Why The Congress Party is Pro Big Government

Back in 2009, just before the general elections, I had advisedĀ people to vote for the NDA. My argument there was that irrespective of the relative merits and demerits of the parties leading the two coalitions, the BJP was a more likely candidate to lead a reformist government for it was not the incumbent. Incumbent governments tend to get cozy with unelected people who are in power (for example, leaders of PSUs, unions, civil servants, etc.) because of which they are loathe to take up policies that cut the power of such people. In other words, they are loathe to take up reformist steps that decrease the size of government.

The same argument can be extended to argue why the Congress is inherently a pro-government party. The fact of the matter is that it is the party that has been in power at the Union government for most of our history. This means that a large part of the unelected government organization has its loyalties with the party. Consequently, the party too sees itself as being loyal to this cadre, and will not pursue policies that cut down their power.

This explains why the Congress-led UPA1 government decided to reverse the earlier NDA government’s decision to repeal the Essential Commodities Act. It explains why the Congress-led UPA1 government did not pursue the reforms in the APMC act that had been set in motion by the earlier NDA government. This also explains why the Congress-led UPA2 government is trying to push through the Food Security Bill, which seeks to increase the role of the government in the agricultural supply chain.

The reforms that the UPA governments have been trying to pursue are those that do not significantly impact its unelected-government-organization constituency. Foreign investment in retail, for example, will only affect the retail industry, and the government doesn’t have much skin in the game there. The Indo-US Civil Nuclear Agreement again doesn’t trample on government feet. Conversely, nuclear energy is a field where a compelling argument can be made in favour of a government monopoly, so that agreement will only increase government participation in the energy sector (note that I’m not against the deal. I’m only trying to explain why it is acceptable reform for the Congress). The MGNREGA again brings in several thousand more people into the government folds. The only exception in the list of UPA-led reforms that might challenge big government is the Right to Information, but that act was passed in the infancy of the UPA1 government when it was much more beholden to the National Advisory Council (NAC) than it is today.

So what explains 1991? Two things. Firstly, it was a whole bunch of low hanging fruit. Though government was reduced, the resulting incremental growth increased the size of the pie so much that the proportion of the enhanced pie that the unelected-government-organization had access to was enhanced. So from a rational tradeoff perspective, it was the right thing to do. Secondly, and more importantly, the reforms were inevitable. The Indian economy was in such bad shape that there was no way out but to do those reforms. So holding up 1991 as proof of the Congress Party’s reformist credentials is wrong.

But what is the guarantee that a non-Congress government will pursue reforms that could reduce the size of the government? They fully recognize the fact that large parts of the unelected-government-organization cadre are beholden to the Congress party, and they will want to cut this constituency down to size. Hence, they will work towards reforms that will reduce the size of government. Yes, there is no guarantee that they will not open up other fronts that will increase the government’s footprint, but they are unlikely to do worse than a government involving the Congress.

Revising the Food Security Bill Numbers

Mohit Satyanand replied to my earlier post on Food Security Bill with a couple of comments. He mentioned that only about 40% of the beneficiaries are going to get rice while the other 60% are going to get wheat. He also pointed me to the site of the Food Corporation of India where they give the official “all in” costs of rice and wheat (Rs. 27 and Rs. 19 respectively). I still believe that the wholesale market price is a better measure of the all-in price, but it would be useful to see what the subsidy number works out to given the official government numbers on prices.


Notice that the total subsidy has now come to about 6% of the budget, which is still massive. There are of course other problems with the bill – such as distortion of markets, but those are outside the scope of this blog so I’ll stop here.

Food Security: Making sense of the numbers

I’m not convinced by the official figures for the subsidy that is required for the food security bill. According to my calculations (shown below), it is likely to be a whopping 11% of the budget, and this is excluding administrative cost.

I bought rice this morning from the kirana store close to my house. I paid Rs. 48 per kg, and it was not the most premium quality. Assuming that the food security act will provide rice that is of slightly inferior quality, and taking out the retailer’s margin, I think assuming Rs. 40 per kg is a fair estimate for market price of rice.

I’m pasting a screenshot of my spreadsheet here:


As you can see, the proposed bill intends a subsidy of 11% of India’s budget this year (to put that in context, the Fiscal Deficit is 5%). Also note that the calculation above doesn’t take into account the administrative cost of implementing this scheme.

Errata: The sixth line in the spreadsheet should read “subsidy per person per year'”. The numbers, though, remain the same