But here comes a real question. Whether the Indian Union government can provide that huge subsidy without becoming more dependent on foreign governments? The fact is that fiscal deficit is rising with alarming rate and growth is slowing down a bit. Therefore, the Reserve Bank of India (RBI) may find it difficult to print a lot INR without inflationary effect. The fact is that India’s export is around 250-300 billion USD and this additional import, believing that almost half of the grain is imported, would be almost one-twentieth of the total export. But with time India’s imports are going to increase at very fast rate and such would affect the buying power of currency and exchange rates. The sinking INR could make the estimated budget soaring by something about 1.2 to 1.5 times. This could induce a vicious cycle of inflation and lower growth, if the economy is not managed properly. Moreover, the investors may loose confidence in Indian markets if subsidies are not sustainable. It could increase the interest rates and the capacity of Indian state to borrow and lend. It could affect the sovereignty of the Indian state and therefore, subsidies could be resisted and protested by the middle classes and above.
Having measured pros and cons of the food subsidy let me put some questions and I will answer them myself.
Should the poor not dream? Should they abandon their dreams just because it takes away some freedom from the middle classes and above? Or from the other side of the coin should the upper classes suffer because of poor? Whose state is it? Can inflation because of one section of society be in-exported to another section? It is legal that is for sure, but is it ethical?
Now answers one-by-one. Poor should have aspirations and they should be part of India growth story as much as it is possible. Indian poor are very tolerant people and they have not protested against their existing humiliating conditions despite of there being such protests worldwide. Therefore, they deserve attention and a help from all possible people who can. Instead of abandoning their dreams they should see newer ones but they should be proportionate and reasonable. The fact is that Indian middle classes do not have that deep pocket and therefore, there should be balance in overall approach of the governments. The Indian government should avoid increase in direct and indirect taxes, at least for the middle classes and below.
The Indian state should belong to all: caste people, outcaste and minorities. But this is in theory. In practice the upper caste people from all religious identities are the dominant people and they are going to remain so in any foreseeable future. The fact is that all constituents of state should have as much symbiotic relationship as possible and should have a possible common future. Through taxation, printing and borrowing the Union and state governments can provide subsidies but it is so difficult to redistribute wealth and resources in India. The fact is in-export of inflation is not that ethical but it needs to be quantified. Again, the government should not put too much burden on middle classes.
I personally doubt that the subsidies that Indian government provide in totality are durable and sustainable in long-term. But if it can then this is well-done by the UPA2 government and the passage of the Bill in the Upper House of the Parliament would make life easier for the UPA2 parties in the forthcoming general elections.