With the government not able to withstand the Congress party’s political pressure and clearing an ordinance to implement the Food Security Bill—it was brought to the Cabinet in the past but deferred—investors are bound to be a confused lot. While recent moves of the government, such as the ones to try and increase FDI caps, to lower kerosene subsidies or to try and align gas prices with international ones were seen as reformist, the food Bill ordinance negates this at one stroke. Till now, with even allies like the Samajwadi Party opposed to it, there was the possibility that the Bill would not see the light of day if it was brought to Parliament. But with the ordinance, it means political parties opposed to the Food Security Bill will now have to vote against it—that’s a chance few including the BJP would like to take since it would firmly identify them as being anti-poor, never a great idea in an election year. And given that the costs of the Food Security Bill are estimated by the Commission for Agricultural Costs and Prices to be three times what the government thinks they will be, the immediate signal to investors is that politics is back in control and that the fiscal deficit is not sacrosanct. At a time when the current account deficit is already a problem and the rupee is under threat, this is the last signal the government would want to give.
What is even more worrying is that the Food Security Bill flies in the face of the government’s reformist program to try and use cash transfers wherever possible—with the PDS to be ramped up dramatically to meet the Food Bill’s needs, chances are the attention being paid to make Direct Benefit Transfers work will also be lowered. And while little thought has been paid to fixing the leakages in the PDS or to how to create the necessary storage so that FCI’s increased procurement does not rot, the Opposition states can have a field day if they like. As FE has argued earlier, this will set off competitive politics, indeed it already has. BJP-ruled states like Madhya Pradesh and Chhattisgarh already offer their farmers a ‘bonus’ over the price the central government-owned FCI offers to buy grain. The way the state can make up part of this is to simply jack up mandi taxes that FCI pays when it procures grain—in the case of Madhya Pradesh which offers an 11% bonus, hiking the mandi tax by 11% will make its taxes slightly higher than those in Punjab, but will ensure it is not out of pocket by even one paisa while the local government will get plaudits for being pro-farmer. Everyone loves food security.