Move is expected to help Congress gain significant political capital in the run-up to the 2014 general election
New Delhi: The government cleared an ambitious ₹ 1.25 trillion food security plan, promising subsidized food to two out of every three Indians, or just about everyone who needs it, by passing an ordinance to the effect in a move that is expected to help it gain significant political capital in the run-up to the 2014 general election and elections in several states this year and next, although the move will stretch New Delhi’s already extended finances.
Political opponents of the Congress, the dominant party in the United Progressive Alliance (UPA) government, and analysts questioned the wisdom of passing an ordinance just weeks before Parliament is scheduled to meet. The timing could make for a stormy session.
Credit rating agency Crisil estimated that the fiscal deficit for the year could rise to 5.1% from the previously estimated 4.8%, largely on account of the populist plan. On the other hand, the programme could lead to a rise in consumption, said Crisil, as it will leave more disposable income in the hands of beneficiaries. The rural jobs programme that began in 2005 had a similar effect.
The ordinance is in keeping with the UPA’s emphasis on entitlement, a theme around which it has drafted and passed key items of legislation, many of which have helped it politically. From information to jobs to education, and now to food, the UPA believes in universal access. The food security plan was part of the coalition’s manifesto in 2009 and, soon after returning to power, it promised that this would be implemented in its first 100 days in office.
An ordinance is an executive order to pass laws when Parliament is not in session. It remains effective for six months from the date of passage within which period it must be replaced with a permanent law that needs to be passed by both houses of Parliament.
“First of all they are trying to take the political mileage and they have not done their homework properly. If the bill comes up for discussion in Parliament, several things come on record. For example, it was promised in its 100-day agenda and the UPA is taking an ordinance route when they have just 100 or 200 days left in power, which shows it’s a ploy to reap political dividend," said Nirmala Sitharaman, spokesperson of the Bharatiya Janata Party (BJP).
President Pranab Mukherjee is expected to sign the ordinance and issue it later on Wednesday evening or Thursday. The monsoon session of Parliament is expected to be convened by the last week of July.
The BJP and the Left Front have also previously expressed their reservations about the ability of the food security bill to address issues such as malnutrition.
The ordinance cleared will provide 5kg of foodgrain per person per month to 67% of the country’s population at a subsidised price of ₹ 1 to ₹ 3 per kg. The so-called poorest of poor households that fall under the Antyodaya Anna Yojana programme will continue to get 35kg of foodgrain per household per month. And states and union territories will continue to receive at least as much grain as they currently do from the centre.
The plan was initially opposed by a section of the government that warned about its financial impact, but Congress president Sonia Gandhi was insistent that it needed to be implemented.
The Bill ran into trouble in Parliament, though, and the government’s most recent effort to get it through the house in the budget session failed. The session, like many others in the past four years, was disrupted by the opposition demanding action on, an investigation into, or the government’s resignation, over several corruption cases.
On 13 June, the Union cabinet decided that the government would either call a special session of Parliament or advance the monsoon session to pass the Bill. Both Gandhi and her son, Congress vice president Rahul Gandhi, were keen on the Parliament route, said Congress insiders.
That changed when it became clear that the other parties wouldn’t play ball. With the possibility of the monsoon session being interrupted over a controversial sweetheart deal that allowed Abu Dhabi to increase flights to and from India or an equally controversial investigation by the Central Bureau of Investigation into an encounter in Gujarat in 2004, Gandhi finally agreed to an ordinance, these people said.
Wednesday’s cabinet meeting, which cleared the ordinance, saw agriculture minister Sharad Pawar of the Nationalist Congress Party finally agree to such a move, said a person familiar with the happenings at the meeting who did not wish to be identified.
Some of the ministers did voice fears about the successful implementation of the Bill against the backdrop of the poor functioning of the so-called public distribution system through which the government currently serves poor people.
According to the ordinance, the Union government will determine the coverage of the plan across states, but the state governments have been allowed to decide who will benefit from it—either by using Socio-Economic and Caste Census data or framing their own criteria.
The implementation of the food security plan is expected to increase the government’s food subsidy Bill to ₹ 1.25 trillion a year from ₹ 85,000 crore in the year to March. The government estimates that it will need 612.3 lakh tonnes of food a year.
Economists believe that the implementation of the Bill will impact the fiscal deficit calculations of the government.
“We believe that the budget estimate of containing fiscal deficit at 4.8% (of the GDP) will be very difficult to meet if this Bill is implemented, unless the government does something on the divestment side where so far no action has taken place. According to our estimates, the fiscal deficit could touch 5.1% of the GDP given that it is less likely that the government will be able to cut its expenditures in an election year," said D.K. Joshi, chief economist, Crisil Research.
“The government will have to cut other subsidies like fuel more aggressively to keep the fiscal deficit in check," he added.
Crisil does see a silver lining, though.
In a report published in April, and reissued on Wednesday, Crisil Research estimated that the implementation of the food security plan could generate additional savings of around ₹ 4,400 this year for every beneficiary household.
“Food is a large part of the consumption basket for the poor. Access to cheaper food will leave extra money in their hands that could be used for health and education spends, thus improving their lot. But the devil is in the detail and the implementation of the proposed legislation. The identification of the beneficiaries is key and a huge hurdle, especially ensuring that the subsidised food reaches the poorest of the poor who are financially most excluded," Joshi said in an interview.
A bump in rural spending was one of the benefits of the Mahatma Gandhi National Rural Employment Guarantee Act of 2005. The resilience of the rural economy was one of the reasons why India was relatively insulated from the 2008 global financial crisis.
On Wednesday, opposition parties also raised unanswered issues about the implementation of the food security plan. BJP’s Sitharaman, for instance, questioned the basis for identifying the beneficiaries, a contentious issue. The Planning Commission, India’s apex planning agency, has already clarified that its data on so-called below the poverty line, or BPL, households will not be used.
“The government has said socio-economic survey will decide the beneficiaries. Would you please let us know what’s the cut-off? Whose money you are playing with?" Sitharaman said, adding that her party wants “universal" access.
That sentiment was echoed by the Communist Party of India (Marxist)’s politburo member S. Ramachandra Pillai, who claimed that in its current form, the plan excludes “around 25% of population in rural areas and around 60% in the urban areas".
Some analysts said that the UPA’s rush to pass an ordinance could well mean an early general election.
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