The Strange Calculus of Surjit Bhalla

Mr Bhalla has written an alarming piece in the Indian Express estimating that the Food Security Bill in the first year alone will cost 3% of the GDP. His assertion is based on using the NSS consumption figures from 2011-12, and then calculating the factor by which the subsidy will increase with increased coverage, offtake and reduced price under the NFSB. He thus calculates that the subsidy will increase by a factor of 4.36. He then multiples the current food subsidy expenditure of Rs 72K crore by this factor of 4.36 to arrive at the alarming figure of Rs 314K crore!

Mr Bhalla, in his inimitably irate style writes,

Before proceeding further, I want to set up some ground rules for discussion of the FSB and the poor. In a recent panel discussion on CNN-IBN, noted food security expert and principal advisor to the commissioners of the Supreme Court, Biraj Patnaik, alleged that I “molested” poverty data. For long, I have held the belief that policy discussion should be centred on evidence, not ideology, and especially not, “you have to believe me because I am arguing for the benefit of the poor”. Hence the title of my column, “No Proof Required”. So when you look at the evidence presented in this article (above, below and in the table) please inform me which piece of data, or estimate, or conclusion, is incorrect, and whose evidence is proof of molestation

Here goes.

The basic premise of this calculation is wrong. NSS data for PDS access reflects effective coverage, and includes estimated PDS leakage (~40%). In essence, Mr Bhalla is calculating the increase in subsidy under the NFSB by dividing the proposed coverage (67%; 5 kgs) by effective coverage (44.5%; 2.1 kgs)! This is completely incorrect because the government outlay does not account for leakages (that is additional allocation is not made for leakage). Mr Bhalla is effectively calculating the cost of a food security bill which covers 112% of the population and not 67%.

Since when have budgetary outlays been calculated this way? Mr Bhalla could have used the current stated coverage as a baseline to calculate the increase in subsidy. Or he could have done what everyone else is doing – calculated ground up using population estimates, proposed coverage, admin costs etc. Why Mr Bhalla chose to use this unconventional method is clear, and has to do with his ideological predilections and not to undertake a real investigation into the cost of the FSB. Mr Bhalla may argue that this is the cost if the bill was “honestly implemented” – but that’s really an absurd argument completely divorced from both political reality and the ABCs of budgeting. In any case, can the estimated cost of any targeted welfare program be more than that of a universal program however much leakage?  Even in a universal PDS, it is likely that offtake will not be more than 70%-80% since the upper income groups opt-out of the PDS given the inferior quality of grain.

Mr Bhalla concludes,

This is an open challenge to Sonia Gandhi, Manmohan Singh and P. Chidambaram. Your minions are stating that the ordinance-induced food subsidy bill will only increase by about 25 per cent and will amount to 1 per cent of the GDP. I get a conservative increase of 336 per cent, or a total subsidy level of 3 per cent of GDP with an honest implementation of the bill, sorry ordinance. One of us is massively wrong. I believe it is not me. But prove it otherwise

Who is “massively wrong”? I believe it is Mr Bhalla.

Update (July 27, 2013): Dipa Sinha Rebuts Estimates by Surjit Bhalla and Ashok Gulati

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11 responses to “The Strange Calculus of Surjit Bhalla

  1. Woha. What an article. The article assumes either –

    1. All the inefficiencies and corruption of PDS would magically disappear. Or,
    2. If the inefficiencies and corruption remain, the FSB won’t provide food to all the targeted population.

    Either way, it is wrong.

  2. Very Interesting. So all the leakages from PDS will disappear. Here, I just waved my magic wand :)

  3. Exclusion error? Not really. The intention of FSB is to provide affordable foodgrains to the poor. Given the fact that the inefficiencies of the system won’t go away, Mr Bhalla has rightly calculated the cost of FSB on GDP. Otherwise FSB would not be fulfilling the very basic need for which it is being set up.

    • I am not. You are providing a hypothetical reasoning which is far away from reality. If you are sure I am wrong, please provide a credible argument rather than deflecting the issue.

      • Ambarsariya: you will agree that I may lack interest in continuing a discussion with someone who hyides behind a pseudonym and does not demonstrate a substantive understanding of the issues involved. I will write a separate post on leakages in rights based programs sometime soon – hopefully you can check back then.

        • Well, I could have posted under my real name, however, I was brought to your blog through reddit, a site where I would definitely like to maintain anonymity.
          I fail to understand that how you could arrive at a sweeping statement that I do no demonstrate a substantive understanding, especially when you don’t know my background. Also, you have not posted even one credible argument against my replies and for some reason have always tried to deflect the queries. Maybe you need to introspect and see if you really have any substantive understanding of the issues.

  4. Ruchi, as much as I appreciate ur taking the concern, but I should admit ur article does fail to convey the message you want to put across. U can argue about mine naivety on the matter but I really doubt the economist and intellectuals as being the target audience & purpose of a blog than a common man, for whom u can decipher the jargon’s in more subtle way :)

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