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Two welcome measures from the chief minister...

In recent days there have been two good news, apart of Dr. P C Reddys averment that Chief Minister Jayalalithaa has recovered and raring to return home.

Two welcome measures from the chief minister...

THESE RELATE TO the Tamil Nadu government falling in line with the requirements of the National Food Security Act (NFSA) and the Ujwal Discom Assurance Yojana (UDAY) with few modifications in favour of the state. On both these issues the state has been stubbornly resisting to fall in line with the rest of the nation. 

The civil service in Tamil Nadu has been known for its efficiency. From the time of T A Verghese who held the finance secretary’s post for the longest tenure and who commanded the respect of Delhi, the state has been alert in getting the best allocations from the Centre and has often been over-zealous in making even unsustainable demands.

Add to this, the needs of the political leadership of humongous resources for its welfare schemes and fabulous freebies. It diligently does its homework and makes claims on the Centre in a convincing manner to draw the best of allocations from the Centre. 

 

Reaching the voter through the stomach...

The Dravidian parties have understood the efficacy of winning the esteem of the public by reaching thorough their stomachs. The major plank of the 1967 elections that catapulted the DMK to power was the offer of three measures (around 4.8 kg) of rice per rupee. This worked out roughly to around 21 paise per kg! Administratively it could not be implemented in full though. 

Over the years rice has been effectively used in the successive election platforms of both DMK and AIADMK. M G Ramachandran, the founder of the AIADMK, introduced the free midday meals scheme for school students and destitutes benefiting around 80 lakh - at that time over a sixth of the state’s population. Later this scheme was adopted by the Centre and extended to all states. 

If the DMK offered to supply rice at Rs. 2 a kg, the AIADMK had to do one up: it offered rice free. Tamil Nadu also adapted universal subsidisation of rice supplied to all ration card holders. The scheme provides 35 kg of rice per month for free for the poorest sections and 20 kg free for other card holders that numbered around 192 lakh; this meant the entire population of the state. The state has been well-organised in setting up thousands of PDS outlets. 

 

Limit subsidy to the poor...

The basic intention of a subsidy is to take care of the weakest and most vulnerable sections of society by making goods and services affordable by these. For long, the government has been using various methods to determine the minimum earnings required for sustenance in terms of food, clothing and other basic necessities. It arrived at this figure and used this to describe people who do not earn at this level as people below the poverty line (BPL).

The UPA II government introduced the National Food Security Act (NFSA) to provide subsidised food to cover 75 per cent of the population. Under this, for the beneficiaries selected under the BPL category, five kg of rice per person per month is offered. For Antyodaya Anna Yojana (AAY) category of poorest families it would be 35 kg per month.  Nominal prices of Rs 3 per kg for rice and Re 1 per kg for wheat were fixed. Government of India agreed to bear the differential in cost and the issue price.

Of all the states and UTs, 34 fell in line with the NFSA. The two exceptions were Kerala and Tamil Nadu which adopted the universal PDS.

 

Taking the easy way out...

Even at the Central level there have been various estimates of determining the poverty index. It should be conceded that it is not easy to fix this index. In the highly politically organised states of Kerala and Tamil Nadu, this issue is even more difficult. So the states have chosen the easy option of universal PDS. See how bizarre this can be:  in Kerala, of the 82.31 lakh ration cardholders supplied rice at subsidised rates, 61.54 lakh were above poverty line! In terms of consumption expenditure, whether that related to luxury items like cars or liquor, the state has the highest proposition of consumers. Eternally deficit in food, the state has been enjoying the largesse of the Centre.

 Tamil Nadu also has a similar case. Statistically two crore cardholders are stated to be availing rice supplied free on this basis. The state has been drawing rice cheap from the Centre. For BPL cardholders, the state supplied 20 kg of rice free and drawing additional supplies at Rs 5.65 per kg. For those above poverty line it has been drawing rice at Rs 8.30 per kg. With procurement prices of the Centre increasing, carrying costs ballooning and with its own revenues not expanding as per estimates, the Centre has been looking at cutting down subsidies. It succeeded in a large measure in regard to supply of LPG, diesel and other petroleum products. The effective use of digital technology under the Aadhaar platform was also a big help.

Tamil Nadu has now agreed with a few modifications to fall in line with the NFSA after the Centre revised the issue price for above poverty line people from Rs 8.30 to Rs 22.54 per kg. On fear of severe political backlash from other parties, the state has opted to maintain universal PDS.  In this bargain it will incur an additional food subsidy of Rs 1193 crore.

 

Centre’s focus on subsidy reduction...

The state, as much as the Centre, have compelling reasons to look at generating revenue surpluses. The Centre has been experiencing a slowdown in economic growth post 2010-11 with corresponding fall in the growth rate of tax revenues. A higher devolution to the states and the huge impact of the seventh pay commission should have turned the focus on the huge quantum of subsidies. The government has succeeded to an extent in reducing the subsidy to the oil and fertilizer sectors and has now turned to the quantum of food subsidy. 

An immediate impact on Tamil Nadu is the reduction in the numbers who will benefit as priority households under the NFSA: from the earlier 192 lakh rice-drawing cards, the new dispensation would reduce the priority household cards to 97.19 lakh. Coverage under NFSA would now be 365 lakh of the state’s population forming a little over half.

 

State finances not in great shape...

This is a watershed for the Dravidian rule, now on its 50th year, providing the opportunity to work on the long term health of the state. Chief Minister Jayalalithaa had broken from the earlier practice of the Tamil Nadu governments of the last five decades to announce the Vision 2023 document promising to take the state on par with the living standards of developed countries. But its realization is predicated upon the state generating handsome surplus resources. This has been just woeful. Three items of expenditure – salaries and pensions to government employees, subsidies on various welfare measures and debt servicing- together account for far more than revenue receipts. This compels the state to go for more loans from domestic and multilateral institutions to take care of minimum development expenditure; this means higher costs on servicing the additional debt. Already public debt of the state is around Rs 250,000 crore.

The fact of the state approving these two major changes despite years of resistance, augur well for the development of the state over the longer term.

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