Manmohan's $10 bn pledge to Eurozone and why we shouldn't feel great about it
BV Rao | June 21, 2012
At the G20 meet on Tuesday, prime minister Manmohan Singh pledged $10 billion for bailing out crisis-hit Eurozone.
From being a regular seeker of loans and grants from the developed countries, we have now reached a stage where our prime minister can write a cheque for $10 billion in one stroke, on the face of it an admittedly small price to pay for an aspiring superpower.
As Indians, that must make our chests swell in pride. It’s good that we have excess cash that we can give away with such flourish. But before we pat ourselves on the back, here’s a grim reality check.
At around the time that Manmohan made the announcement in Mexico, his number two in the cabinet, Pranab Mukherjee, was holding perhaps his last EGoM (empowered group of ministers) to decide on another kind of excess: too much food grains.
Not for the first time in this decade, India’s food production and food procurement have broken records. As a result there is nearly 82 million tonnes (MT) of food grain with the Food Corporation of India (FCI) which does not know where to keep it. FCI has covered food grains storage capacity of just 63 MT. That is to say that nearly 19 MT are right now lying in the open.
The Rangarajan committee recommended to the government that 13 MT should be released to the poor through PDS (10 MT) and the open market (3 MT). That was expecting too much generosity of the government because back in 2010 when a similar situation obtained, the government preferred to let the excess food grains rot in the open than give it away free to the poor. It did not even heed an order of the supreme court because, it said, to distribute the grains free it would cost the government Rs 5,000 crore. A cost the country could ill-afford.
The government buys wheat at about Rs 12.85 from farmers. Storage, transportation and other costs add another Rs 5.35, taking it to Rs 18.20 per kg. But at the PDS outlets, it sells wheat at an average of Rs 5 per kg. Hence for every kilogram of wheat sold, the government loses about Rs 13 (very rough, back of envelope calculations). This is what is referred to as subsidy. Similarly for rice and other food grains which would take the total subsidy for releasing 13 MT to about Rs 17,000 crore.
But, excess food grain, you see, is not as easy to give away as spare cash. It is cheaper for the government and better for the economy to let the food grains rot than feed the hungry.
The Pranab Mukherjee EGoM was meeting to take a final call on this excess headache. It decided to pare down Rangarajan’s recommendation for release of 13 MT to just 8 MT to bring the subsidy burden down from Rs 17,000 crore to Rs 10,000 crore only, a saving of Rs 7,000 crore.
Back to Manmohan and his Mexico munificence. He gave away $10 billion, that is Rs 56,000 crore, in the blink of an eye. That is, he wrote off eight times more money to save the world than his finance minister saved by snatching away 5 MT of food from the plates of hungry Indians.
This place at the world’s high table sure costs a lot, a few million empty stomachs here in India. Suddenly, I’m not feeling so good about this superpower act. Are you?
PS: Of course, technically speaking, India has only pledged the money. It will be released only when badly needed. May be it won’t be needed at all. But that does not take anything away from the fact that while we are willing to give Rs 56,000 to the world, we are cutting corners when it comes to feeding our hungry millions.
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