A new disaster is in the making. It is called the “Food Security Bill”. The article below gives the basic details we need to understand why this bill is an economic blunder.
Just quoting the specific portions of the article for the convenience of my readers,
“UPA chairperson Sonia Gandhi-headed National Advisory Council (NAC) is working on a draft Bill. The NAC has proposed a legal entitlement to subsidised foodgrains for 75 per cent of the country’s total population.
According to NAC’s proposal, the government should provide 35 kg of foodgrains a month to “priority households” at a subsidised rate of Rs 1 per kg for millet, Rs 2 for wheat and Rs 3 for rice”
Why it is an economic blunder
Let’s do the numbers. 75% of India’s population constitutes around 80 crore people. Assuming 5 people per family on the average, we have 16 crore families to feed. 35 kgs of foodgrains per month constitutes 420 kgs per annum. Assuming that rice, wheat and millets will be distributed in the ratio of 1:1:1, we have an average realization of 16 crore * 420 * 2 = Rs. 13,440 crore.
Let’s now calculate the payout. For this, let’s assume a reasonable quality of each cereal. Let’s say that government purchases the cereals on the wholesale market. In order to be realistic, I obtained the prices of cereals from
I omitted outliers (extraordinarily high and low prices) and took a simple average (I know that’s not precise, but it is indicative enough). Under these assumptions, Rice costs around Rs. 19.52 per kg on the open market, wheat around Rs. 13.38 per kg and millets around Rs. 10.66 per kg. At a ratio of 1:1:1, this makes the average price Rs. 14.52 per kg. The total payout is therefore Rs. 16 crore * 420 * 14.52 = Rs. 97,574 crore.
Therefore, assuming that the government is going to purchase these cereals on the wholesale market at market prices, the government will have to make an outlay of Rs. 84,134 crore. My head reels at the sheer magnitude I see. This is even bigger than the equally disastrous MNREGS (which I shall write about another day). Tinker around with the number for all you want. The numbers wouldn’t change by much.
With a government that is already running a fiscal deficit of Rs. 4,12,307 crore (http://www.business-standard.com/india/news/2009-10-fiscal-deficit-stands-at-66gdp/396788/), this means a massive addition to the fiscal deficit.
How is the government going to fund this massive bill? Will you be surprised if I say that it will get the RBI print up the money? I had explained here how government fiscal deficit adds to the money supply. What does this magnitude of addition to the money supply mean for prices of all goods and services that are not covered under this idiotic bill? I’m scared. I wish I could move over to another planet. Since I cannot, I thought I’ll just write about it and help more people see what monumental idiocy this misconceived move of bleeding hearts who have no qualms about robbing Peter to pay Paul is. My only question to these bleeding hearts is, “If you are so concerned about the starving poor, why don’t you use your own money to buy food for them? Why steal my hard-earned money using government to do your dirty job?”. That, however, constitutes the ethical blunder we commit by passing the Food Security Bill. I’ll leave that for another day.