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Why attack the food subsidy?

By Mihir Shah

If more food were to be sold through the PDS, the burden of food subsidy could even go down because the Government would have to spend less on storing grain.

THE SUCCESS of any attempt to ensure food security in India hinges on critical policy decisions at the macro-economic level. For, the present tragedy of starvation deaths in the time of overflowing food stocks, owes much to fundamental errors in policy, some of them introduced in the "liberalisation decade" of the 1990s.

For 50 years after Independence, procurement and distribution of foodgrains moved in fairly close tandem with each other. There were, of course, periods of shortfall in production and procurement, but it is only since the introduction of the Targeted Public Distribution System (TPDS) that distribution started falling short of procurement in a widening spiral. In 1997, the Government introduced a distinction between prices of ration shop grain for APL (above poverty line) and BPL (below poverty line) families. The aim was to reduce the burden of food subsidy by improving its targeting. The actual result was that offtake from the PDS fell dramatically. People found the PDS grain too expensive, especially given its rather poor quality. And this actually increased rather than decrease the burden of food subsidy on the Government because it had to now store more grain.

It is not very well known that nearly two-thirds of the Government's food subsidy comprises the "carrying cost" of foodgrains, their storage and distribution costs. The cost due to the lower price at which the Government sells at ration shops is only a third of the food subsidy. It is clear that if more food were to be sold through the PDS, the burden of food subsidy could even go down because the Government would have to spend less on storing grain. The best way to do this is to reduce the prices at which grain is sold at ration shops. And to reintroduce the universal PDS without the APL-BPL distinction.

The other requirement is to extend the geographical coverage of the PDS. Today, most PDS offtake is mainly restricted to six major States that are already relatively better off. The poorest States have the lowest offtake. This is, of course, not only because of poor PDS coverage. It is also a reflection of the incapacity of the poor in these States to buy grain at even the PDS prices. So, four steps are needed: one, abolish the APL-BPL distinction, two, lower PDS prices, three, extend PDS coverage and four, most importantly, start massive programmes of employment generation in the neediest areas that create sufficient purchasing power in the hands of the poor. Focusing this expenditure on watershed development and micro-irrigation projects could, at the same time, create a basis for long-term drought-proofing of these regions. Part of the finance for these projects could come from the 55 million tonnes of grain currently rotting in the godowns of the Food Corporation of India (FCI). The incomes generated by these programmes (directly and through many multiplier effects) would also generate demand for goods in rural areas. This could be precisely the boost recession-hit Indian industry has been waiting for. Such public investment to build rural infrastructure in a period of unutilised industrial capacity, high foodgrain stocks and exploding foreign exchange reserves, opens up a completely safe, non-inflationary growth path for the Indian economy.

To understand why a solution so obvious and simple is still not being attempted, we need to learn perhaps from the insights of Michel Foucault. We have here a classic instance of a "dominant discourse" that completely clouds the thinking of our policy-makers. They are so single-mindedly preoccupied with reducing the fiscal deficit (quaintly reminiscent of their counterparts in the Great Depression of the 1930s), that any expenditure-raising policy prescription is anathema to them. Even if it be one that would ultimately help reduce the fiscal burden of unproductively holding food stocks.

Lest I be misunderstood let me make it clear I strongly believe that the system of procurement and distribution of food in India is crying out for reform. Rampant inefficiency and corruption are killing the system and constitute a major reason for lack of delivery. But this surely does not mean we throw the baby out with the bathwater! The FCI and the PDS need to be reformed and expanded, not scrapped. They need to be placed under the vigilance of citizens' committees at the village level who must be empowered to exercise an effective watchdog role. This is where campaigns such as the Right to Food and the monitoring mechanisms being devised by the Supreme Court are so critical.

But if some of our market fundamentalist liberalisers have their way, many of these public institutions could well be dismantled in the years to come. Our policy-makers must acknowledge that wherever targeting has been tried — Sri Lanka, Mexico, Tunisia, Zambia or Jamaica — it has ended up doing more harm than good. It is, in any case, a great tragedy that state-provided entitlements of the poor in India are sought to be linked to their inclusion in the BPL list that is drawn up through a survey whose authenticity no one can vouch for. And with the introduction of the TPDS, these questionable surveys have acquired a completely unnecessary significance that destroys the entitlements of many food-insecure people, who do not find their names in the BPL list. After all, official data themselves show that while 50 per cent of Indians are chronically malnourished, less than 30 per cent belong to the Government's BPL category.

It is not only the poor as consumers who are under threat from the market fundamentalists. So are our poor farmers. There is a concerted policy initiative arguing in favour of dismantling the system of minimum support prices for crops procured by government. Again there is no doubt that the way the system has worked over the years leaves much to be desired. Around 80 per cent of all grain procured has come from Punjab, Haryana and Andhra Pradesh. The rest of the country's farmers have largely suffered neglect at the hands of the FCI. Moreover, procurement operations have been almost totally focussed on rice and wheat. Other crops have been ignored. The way forward is to extend FCI operations to other crops and regions. After all, the real problem is lack of offtake and distribution of grain, not the quantum of procurement. If grain flows to the poor can be maintained, food stocks will not become a burden. And in the new international economic environment, characterised by falling agricultural prices, our farmers need even greater protection against the vagaries of the market.

It is heartening that many of these recommendations are included in the recent report of the High-Level Committee on Long-Term Grain Policy set up by the Government of India. But it is also a sobering thought that even this insightful report appears to succumb to the pressure of prevailing orthodoxy when it suggests raising (rather than lowering) the Central Issue Prices for the PDS. So that food subsidy, already pegged at a mere one per cent of our national income, can be further reduced! Subsidies meant for the poorest are to be cut even as taxes for the richest are being lowered. It is, indeed, a commentary on the moral economy of contemporary India that teaching the lesson of fiscal prudence to our most vulnerable citizens appears a greater national priority than a sense of shame at persistent starvation deaths, growing millions of anaemic women and malnourished children.

(The writer has recently been designated Adviser to the National Commissioner appointed by the Supreme Court in the Right to Food case.)

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