Blueprint For Economic Revival: A Reply To Chidambaram
Aswathi Rebecca Asok
A recent article written by P. Chidambaram, former Finance Minister of the country, and Praveen Chakravarty, a senior office bearer of the Indian National Congress on The Hindu (17/4/2020) was quite striking, as it contradicts with their own earlier stands on certain subjects.
The article, titled “A Blueprint to Revive the Economy”, is nothing but an implicit confession of the representatives of a national party that marked the withdrawal of government from public provisioning in our country. The current global pandemic has once again underscored the failure of a market-oriented ideology in addressing the unexpected shocks in the economic and social lives. The scenario has forced many “world-renowned capitalist, developed countries”, that had until now vigorously campaigned for the efficient functioning of “invisible hands of the market”, to deviate from their erstwhile position about the non-intervention of governments in economic matters. The current situation is bringing back the Keynesian ideas of massive state spending, especially in social sectors like health and education, to the forefront. People across the world have started to distinguish between the priorities of two systems — a capitalist market system which places economic growth before humanity, and a socialist system that keeps humanity in the first place. The present outcome openly proves that any response that gives lesser preference to humanity is likely to bring adverse effects on the very existence of humanity itself, and needless to say, on the economy too. Stories of successful combating of the virus and the unparalleled humanity shown by Communist-led nations like China and Cuba and the small Indian state of Kerala, have got featured across leading international media.
Nevertheless, it does not mean that capitalism will topple down and will be replaced by ‘the dictatorship of the proletariat’ tomorrow. As Keynes emerged as the saviour of the capitalists during the great depression of the 1930s, many capitalist economists are presently coming up with “blueprints” for systemic revival, completely overlooking the positions and policies they have clutched onto until now. The nationalisation of the health care sector announced by the Spanish government, the readiness of the French government to nationalise large companies, and the massive economic package rolled out by the US government are indicative of this.
The aforementioned article by Chidambaram and Chakravarty is one of this kind. Admitting the gravity of the economic and humanitarian crises facing the globe currently, they propose several measures to revive the economy from the current stagnation. A prominent suggestion made in the article is about the strengthening of the public distribution system (PDS) of the country. The authors advocate for an immediate universalisation of PDS and giving priority for in-kind food transfers over direct cash transfers. These proposals made by the finance minister of a government that staunchly pushed the agenda of Targeted PDS (TPDS) and included the provision for a direct cash transfer in-lieu of food grains in the National Food Security Act (NFSA) makes the article all the more ‘interesting’. In fact, all the major debates on the National Food Security Bill introduced in the Parliament in 2011 during the first UPA government and ultimately got passed into an Act during the second UPA government revolved around these two points: whether to go for a targeted PDS (although targeted PDS was in place in the country from 1997 onwards, during the I.K. Gujral Ministry, backed by the Congress from outside, became a law through the NFSA. The outcome of the Act was that the central allocation of food grains to the states implementing a nearly universalised system of PDS, such as Kerala and Tamil Nadu, declined sharply) and whether to introduce direct cash transfer instead of distribution of food materials through fair price shops.
Targeted PDS aims at providing food grains to people below the poverty line at highly subsidised prices from the PDS and people above the poverty line at much higher prices. Although in one reading it seems to be egalitarian, in a highly populated country like India, where a complex and hierarchical bureaucratic machinery and a higher rate of poverty still remains, it is not a suitable system, due to the high possibility of exclusion error (the possibility of actual poor being excluded from the beneficiary list). It needs to be remembered that the decision to go ahead with TPDS by the UPA government, in which Chidambaram held the portfolio of finance, with a statutory backing of NFSA, was made despite the persistent warnings of renowned economists and academicians including Abhijit Sen, member of the Planning Commission during the period. Sen, along with Himanshu, have authored a number of articles on the issue indicating the highly possible leakages and exclusion errors inherent in TPDS. With data they proved that universal PDS is the only option consistent fully with a rights-based approach and more likely to be effective in ensuring food security for the poor of a country which continuously worsening its position in Global Hunger Index (the 80th position held by India among 117 countries in 2015 got lowered to 102nd in 2019, even much below to its South Asian neighbours such as Nepal, Bangladesh, Pakistan). They further showed that states that did not strive to ‘target’ the public distribution system (PDS) were able to control leakage of food grains. Svedberg in 2002 drew public attention to the high leakage of TPDS, by estimating that more than half (54%) of the grain taken off for the TPDS disappeared before reaching buyers in the fair price shops. In his opinion, it reflects inefficiency, corruption and theft on a gigantic scale of the system. Even the most recent study of NITI Aayog on public distribution in India affecting nutritional security of the country reveals that under TPDS, many poor were excluded from the ownership of BPL cards, with the highest exclusion error among marginalised groups. Despite the fact that the shift to a targeted PDS in India in 1997 was based on various studies including one of World Bank which accused the then universal PDS as inefficient and did not reach the poor, a report published by the World Bank in 2011 reverted this position. By citing the universal PDS experience of Tamil Nadu, the report accepted that adopting a universal access policy for subsidised grains might increase the effectiveness of the PDS to reach poor households (Bank, 2011). Studies and reports also outlined the disappointing impact of TPDS on improving the nutritional and food security of poor in the country (Swaminathan, 2008; Svedberg, 2012).
Chidambaram’s government even ignored the recommendation of a High Level Committee (HLC) on Long-term Grain Policy (appointed by the government in 2002) to adopt a universal PDS after finding the failure of targeting in meeting its efficiency arguments. (Sen & Himanshu, 2013). The prominent motivations cited as the reason for targeting are the cutting of costs and thus reducing the fiscal deficit. Even if we were to accept the ridiculous notion that there is some sacred threshold level of fiscal deficit, there are obviously two ways of doing this, namely, mobilising more resources through increased taxation and reduced tax concessions to corporates. However, it is a mockery that a government ready to give away more than Rs. 20 lakhs crore as taxes forgone or in tax concessions to billionaires during its tenure (UPA 2) was not even ready to spend an extra Rs. 84,399 crore per annum for providing a universal coverage of PDS with raising the allocation to 35 kg/family (calculated by Centre for Budget and Governance Accountability (CBGA) in 2010).
With regard to the issue of cash transfer in lieu of food grains, Chidambaram earlier held an opinion in favour of the cash transfer as evident from the response given by the Ministry of Finance headed by him to the Parliamentary Standing Committee on NFSA:
“The Food Security Bill can be combined with improvements in the system of delivery, in particular, a system of giving the subsidy directly to the beneficiary in the form of direct cash transfers. This would, to a certain extent, avoid putting a heavy burden on the state machinery.”
It needs to be remembered that, based on this provision included in the act, the first Modi government had come up with The Cash Transfer of Food Subsidy Rules and The Food Security (Assistance to State Governments) Rules specifying the modalities for the state governments to shift to cash transfer system. The serious repercussions the cash transfer in lieu of food materials would create on the nutritional status of the country had been pointed out by scholars like Amartya Sen and Jean Dreze.
However, it was the Left parties, particularly the CPI(M), that were always in the forefront in the fight against the targeting of PDS and direct cash transfers, which were provided statutory colour through the NFSA during UPA’s term. The Act proposed a truncated PDS by reducing the coverage to 75 per cent households in rural areas and 50 per cent in urban areas, instead of the 82 per cent household that coverage existed until then. During the discussions on NFSA, the Left parties firmly opposed these moves both inside and outside the Parliament, and consistently demanded a return to a universalised PDS.
“The biggest flaw is that it remains grid locked in the framework of targeting – stipulating that 75% of the rural and 50% of the urban population would be covered by the Act. To make matters worse, the erstwhile Planning Commission even decided on the state-wise proportions. For example, in the state of Kerala, while 47.7% of its population resides in urban areas, the proportion covered under the NFSA is only 39.5%, when it is well known that a large percentage of the urban poor who are in need of food security. Instead of a universal Public Distribution System, only 46.37% of the population will now be covered under the NFSA. Similarly another highly urbanised state, Tamil Nadu has been given an urban coverage of 37.7% and rural coverage of 62.55%, whereas the State government has been implementing a universal and free scheme of supply of rice for several years” – The position of CPI(M) on NFSA, 2013 says.
The response sent by Brinda Karat, Politburo Member of CPI(M), to the Parliamentary Standing Committee appointed to look into the NFSA, unequivocally stated that the proposal for cash transfer in lieu of food grains would lead to the further weakening of the vast Public Distribution System of the country. She had cautioned the committee against the worsening of malnutrition and hunger status of the country that would result from the cash transfers instead of the provision of food grains.
The food security and the universalised PDS have figured as key concerns of the Election Manifesto of CPI(M) during both 2014 and 2019 general elections of the country. To work towards a hunger free India they promised the elimination of the present targeted system and establishment of a reformed and strengthened universal public distribution system excluding only income tax payees. They envisaged the provision of a minimum of 35 kgs of food grains for a family or 7 kgs of food grains per individual, whichever amount is higher, at a maximum price of two rupees per kg of food grains and repealing of the clause of cash transfers in lieu of food grains from the NFSA.
Besides his changed position of the public distribution system of the country, towards the end of the article Chidambaram makes a claim: “as a final resort, the government can monetise part of additional deficit, otherwise known as ‘printing money’” – a similar statement was made by the Finance Minister of Kerala, Dr. T.M. Thomas Isaac recently, receiving a multi-pronged attack even from Congress circles.
It is welcoming that Chidambaram and his co-author have ventured a complete reversal of his and his party’s stand on the public distribution system and deficit financing in their article. However, the one thing the nation wants to know is whether Chidambaram and the Congress party are ready to apologise to the people of this country for dismantling the universal public distribution system and wholeheartedly welcoming the Fiscal Responsibility Management Act (FRBM), which severely curtailed the fiscal capacity of the state in dealing with unexpected economic shocks like the current COVID-19 pandemic.
References
1. See Himanshu, & Sen, A. (2013). In-Kind Food Transfers – I: Impact on Poverty. Economic and Political Weekly, 48(45&46), 46-54 and Sen, A., & Himanshu. (2013). In-Kind Food Transfers – II: Impact on Nutrition and Implications for Food Security and Its Costs. Economic and Political Weekly, 48(47), 60-73.
2. Himanshu, & Sen, A. (2011). Why Not a Universal Food Security Legislation? Economic and Political Weekly, 46(11), 38-47.
3. Svedberg, P. (2012). Reforming or Replacing the Public Distribution System with Cash Transfers? Economic and Political Weekly, 47(7), 53-62.
4. NITI Aayog. (2016). Evaluation Study on Role of Public Distribution System in Shaping Household and Nutritional Security India. NITI Aayog, Development Monitoring and Evaluation Office. New Delhi: Government of India.
5. Radhakrishna, R., Subbarao, K., Indrakant, S., & Ravi, C. (1997). India’s Public Distribution System: A National and International Perspective. Washington D.C.: The World Bank.
6. World Bank (2011). Social Protection for a Changing India. Washington D.C.: The World Bank.
7. See Swaminathan, M. (2008). Programmes to Protect the Hungry: Lessons from India. United Nations, Department of Economic and Social Affairs. New York: UN/DESA and Svedberg, P. (2012). Reforming or Replacing the Public Distribution System with Cash Transfers? Economic and Political Weekly, 47(7), 53-62.
Aswathi Rebecca Asok is working as a Research Associate at the Centre for Socio-Economic and Environmental Studies, Kochi, Kerala. Views are personal.
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