Business, Finance & Economics

Should India fight starvation or the deficit?

How much is it worth to end hunger?  

That's the question that economist Jean Dreze asks in a thought provoking editorial in support of India's proposed Food Security Bill.  

While others have argued that the food bill will bankrupt the nation, not only sending the deficit spiraling out of control but also derailing economic growth in the process, Dreze claims fears about the bill's cost are "alarmist."  First off, the external cost estimates have jumped from the government's figure of $5.4 billion to $20 billion or more "in a series of misleading comments," he argues.

A sample:

Some reports linked the finalisation of the Bill to an alleged stock market crash (‘who will feed the sensex?’ lamented one of them), and one headline even held it responsible for huge jumps in the cost of insuring against default risks (‘credit default swaps’) not only in India but also in China, Brazil and Russia! Other headlines of interest include ‘Reckless food security largesse could bust the bank’ and ‘Will the food bill be the last straw that breaks the Indian economy?’.

Whatever its flaws or merits -- others have pointed out that subsidies for food grains will create market distortions and shortages of other crops, for instance -- Dreze points out that even if the food bill does wind up costing more than the planned $5 billion, the hit isn't going to come all at once.  So a lot of the cost could well come when India's economy is zooming again, not this year while it's in the doldrums.

What is at stake, therefore, is not an immediate financial blow, but the ability of the Indian economy and public finances to accommodate this Bill over a period of time, in the light of economic trends. These trends include rapid economic growth, even faster growth of public revenue, sustained increases in foodgrain procurement, and, more recently, major improvements in the PDS in many states. This is a favourable environment for a food security initiative.