Govindraj Ethiraj, Editor, IndiaSpend in conversation with Dr. Surjit Bhalla, Chairman, Oxus Investments on the Food Security Bill, various subsidies, the Public Distribution System, funds allocated, unaddressed leakages, importance of sanitation and more... Govind: We continue our investigation into the whole subsidy debate and specifically on the Food Security Bill. Using that as an illustration to understand the larger welfare architecture that seems to be building up in India today. What are the damages, the sort of impact it could have if it were not to work in the manner it was outlined or perhaps not work at all. Joining me today is Dr. Surjit Bhalla, Chaiman of Oxus Investments and also well-known economist who is also writing quite extensively on the food security bill in the last few months. Dr Bhalla thank you very much for speaking with us. I’m going to ask you 3-4 different types of questions and let see if we can build up this argument a little bit and we’ll come to Food Security Bill a little later. Let’s understand this new welfare architecture that the Union of India is building with NREGA, the Right to Education and now we have Right to Food. So where did this begin and where in your opinion did this wear off from its original path and if there was a path at one point. Surjit: Couple of important corrections, if I may to what you said when you say the new welfare architecture. The true components were the Food Security Bill i.e. food subsidy and the other component you mentioned was the employment programme, NREGA. One of the craziest things is that the Congress, UPA has claimed invention of them. The first food for work programme was started in Maharashtra in 1973. Somebody there, the Maharashtra government invented this scheme. Second, the food subsidies have been in operation since about the mid70’s. Indeed, what would be useful for all of us to keep in mind is that when Rajiv Gandhi in 1985, said that only 15% of the money meant for the poor, actually reached the poor. He was talking about the PDS programme. We have had the PDS system and NREGA in existence for atleast 40 years. So what is new? What is new is the expansion of these programmes. And if you will, the Congress clouding it in rights. Rights form when it comes from the Pope in these cases, Amartya Sen, Noble Laureate that these should be rights. So therefore they have to be enacted as acts of Parliament. NREGA was enacted as an Act in Parliament in 2004. It was indeed, the very first on the agenda of the UPA. Now when they’ve brought the Food Security Bill, when asked, what is the big difference? They say this is a right and a person can sue the government if he/she does not get their right to appropriate right to food allocation just as a person can sue the government if they did not get 100 days of work. Now Govind, can you please tell me how many cases have been there on the NREGA programme? Govind: I’m guessing absolutely none. Surjit: Absolutely. So there you get the answer. This Act of Parliament by clouding it in terms of rights and then for Amartya Sen to go out and say that each day the Food Security Bill is not passed, is atleast a 1000 people dying and we let it go by. Why do we let it go by? Some of us complain, when the CAG came out with outlandish figures more than the telecom sector and how much we have lost and the coal, and we call them names. Why aren’t we calling Amartya Sen names for coming out with that outlandish statistic. Govind: Let me take you a step back. You did talk about the 70’s, its an interesting arc, the creation of these subsidies in the 70’s and the creation of the rights regime 40yrs later and I’m sure there are good political-economic reasons for it and we can debate that separately. If you were to look at the original leakages argument, a very important point we fail to address. What are the other areas subsidies could have worked if they were channelized properly? Surjit: Subsidies could have worked anywhere if channelized properly. Now let m tell you, I find one of the more objectionable items, I’m afraid the media hasn’t played its checks and balances rolled as it should have. Lets just look at the origins of the Food Security Bill. Rahul Gandhi said yesterday, hereby the Food Bill will banish hunger. Please interrupt me if you think I’m misquoting. So that is what they claim. So the first time they introduced the law or the ordinance or whatever else they call it. Then it turned, lets look at the evidence on it. The evidence on hunger is almost non-existent. The NSS has been asking this question since atleast 1983 but we only have the raw data. How many members in your family did not get two square meals a day in the preceding month? That number was 15% in 1983 which is a very large number. We are talking millions, hundreds of millions. In 2004 that number was about 1% and after the 2004 survey they have stopped even asking that question because there isn’t anybody who is responding that they went hungry at night. Let us take that out of the way. People maybe poor but they are not hungry and starving. They these guys said it’s not so much hunger than it is nutrition. In terms of the nutrition intake which people have been decreasing the calories they consume and poor people have also been decreasing the calories they consume. The middle class people have also been decreasing the calories they consume. Then we have that there isn’t really much of a nutrition problem because people are consuming less and less on their own. Then they come up with a statistic that we need to give food to the poor not because there is hunger but because the children under the age of 5 in India have a height for age which worse than several Sub-Saharan poor countries of Africa. It turns out that, that is a fact. Study after study have shown that this is the case. Arvind Panagriya looked at this and looked at various examples where that this does not hold true and basically has to do with genetics and this debate has been going on. What explains the fact is that leading scholars like Dean Spears and Jeff Hammer have published recent studies showing that the entire difference in the height for age of Indians compared to Sub-Saharan Africa can be explained by one variable only. That variable is area under open defecation. So its water, sanitation and toilets and not he Food Security Bill. This is where is the biggest failure of the government likes to doubt these things but also every other govt. This has not been taken care of by the govt. Govind: Dr.Bhalla, I’ve seen similar examples. The rate of girls dropout from school was not what many people thought but because of lack of sanitation in schools. I guess the case is how you layer different kinds of data alongside and come up with a finding like you just did. To give the devil its due, its possible nobody thought of this solution and plod on with whatever solution they thought was most effective. Surjit: We can’t give the devil its due because as you rightly said, maybe we didn’t know about it. Let’s look at the 19th century that is about a 150 years ago. In the west, in Europe and the US, there was no medical advances. Yet life expectancy and health progressed radically. What happened? Plumbing, toilets, water, sanitation, public goods. The government provide it. It wasn’t the private sector. This is the job of the govt. Governments have done it in other countries. Why hasn’t the government done it in our country? The Congress let by Nehru is a very elitist. They are the last people who are concerned about the poor. They are the Numero Uno elites. In the 1950’s & 1960’s they said we have to expand education and where did we do it? At the top most university level. Instead what every other country was doing was including China and Bangladesh was education in the primary and secondary level because their leaders were not elites like the Nehru-Gandhi family. That is the problem. Govind: Are you saying it’s the same thinking, again to use to welfare architecture as an analogy, the same thinking that is driving the creation of the rights regime in food and other areas. Surjit: You can’t get more elitist that Amartya Sen. Here we are imposing it on us when we can’t even provide water and sanitation. Govind: Let’s place that argument on the table and move on to the implementation of this. Assuming, let’s say the targeting quality is let’s say 20% or 30% better either thanks to UID or thanks to cash transfers in bank accounts where beneficiaries are better identified than ever before. You think that could make a difference in the way that could impact the exchequer. Surjit: There is no question in my mind that if you had cash transfers the leakages would be considerably less by an order of several magnitudes. At the same time let us not kid ourselves that corruption will go to zero. If you ask me, how do we help the poor the best? I would say first by water and sanitation, a massive programme in which corruption will be less and there won’t be rotting food. Who make use of rotten food? The liquor trade. If I’m right in my speculation, I don’t have evidence but I economics we have assumptions. This is the most perfect substance scheme you can imagine. You are doing it in the name of the poor and it gets written off. Govind: So you are saying the problem is still at the first phase of supply which is from FCI. Surjit: The Food Corporation is the most corrupt institution in the world. The FCI as well as NREGA are two very corrupt schemes. Govind: Last question. If assuming the quality improves now, let say better access to technology as compared to what we had in the 70’s. There is more public awareness and gaze the way the money is being spent and perhaps awareness in the supply chain. Since all the Acts are now in force, my question is if we had to look at it practically how can we improve the scrutiny at the various phases of food? Surjit: There have been many well-meaning people like yourself who say listen how can we improve this? 55% of the food that the government says it has sent to the ration shops doesn’t reach the ration shops. A decade ago that was 65%. Govind: Let me ask you the other question, we’ve run out of time on this one, but we’ll circle back. If we were to look at the aggregate of these schemes and come back to that arc we’ve traveled to from the 1970’s. We are obviously a more developed economy and have greater aspirations. How in your mind should we looking at this whole equation of keeping the economy growing and at the same time taking care of those who are getting left behind either through subsidies or other form of ensuring that people are taken care of as any democracy would? Surjit: Taxation has been there for hundreds of years. Taxes is meant for redistribution. Now, your question is what we should do in order to do things in a much better way. It is our responsibility in a democracy as they can throw you out. So number one, cash transfers. Number two, public goods that primarily benefit the poor or the bottom half. I’m talking 50% of the population. Public goods like water and sanitation, primary and secondary education. You would say we’ve had primary and secondary education, what more do you want. More school teachers? No. Voucher systems. So therefore you give cash transfers for healthcare, for education and there is cash transfers for a better life. Very simple. You do it and let the poor choose. You provide them with the money and that is where taxation comes in and let people choose. I should have a choice of which school my kids go to and which healthcare official I go to. Whether that healthcare is called public sector or private sector, it is not of anybody else’s concern. And how corrupt the governments are, especially the present government in terms of saying we need more of this. Rather than saying we want to give more money to the poor. We want the poor to lead a better life. We want the poor to have democratic freedom and choice. Govind: Right. Dr.Bhalla, I think we have run out of time. You’ve taken us through a small journey of subsidies and then used the Food Security Bill to build the argument of why it should not be there in the current form. I think you made an interesting point about the redirection of public goods towards areas like water and sanitation and we would look forward to your piece on sanitation. It would be interesting to see how that ties up with the government’s own effort of sanitation campaign. All these multiple schemes, the fact that they come together or they don’t come together and what impact it has on our economy and society. We are going to come and talk to again. Thank you very much for speaking with us today. Surjit: My pleasure. Thank you.