Modi led National Democratic Alliance(NDA) government was a government of industrialists, or as he put it: ‘suit, boot ki sarkar‘.
In a speech he made at the Ram Lila Maidan in New Delhi on April 19, 2015, he made similar allegations when he said: “Let me tell you how Modi ji won the election. He took loans of thousands of crores from big industrialists from which his marketing was done. How will he pay back those loans now? He will do it by giving your land to those top industrialists. He wants to weaken the farmers, then snatch their land and give it to his industrialist friends.”
There are multiple points that need to be made here. Is Rahul Gandhi trying to suggest that the Congress party did not get corporate funding to fight the 2014 Lok Sabha elections? Is he trying to suggest that the Congress party has never got corporate funding to fight elections? Is he trying to tell us that the Congress party has never used “black-money” to fight elections?
Or is it more a case of sour-grapes—the fact that when it came to the 2014 Lok Sabha elections the corporates where on Modi’s side, given the sordid performance of the Manmohan Singh government. As Jairam Ramesh told The Times of India after the Lok Sabha elections: “We were out-campaigned, out-manoeuvred, out-funded and out-spent by Modi.” So, it is clearly a case of sour grapes for Rahul. Also, in all these years that Congress was in power, why did it never try to clean up political funding? Does Rahul have an answer for that?
Rahul, further said in his Lok Sabha speech that: “You know as well as I do, that this government is one that works for industrialists.” So, does this imply that the last Congress led United Progressive Alliance government did not work for industrialists?
If that was the case then why did so many scams involving corporates happen in the second term of the Congress led UPA government? Was the telecom 2G scandal a creation of the Modi government? Did the Commonwealth Games scam happen under the Modi government? Did the coalgate scam, where the governments loss lakhs of crore happen under the Modi government?
Rahul also suggested in his two speeches that the Modi government is hell bent on taking away land from the farmers and giving it to corporates. The question is what were multiple Congress governments doing since the independence?
Until 2013, the land acquisition act 1894, governed land acquisition in India. A 1985 version of this Act stated: “Whenever it appears to the [appropriate Government] the land in any locality [is needed or] is likely to be needed for any public purpose [or for a company], a notification to that effect shall be published in the Official Gazette [and in two daily newspapers circulating in that locality of which at least one shall be in the regional language], and the Collector shall cause public notice of the substance of such notification to be given at convenient places in the said locality.”
The language of the 1894 Act shows that it gave unlimited power to the government to acquire land. This wasn’t surprising given that the law came into being when the British ruled India. The Act allowed governments all over India to acquire land from the public. Many governments passed on this land to corporates, and in the process both the government and the corporates made money.
The only one who did not make money was the individual whose land was being acquired. Of course, this did not go unnoticed. People saw politicians and corporates making a killing in the process. And the trust that is required for any system to work completely broke down. The various Congress governments which led the country between 1947 and 2013(nearly 66 years) chose to do nothing about it. In 2013, the Congress led United Progressive Alliance (UPA) brought in The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013.
By ensuring that corporates got land on a platter, the Congress party essentially helped build a system of political-corporate corruption. Further, given that governments acquired land for them, Indian corporates have become lazy over the years. Also, many of them started to see themselves as landlords and wanted land just for the heck of it. This can be said from the inefficient use of industrial land in India. Narendra Modi had no role in building this system. He just inherited it.
And there is more. Along with the budget document, the government releases a statement of revenue foregone every year.  “The estimates and projections are intended to indicate the potential revenue gain that would be realised by removing exemptions, deductions, weighted deductions and similar measures,” the statement points out.
For the year 2014-2015, the government is expected to forego revenues of Rs 62,398.6 crore because of exemptions and deductions given to corporates. Interestingly, the bigger the corporate the more deductions and exemptions they take. Corporates which make an operating profit within the range of Rs 0-1 crore have an effective tax rate of 26.89% Those in the Rs 50-100 crore range have an effective tax rate of 24.29%. Whereas those making a profit of greater than Rs 500 crore have an effective tax rate of 20.68%. The overall rate is 23.22%. This is not a recent phenomenon. It has been true for many years.
Who has built this tax system which favours the corporates? The Congress party is the answer. The party has been in the government in every decade after independence. Narendra Modi has not been in power even for a year. Once these factors are taken into account, the only thing one can say is that Rahul’s “suit boot ki Modi sarkar,” comment, stinks of hypocrisy. Guess, the two month sojourn hasn’t done him much good.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on Apr 20, 2015