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The most bizarre example of this unwisdom relates to the foodgrain economy: in a country of starving millions over 45 million tonnes of foodgrain stocks are held which the government does not know what to do with, and is even exporting abroad at prices charged to the BPL population, i.e. prices less than those charged in the domestic market. The high carrying costs of these stocks (including interest costs) are the principal reason behind the inflated the food subsidy bill. The government's misguided effort to curb food subsidy by increasing PDS prices, such as the one undertaken in last year's budget, has the apparently paradoxical effect of not doing so: the higher prices simply lead to lower offtake which keeps the foodgrain stocks larger than before and hence their carrying cost increases. As a result the total food subsidy remains as large as before while its composition changes with a higher share going for holding costs and a lower share to the consumer.
 
Some have even suggested a dismantling of the entire PDS, on the grounds that this would bring down the foodgrains price. But while that may be true today, and may even get rid of the existing unwanted stocks, the suggestion is extraordinarily short-sighted: when market prices rise at some future date, the poor would be without any protection in the absence of the PDS. The whole point of the system of procurement-cum-public distribution that has prevailed in the country for the last three and a half decades has been to keep down the amplitude of price fluctuations both for producers and for consumers, which would have otherwise been extremely large in the free market, and which is actually extremely large in the world market. The system has been remarkably successful in meeting this objective. If the level of the food price is high in the PDS, and there is an inadequate lifting of stocks, then the solution lies in putting grater purchasing power in the hands of the poor, so that they can lift larger stocks, rather than in dismantling the system altogether. In other words a simple solution exists to the problem of surplus foodstocks, namely to expand the food-for-work programme. This would get rid of the stocks by enabling the poor to consume more food; and if properly conceived could even result in the creation of rural infrastructure and community assets.
 
This however is not on the government's agenda, since it would raise the size of the fiscal deficit. This  particular objection to an enlarged employment programme is doubly erroneous: first, in a demand-constrained system, a rise in State expenditure on the poor, even if financed by a fiscal deficit, should be welcome anyway. (If international finance disapproves of it and expresses this disapproval through capital outflows, then that constitutes an argument for controlling its unrestricted movement rather than for restricting such expenditure). Secondly, a substantial part of this expenditure which would flow back to the FCI (or to other State-owned units) does not even constitute fiscal deficit, since it leads to no increase in the net indebtedness of the State. Yet, so great is the current obsession with restricting the fiscal deficit that the government is willing to dismantle the PDS rather than undertake a larger employment-generation programme.
 
This effectively is what the current budget has announced, notwithstanding all claims to the contrary. What appears at first sight as a mere transfer of the responsibility for procuring and distributing foodgrains from the central government to the state governments, actually amounts to a blow against the entire system for at least two reasons. First, any replication of the problem of unsold stocks, which currently plagues the system as it is run by the Centre, at the level of the states, would place the latter in a far worse position to take corrective measures. This is because the Centre has passed the burden of the fiscal crisis down to the level of the state governments to a point where it is even more acute for them than for the Centre. Secondly, states which are far removed from the centres of procurement will have to pay much more for food even if they continue a system of public distribution, since the Central government will no longer provide them with food, and since the cash subsidy it will give would only cover the BPL population. Under these circumstances the maintenance of a system where both producers and consumers are offered a degree of insulation from extreme price fluctuations will become well-nigh impossible. The virtual dismantling of the PDS, instead of supplementing it with a food-for-work programme, is perhaps the most disastrous fall-out of the obsession with the fiscal deficit, which, as Joan Robinson would have put it, is part of the "humbug of finance".