There was a lot of expectation that specific reforms would be announced in Budget FY15 regarding the operation of subsidies in India. None came—indeed, the Budget has been criticised by many for lacking any reforms on expenditure policy. Pointedly, many analysts have concluded that Budget FY15 is just another UPA-Chidambaram budget.
However, what was announced in the Budget is that the government will create a commission to look into the entire nature of our expenditures, with specific emphasis on poverty elimination. And the biggest such item is the Public Distribution System (PDS) of foodgrains meant for the poor.
In a recent India Policy Forum lecture (India: Changing Mindsets, Accelerating Growth, and Reduced Inequality), I made the simple point that the mindset that has produced policies like the Food Security Act (FSA)—which mandates that two-thirds of the Indian population are deserving of food subsidies—and NREGA , a jobs entitlement program for all of rural India, needs to be junked before India can look forward to realising its destiny of being an 8 %-growth economy and a major emerging power on the world stage. The Sonia Gandhi-led UPA mindset was inconsistent with the belief that India can be anything but a poor country, not much different than the nightmare concocted by Swedish Nobel prize winner Gunnar Myrdal in the late-1960s—the three-volume Asian Drama, from 1968, in which his contention was that Asia was doomed to be poor forever. Myrdal can be forgiven for speaking too early, and being wrong, but what do you say about politicians, and policy makers, and their intellectual advisers who still believe in 2014 that Myrdal was right and that India is a forever-poor country?
In 1968, India’s per capita income was around $100 per person per year. When the food security law was passed last year, India’s per capita GDP was 15 times higher. Yet our mindset was pursuing the same policies as fifty years earlier—indeed, expanding them. The PDS system has been in operation since 1942 when it was introduced to counter famine conditions in Bengal. It was expanded over the years and became a full-fledged all-India operation around the time of Myrdal’s book. The food-/cash-for-work programme was first introduced in 1973 in Maharashtra, and introduced primarily to provide incomes to very poor people during conditions of drought. In 2005, Sonia’s government introduced an act of parliament