The Food Security Bill is on hold for now. This pet project of the Sonia led National Advisory Council (a wasteful body, comprising of a few left liberals, including a know maoist sympathiser on bail, and who has absolutely no accountability to anyone) basically called for nearly 60% of India's population to be given food at highly subsidised rates of less than Re 3 per kg. This would have resulted in increasing the subsidy burden of the government by another One lakh crore, though more realistically it is closer to Two lakh crore. On the one hand Government has been taking a tough stand on reducing subsidies on Petroleum products or fertizers claiming it cannot afford, and on the other hand it wants to increase the subsidy on food. We do have a major supply side constraint on food. The farmers are not getting fair prices for their produce making them move away from farming. The area under cultivation is dwindling, and with the Government hardly taking any initiative on the second Green Revolution, the per acre productivity has remained stagnant. With the Food Security Bill in place, Government would have found it extremely difficult to increase the support price of food grains, adding to the woes of the farmer.
And would the poor have benefitted. Not in the way Government expects. If Sonia and NAC thinks that poor will buy and consume Re 1 or Re 2 rice, they are living in blunderland. Poor have more dignity than what these clowns assume they have. And the basic food the proposed bill is aiming to give are essentially Giffen Goods (google it if you dont know what a Giffen Good is), the purchase of which wont be compromised by the poor (and consuming poor quality Re 1 rice is a compromise for them). And this beats the fundamental economic principle that the same good should not have differentiated prices in an undifferentiated market!
I was reminded of a story narrated by a Tamilian Taxi Driver. He used to depend on small roadside hotels and iddly shops to eat iddly and dosa, while on duty. As anyone knows, some of these small roadside iddly shops serve delightful iddlis and dosas, and are very inexpensive. But ever since the Tamil Nadu Government started doling our Re 1 rice, the quality of these iddlis and dosas have deteriorated sharply to such an extend, that they are unpalatable, as per this guy. The reason? The poor happily collect their Re 1 rice from the Fair Price shop, and then, instead of taking it home to cook, they make haste to the nearest iddly shop to sell it at Re 4 or 5, pocketing the difference (because the Re 1 rice is of such a poor quality that no one will even dream of eating it). Thus, if he gets 35 kg of rice, he makes a profit of Re 140, and use it to buy 10 kg of higher quality rice, which he doesnt want to give up, as it is a giffen good!. The shop keeper is pleased because he gets rice at Re 5, against the market price of Re 15, and his cost of inputs have gone down substantially, increasing the profit margin, which was getting squeezed due to inflation. But in the bargain, quality is given a go by, which affects his business in the long run. But hey! who cares. One of these days the Economic PM shall allow FDI in Food Retail, which will anyway make him redundant, like the FDI in retail will do to the petty shop owners!
