FOOD for thought for Indian politics

I am proud to be in Indian especially when the country has such a wonderful Government and a compassionate political leadership.

Did you just have a frown on your face upon reading this? I’m sure you think I am sadly mistaken?

Well, you can’t be more wrong on this. The government is genuinely compassionate. Had it not been so, it would not have offered Food Security--an incentive to stay poor.

I would now set the tone right. Your initial response to my textual assault at your sanity was absolutely right. It was merely my attempt at being sarcastic.

As an Indian with an opinion I am appalled to notice the state of affairs in India.  

The country NEEDS to get rid of poverty but the government WANTS it to stay as poverty gives politicians enough fire to bake their collective bread of politics. Food security to almost 70 per cent of the population in a country of almost 125 crore people, is nothing but an incentive to stay poor and a brutal assault on the economy. The long-term implication of food security is scary. It is not just seemingly scary, it is bound to hit people like you and me and it is bound to adversely affect even those who would “benefit” from this political sham.

But the government justifies its decision saying, “We do not want the poor to stay hungry. We do not want a hungry India”. Will anybody tell them that it is poverty that leads to hunger and not hunger that makes one poor. The need is to throw POVERTY out of India, hunger will automatically follow suit. But the government is sadly busy fire-fighting instead of eliminating the cause of fire that’s slowly gutting India.

It is estimated that food security would cost us approximately Rs 1.3 lakh crore. But that's just the cost of procuring the grain and doesn’t include the cost of setting up the system and infrastructure to deliver the promise. Industry estimates say if you factor in costs like those involved in hiring manpower, ensuring storage and transportation, and other relevant costs, it will cost you more than Rs 2 lakh crore per year.

With such a state of affairs of the Indian economy, is the country ready to bear this recurring cost?

Also, it is an open secret that the country suffers a leakage of almost 40 per cent when it comes to disbursement of any sort of subsidies or benefits or entitlements. This means almost Rs 80,000 crore of the estimated Rs 2 lakh crore would go fake beneficiaries. This would obviously lead to more corruption.

To the lay, this government initiative of distributing benefits of economic development among the poor seems laudable. However, the government fails to explain how it plans to ensure proper and legal distribution of these fruits of economic development.

It is a fact that India’s supply chains famously suffer inadequate infrastructure and the distribution channels are peppered with corruption. Food grain production happens in surplus but food grains are left to rot for want of proper storage. The Food Security poll plank of the Congress-led government will only worsen the problem of food wastage as millions continue to starve.

Also, absurdly, the Government says food security would benefit the rural poor but it would instead hurt this particular section of India the most by reducing the market prices of food crops by increasing the supply of subsidized grain. Food Security may very soon prove to be a bane for the very target population it aimed to “benefit”.

The poor need to get rid of poverty, for the poor knows hunger is an effect of poverty. But a hungry man would first grab a piece of bread then think about getting rid of poverty. It is this very knee-jerk reaction of the poor towards hunger that the government is trying to play with. Instead of spending money on creating opportunities for the poor to get rid of his poverty, the government is incentivising the state of being poor. Stay poor as then you at least have Food Security.

We need legislations, which allows the farmers to profit economically and grow autonomous, we need legislations that give job opportunities to the poor, we need legislations that aim at capacity building and skill development of the jobless population and lastly, we need more jobs.

The government would have done a better job by providing market incentives, not charitable hand-outs like this.

India's Story: Let’s Talk Petrol And Onions And Dollars

If you are spending time to read my attempt at textual sanity after reading the headline, it is quite likely that India interests you. You must either be an Indian or someone who keenly follows what India is up to.

Well, in that case let me assure you that you are reading just the right piece of text.

The last few years, especially the last few months have been excruciatingly tough for India as a nation and as a country. The air, in India, hangs heavy with discussions pertaining to the falling value of rupee or the soaring price of onions or the spiralling cost of petrol. Sounds bizarre, but that’s what the ground reality in India is. Let us take this thought on a macro level and not get into the minute details of the situation, for that would only depress.

At the same time, let us face the reality that’s staring in our face. The Indian economy is at its lowest point, at least in the last 20 years. The much-hyped ‘Breakout Nation’ seems transforming in to a Breakdown Nation and Standards and Poor has already threatened to lower India’s credit rating to Junk Status.

Ruchir Sharma, Head Emerging Markets and Global Macro, Morgan & Stanley, was heard as saying, “The condition is worst since 1991.” A look at the statistics compiled by him, along with his team, only horrifies the weak-hearted economist. The number crunching by Morgan & Stanley throws up disturbing information.

Here is a quick look at few of the facts that should worry us or at least make us take things seriously.

A.     India is reeling under a short-term debt of $ 170 billion.  In 2008, it was merely $ 80 billion.

B.      FII in Equity went up to $ 14 billion till May 2013 and by August, 2013, it has come down by $ 2 billion

FIIs pulling out of India precisely because they lack confidence in India

C.      FII in Debt went up to $ 6 billion till May 2013 and today it has eroded by $ 10 billion

Yes, an overall erosion of $12 billion in flat three months. Should this not ring alarm bells?

D.     In 2008 India witnessed FDI of $ 48 billion and today in 2013, it is $ 27 billion

A clear-cut hint at lack of confidence in the India story

E.      In the year 2007, the Current Account Deficit (CAD) stood at merely $ 8 billion as compared to the $ 90 billion of 2013 

F.       The situation of Forex Reserves is equally dismal. In 2007, the country had a reserve of $ 300 billion to handle a CAD of $8 billion. In 2013, the reserve has eroded to $ 275 billion for a CAD of $ 90 billion

In 1991, the CAD was roughly around 2 pc of India’s GDP. In 2013, it has almost doubled to around 4 pc of GDP

There is much more to horrify but this should be enough for the moment.

So, having said that, is the escape route from poverty anywhere in sight? Is this just a temporary crisis or is it going to take a long while to ease up? Is it a global phenomenon or an effect of local idiocy?

“The situation, definitely, is grim but is not as bad as it was in 1991. It too can be managed.We also need to realise that the falling value of rupee is only a symptom and not the disease that ails India.

I am no Economist hence it would not be prudent for me to answer these questions. So, seeking answers, I engaged with PK Agarwal, a Chartered Accountant by qualification and a Senior Government Servant by profession. Agarwal, who works in the capacity of Financial Advisor to the largest State of India, is quite hopeful of the situation. He says, “The situation, definitely, is grim but is not as bad as it was in 1991. It too can be managed.”

Ask him the solution and he comes up with a holistic viewpoint saying,

“The day policies of political and economic institutions turn inclusive, situation would be much better. Also, the basic flaw with the India Story is complacency. It hit India in the late 80’s and took us to the crisis of 1991 and it again hit us in around 2007 and today in 2013 we are yet again staring at a crisis.”

On a more specific note, but in simple terms, he says,

“Fuel subsidies should either be done away with or minimised drastically as that would check demand of petrol and subsequently the prices would come down.”

He however adds,

“This is not the complete solution. Rather no single policy can address the situation entirely, but steps like these may help.”

When asked to recommend measures a common man can take to do his bit in addressing the situation, Agarwal offers,

“Avoid want-driven purchases and first address needs. Purchase of non-essential items is best avoided in such a scenario. Also, buy products from wholly Indian manufacturers.”

Well, the theory of Agarwal impresses on the face value but it may not impress the many. A few may feel that the train has already left the station and India shall simply have to wait, but eternal hopefuls like me would find opportunity in such a situation as well. The economy may be grim, but from here, all it can do is grow.

However, practicality must not get overshadowed by emotions and we must realise that India as a nation needs to get rid of its complacency and policy paralysis that hits it every now and then. We also need to realise that the falling value of rupee is only a symptom and not the disease that ails India. And we must also not forget that currency panics are hard to handle so the best is to respond to the situation and not react to it. It never pays to act in the midst of a crisis.

It is time the national leadership evaluates the situation and not extrapolates it. At this, some may raise the bogey of economic reforms. But economic reforms alone would not help India. We need reforms in the Health sector, in the Education Sector, in the Judiciary and in all sectors that  affect us as individuals.

It will take time to undo the damage done to the country. So, let us start thinking of ways to make India a better country and help the nation get out of this economic crisis.