Starving the poor - I

By Jean Dreze

THERE IS no greater scam in India at this time than the so-called food subsidy. Under the cover of ``food security'', the Government is keeping millions of tonnes of food out of reach of poor people. Even at the best of times, undernutrition levels in India are extraordinarily high. According to the second National Family Health Survey (1998-99), about half of all Indian children are chronically undernourished. The latest Human Development Report places India at the rock bottom of the international scale in this respect, with only Bangladesh doing worse. This year, with drought affecting large parts of the country for the second or third time in a row, undernourishment and starvation could spread even further.

Against this background, unsuspecting observers may welcome the fact that the Indian Government is spending about Rs. 10,000 crores this year on the ``food subsidy''. Surely this helps to bring food within reach of poor families? Far from it. The food subsidy is essentially the deficit of the Food Corporation of India (FCI), whose operations are now chiefly geared to keeping food prices up rather than down. This has been achieved (temporarily at least) by accumulating massive amounts of food in FCI godowns. Today, foodgrain stocks are approaching 50 million tonnes.

The Indian public is so used to large numbers that it is easy to lose sight of the staggering scale of this hoard. It may help to think of it as the equivalent of one tonne of food for each household under the poverty line. If all the sacks of grain lying in FCI godowns were lined up in a row, the line would stretch for a million kilometres - more than twice the distance from the earth to the moon. When millions of people are undernourished if not starving, hoarding food on this scale - at enormous cost - is nothing short of implicit mass murder.

There are two major reasons why the food subsidy is so large at this time. One pertains to the FCI's high operating costs (including the storage costs). According to one estimate, those accounted for nearly half of the total food subsidy in the mid- 1990s. The second reason is that, at this time, the FCI is buying far more food than it is selling. The difference is a net addition to stocks - the latter continue to grow by leaps and bounds.

Ordinary households, for their part, benefit very little from this ``subsidy''. In fact, what they gain on one side from subsidised food obtained from the Public Distribution System (PDS) pales in comparison to what they lose as a result of having to pay higher food prices on the market. This is all the more so bearing in mind the low quality of PDS foodgrains. In some areas, it is reported that even BPL (below poverty line) households see little advantage in purchasing food from ration shops rather than from the market, because the price differential is too small to compensate for the quality differential. These households, in other words, effectively gain nothing from subsidised PDS sales; on the other hand, they bear the burden of high food prices on the market as a result of the FCI's hoarding operations.

Meanwhile, unintended constituencies are merrily feeding at the ``food security'' trough. Rats and worms are devouring the stocks. Ration-shop dealers, distribution agents and other intermediaries are selling PDS food on the black market. According to the Planning Commission, 36 per cent of PDS wheat and 31 per cent of PDS rice are appropriated by private parties, at the all-India level. All this boosts the ``food subsidy'' (i.e. the deficit of the FCI) without doing anything for the hungry.

The question arises as to why these mounting stocks are not used to fund a massive expansion of the PDS, food-for-work schemes or other anti-poverty programmes. This appears to be largely a matter of political priorities, organisational abilities, and willingness to bear the financial costs associated with such programmes (e.g. the non-wage component of food-for-work schemes). Addressing these ``bottlenecks'' is an urgent direction of political action at this time of widespread hardship across the country.

It would be a mistake, however, to assume that income-generation programmes alone would succeed in absorbing the current food stocks. According to several recent studies, it is only at very low levels of income that foodgrain consumption rises with additional income; beyond that, income increases lead to higher consumption of pulses, vegetables, milk, fat and related items, but foodgrain consumption remains more or less unchanged. This suggests that, after a point, income-generation programmes will not help to resolve the fundamental imbalance between foodgrain demand and supply at the prevailing price. Resolving that imbalance ultimately calls for a decline in the relative price of foodgrains. That, in turn, would conflict with a paramount objective of food policy at this time, namely the continuation of relatively high foodgrain prices.

The conviction that food prices have to be ``supported'' (i.e. kept up) is so strong and so widespread that it has clouded any reasoned analysis of the social consequences of high food prices. Many people, especially poor people, would gain from a decline in food prices. For agricultural labourers, migrant workers, slum dwellers, in short all those among the poor who buy most of their food on the market, cheaper food would be a blessing. People living in drought-affected areas that are poorly served by the PDS would also get substantial relief from being able to buy cheap food on the market, instead of being at the mercy of the PDS mafia.

What about the farmers? As it is, they have not been doing too well in recent years, with the slowdown of agricultural growth in the 1990s followed by widespread drought. Their livelihoods are further threatened, in some cases, by the imminent lifting of quantitative restrictions on agricultural imports in compliance with WTO regulations. Against this background, is it not imperative to sustain high foodgrain prices?

There are two answers to this question. One is that the poorer sections of the farming community benefit very little, if at all, from price support measures. Consider for instance small farmers in, say, Orissa or Jharkhand or Chhatisgarh. These farmers typically sell little grain, if any, on the market; instead, they tend to combine subsistence farming with labour migration and other income-earning activities that allow them to buy non-food commodities. Hence, higher food prices do not help them. What would help them is an improvement in productivity, based for instance on technological innovation and crop diversification. There is an enormous potential for productivity improvement in large parts of the eastern region, which has been grossly neglected. Instead, massive resources have been spent on promoting unsustainable farming patterns in Punjab, Haryana and other privileged areas.

The second answer is that, whatever the pros and cons of lower food prices, it is in any case not possible to sustain artificially high prices, short of destroying or exporting the surplus food. Storing surplus food only postpones the problem. Worse, it aggravates it, by giving farmers misleading signals to the effect that they should continue growing more foodgrains instead of diversifying their crops. Sooner or later, this is bound to lead to a glut in the foodgrain market and a collapse of market prices, defeating the price-support policy. In fact, declines in market prices have already happened this year in large parts of the country. The glut is likely to intensify after the rabi harvest, especially as private traders are unlikely to take the risk of buying large quantities of food. It is reported that plans are afoot to deal with this impending ``crisis'' through official procurement of up to another 20 million tonnes of wheat.

But this only amounts to digging the hole deeper and deeper. Temporarily keeping prices up by storing food at massive public expense is not an effective way of helping needy farmers. In so far as supporting food prices is a sensible objective, the only sustainable and equitable way of doing it is to generate income among the poorer sections of society. At this time of widespread drought, all the parties involved have a strong interest in food stocks being used without delay for massive income-generation programmes. The causes of prevailing inertia on that front are examined in the second part of this article.

(The writer is honorary Professor at the Delhi School of Economics.)

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