Threat to a system

The National Advisory Council's move to restrict universalisation of the PDS to the most disadvantaged districts may ultimately end up limiting its impact.

RECENT weeks have seen rather contradictory statements on the challenge of ensuring food security and the set of feasible initiatives for managing the food economy.

To start with, the National Advisory Council (NAC), which recognises the need for a universal public distribution system (PDS), and which was expected to push for a transition from the prevalent targeted system to a universal one with expanded commodity coverage, decided to recommend the staggered implementation of the proposal on the grounds that the country was faced with a supply constraint on the foodgrains front.

Geographical targeting

In its view, since there is not enough food to distribute, attempting to offer every household 35 kilograms of food at Rs.3 a kg would take demands to levels where supply would fall short. Hence, the NAC argues that the shift out of the system of targeted distribution to a universal one should be initially restricted to 150 most disadvantaged districts.

Even ignoring for the moment the correctness of the view that it would be difficult to match supply to potential demand, this position leaves a couple of issues unresolved. The growth and development of the PDS has been extremely uneven across India. In some States in the north-eastern region and the Union Territories, as well as States such as Andhra Pradesh, Kerala and Tamil Nadu, the PDS has covered a wider section of the population and, therefore, has been more effective for the poor as well. But there are also many States, where the PDS is poorly developed and the offtake in general, particularly by the poor, has been extremely low.

It would be reasonable to expect that it is in States with a large number of most disadvantaged districts that the spread and reach of the PDS to the poor would be more limited and would be less efficient as a mechanism of delivery. Therefore, targeting universalisation in these districts would not only deprive those residing in States that are more developed of the benefits of universalisation but would defeat the purpose of universalisation by focussing it in areas where the means to effectively implement the scheme do not exist.

As a result, restricting universalisation to the 150 most disadvantaged districts may not increase the above the poverty line (APL) population's offtake by the estimated 20 million tonnes. In the event, the flow of food through the PDS would be smaller than expected, and the fears of a demand-supply imbalance would turn out to be exaggerated. Rather, the attempt to match demand with estimated supply may just severely limit the impact of the PDS.

What is likely to happen is that food meant to be provided to all sections in the most backward districts, but which cannot be reached to most of them because of the inadequacies of the PDS, may be acquired by speculators at subsidised prices and diverted to the open market either in these districts or elsewhere. In fact, there is a real danger of the universalisation scheme being discredited however it performs. If the offtake of subsidised food is low, the evidence would be used to argue that the government cannot run a universal PDS in a country as large as India.

If the offtake of subsidised food is found to be high, then it would be argued that subsidies are not reaching the poor but leaking out to those at whom it is not targeted. It must be said, therefore, that the scheme of using geographical backwardness to target universalisation lays itself open to criticism.

Rotting food and hunger

Interestingly, when a confused policy of targeted universalisation is being proposed on the grounds that stocks are not adequate to support a universal PDS, the actual picture on the supply side seems to be one of excess stockholding by the government. Not only is the size of the government's foodgrain stock much higher than the buffer stocking norm, but the judiciary, Parliament and the media seem to be obsessed with the problem of inadequate storage leading to the rotting of food while the poor go hungry.

Even though last year's poor monsoon resulted in lower procurement of rice, the stocks of rice and wheat with the government are placed at 60 million tonnes. With covered storage available for only around 45 million tonnes, a substantial part of these stocks has to be stored in the open, leading to losses. Unless the NAC believes that targeted universalisation is actually going to increase demand for food substantially, this problem of foodgrain rot in a country with hunger is likely to persist.

This embarrassing accumulation of food stocks seems to have changed the government's views on how to manage the food economy, with opinion shifting (even if temporarily) in favour of an expanded PDS, at a time when the NAC has decided to go against complete universalisation because of constrained supply. The government has implicitly accepted that the uneven spread of the PDS has meant that targeted distribution results in underachievement of the objective of distributing food stocks procured using the minimum support price (MSP).

Implementing the targeted scheme in the context of the uneven development of the PDS has had two consequences. First, allocations to States with a better developed distribution system providing access to the APL sections were far short of demand.

Second, States in which the PDS is poorly developed and which were eligible for allocations under the BPL household scheme could not lift their quotas in full since they would not be able to reach it to the poor, or for that matter to large sections of the non-poor. This has led to two recent changes in food policy.

To start with, the Planning Commission has decided to accept the revised estimates of the Tendulkar Committee on the BPL proportion of the population. The estimates have significantly, even if not adequately, raised the poverty headcount. This would require increasing the number of households to be covered by the BPL scheme, which would in turn increase demand from the PDS wherever it is available. Second, the government has all of a sudden decided to increase allocations for APL users of the PDS, after having penalised States that were providing access to these sections in the past by limiting Central allocations.

These developments are of significance because the recognition of the need to raise the MSP to improve the returns to foodgrain production is likely to lead to further increases in procurement in normal or good monsoon years. Clearly then, the direction in the country is towards an enlarged and more universal PDS. This is not because of the government's concern about food security but because of the logic of enhancing production and managing supplies in the food economy.

Food economy

The NAC's failure to exploit this trend and push for true universalisation possibly stems from a mistaken assumption that agricultural production and productivity are determined separately and not influenced by policies aimed at ensuring food security. This ignores the fact that it was the decision to raise food production through the Green Revolution that necessitated the food distribution system that we currently have.

An essential component of the Green Revolution strategy was the decision to incentivise production by setting a remunerative cost plus floor to certain agricultural prices, in the form of procurement prices at which the government would acquire any volume of foodgrains sold by the peasantry. This obviously resulted in the accumulation of stocks with the government in excess of buffer stocking norms, especially in normal or good monsoon years. To boot, uneven agricultural growth, engendered by historically given inter-regional variations, on the one hand, and the strategy of the Green Revolution on the other, resulted in yield increases and food surpluses being concentrated in a few States.

The challenge this set the government was that of moving food from surplus regions to deficit (and often poor) regions and ensuring the effective demand required to absorb these surpluses. This necessitated the sale of a part of that stock at lower and affordable prices through the PDS to sustain demand. As a result, the government had to provide a subsidy to cover the difference between the cost of acquiring these foodgrains and carrying and transporting them to urban areas and deficit States and the lower price at which it offered this food through the PDS to ensure offtake.

Thus, the PDS was part of a strategy of enhancing agricultural production, and the food subsidy on the government's budget was substantially explained by the nature of the agricultural growth strategy and the cost of stockholding that it involves. Thus, the assumption that policies to enhance food production are independent of the food distribution and pricing policy, which seems to underlie the NAC's recommendations, seem unwarranted.

Not surprisingly, those interested in reducing the food subsidy bill have pushed not for reduced procurement or even lower procurement prices but for a reduction in the quantum of stocks held by the Food Corporation of India and the sale of much of the procured volumes at prices that cover the economic cost. This was in the past sought to be achieved in two ways. First, excess stocks, accumulated in periods when open market prices were depressed and procurement was high, were disposed off in true marketist fashion by resorting to sale in the open market through private trade and through allocations to exporters. Second, attempts were made to target the PDS only to the needy, and to reduce allocations to a system that distributes government stocks at prices below economic cost.

As against this trend, it has been argued for long by those concerned with the need to ensure food security that excess food stocks offer an opportunity to increase the spread of the PDS so as to reach a minimum quantity of reasonably priced food to a majority of the population and to incentivise food production in the process.

In addition, the government can launch food-for-work programmes that build productive and social infrastructure that can help enhance agricultural productivity. Through such a strategy, the government can utilise surplus stocks to ensure access to food as well as widen and deepen the productive base in the agricultural sector. It is to this kind of logic, rather than the one based on a simplistic assumption about the limited availability of food, that the government must turn to.