How feasible is Amma Canteen or similar populist measures from an economic point of view?

- Achintya Ramesh

Background:
Amma Unavagam is a highly subsided group of government restaurants targeted at the poor in the Indian
state of Tamil Nadu. Poor can have good meals for as less as Rs. 6 ($0.10). In the brief history of the project it
looks like it is reasonably well run. Amma Unavagam: Rs.5 lakh a day feeds 1.5 lakh

Some advantages:
1. Helps contain the food inflation. This way Rajan and RBI can breathe a little easy and not increase interest
rates.
2. Can help directly fight malnutrition and hunger - core problems for India.
3. It serves healthy vegetarian meals like idlies (rice cakes) and that is way better than anything that gets
sold on restaurants these days.
4. Makes sure the subsidy directly reaches the people intended for - especially women and children. Other
forms of subsidies often get stolen by unscrupulous husbands and drunkard fathers.

I have always thought of such a project and it definitely makes sense in my head. But, then at the end of the
day money has to come from somewhere. I write and analyze business cases and let me do a simple one.

How much money will it take?

For now, it is run in a small scale (serving less than 1% of the population) and the expenditure doesn't seem to
be much of an issue. Let me try to see how this idea scales if it is to reach everyone in Tamil Nadu.
(Note: 1 crore = 10 million and Re. 1 = $0.02)

1. Let me assume that the loss per meal is Rs.10 (if you sell idlies for 1 rupee, you are running a loss). For 3
meals a day, that is a per-day subsidy of Rs.30.
2. Let me assume that eventually everyone in Tamilnadu will be reached with this (6.7 crore people). Let's
say half of the population eat at home and remaining half (3.3 crore people) will eat in Amma's canteen as
it is so cheap and apparently good.
Multiply 1 and 2, you get Rs. 100 crores of subsidy per day. That is Rs. 36500 crores a year for one program in
one state [if you want to do this across India that will cost about Rs.7 lakh crores or $110 billion - more than
the entire budget of the government].

That will increase the annual deficit of the state by 5 times - from Rs. 10,900 crores now. This deficit cannot be
accommodated and that means money from something else will be cut. Usually politicians will find the easiest
things to cut (government employee salaries and wastages will never be touched) such as hospitals, schools,
roads and police.

That is economics for you. If you take money out for something, you need to figure out where it will come
from. We didn't even include the infrastructure costs - what will it take to build such eateries all across Tamil
Nadu? What will be the cost of overseeing such a major program?
Other issues:

1. The canteen directly competes with smaller eateries run by the poor. It means the government program
would grow at the cost of private industry.
2. As any government program in India expands, corruption would be rife. It is quite easy to steal food in
these eateries by the officials and administrators. Historians would remind people of what happened with
Amma's mentor MG Ramachandran who brought a similar thing for school kids (sathunavu system or mid-
day meal) that was notorious for scandals.

How can the government do it better?

1. Scale down the PDS/Ration system. Since the food is provided directly at the canteen, the Public
Distribution Scheme of food at government's ration shops can be scaled down. That will save up some
precious resources for this.
2. Makes sure it reaches only the extreme poor. It doesn't sound good when middle class people are
making use of the subsidy intended for the poor. For those who are not poor, charge the market costs.
This will reduce the subsidy and make it a little more manageable.
3. Give some work. To prevent lazy bums from using the resources, make sure all adults using the subsidy
are made to do some work. For instance, to have one full meal for free you need to do a 15 minute task -
like serving food to others, watering plants outside, cleaning up dishes etc. A real poor would not mind
spending 15 minutes of work to get wholesome food, while bogus recipients would move away. More
importantly, this way government reduces its other expenses [to pay for the project] and inculcates a
culture of work among the public.
4. Be very transparent. Make all the data related to production available to public. We want to know how
much flour is bought every day, how many idlies are made and how many are sold. That way some of us
could run the numbers and find if they are really doing it for enriching their pockets.