Why free rations don’t dent the India growth story

Outside the Eco-Chamber

The British economist Joan Robinson once said, “Whatever you can rightly say about India, the opposite is also true.” The current economic scenario is an excellent example of it. In 2023, as per the World Economic Outlook (WEO) projections made by the IMF, global growth is expected to be 3 per cent. The advanced economies are expected to grow at 1.5 per cent, the emerging market and developing economies 4 per cent, China at 5 per cent. The Indian economy is expected to grow 6.3 per cent. In 2024, the WEO expects global growth to be 2.9 per cent, and Indian growth 6.3 per cent. So, India is the shining light in a global economy that is slowing down.

While all this is true, earlier this month, PM Narendra Modi announced the extension of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) for five years. The scheme distributes 5 kg of food grains (primarily rice and wheat) per month to around 81.35 crore beneficiaries, free of cost.

So, we have a situation where India is expected to grow at a fast pace of higher than 6 per cent in 2023 and 2024, and at the same time, a large part of its population will continue to receive free food grains from the government. This is in line with Robinson’s truism, and it raises several interesting points.

First, what have been termed as revadi (freebies) -- by the BJP when other parties give them out -- have become the order of the day for the BJP as well. Shrewd politicians have a feel for what is happening on the ground and they have an incentive to at least try to show that they are addressing that. Modi is a shrewd politician.

Second, a whole host of data shows that a large part of the economy hasn’t really recovered from the after-effects of the Covid pandemic. Take the case of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). The work demanded under the scheme from April to October this year has been around 9.5 per cent higher than the work demanded in the same period in 2022. While the work demanded this year has been lower than the work demanded during similar periods in the Covid years, it is higher than in any of the pre-pandemic years. NREGS is a self-selecting scheme, given the low daily wages that it offers. It’s only when people are desperate for work that they demand NREGS work. That the number of households demanding it is still greater than in the pre-pandemic years tells us that the state of the rural economy is not really great.

There are other data points, too, that buttress this argument. Rural teledensity has been more or less flat for the last five years. Sales of entry-level two-wheelers continue to be in trouble, and fast-moving consumer goods companies continue to talk about the subdued rural demand. Further, high food inflation increases rural stress. Rural food inflation from April to October this year has averaged 6.6 per cent, against 7.7 per cent in the same period last year. So, food prices are considerably higher now than they were two years back. Food forms more than 47 per cent of the rural consumption basket.

All these data point toward rural distress and hence offer a very good explanation for the extension of the free ration scheme as announced by the Prime Minister. It’s the right thing to do.

This brings us to the third point. Over the years, the BJP and its supporters have driven the nationalistic fervour around the India growth story hard on social media. So, doesn’t the extension of free ration for five years really put a dent in that story? Not really.

The India growth story feeds into the emotions of those who already support the BJP and tries to influence political fence-sitters. The free rations hand-out essentially tries to tell the world at large that the party can take care of problems as well and do the right thing. So, there are two distinct stories being projected here.

Duality is an essential part of any complex society. It cannot be done away with. The party understands this and the wild spread of social media helps it in dealing with this duality by trying to sell different stories to different people, and letting people pick up whatever they believe in. That’s how it works.