The procurement of foodgrains and, consequently, the quantum of stocks with the government, have risen beyond desired levels even as offtake from the public distribution system has fallen. Meanwhile the poor continue to go hungry in much of the country and the plight of the farmer worsens.
THE most striking fact about the Indian economy today is the combination of huge excess holding of foodgrain stocks in the public sector with the presence of about 350 million people living in absolute poverty (that is, with estimated consumption inadequ ate to meet the minimum survival food requirements). When it is known that this combination is also associated with very high levels of open unemployment or underemployment, the situation becomes even more stark.
This bizarre - indeed, appalling - combination is something that is difficult to explain to complete outsiders or even schoolchildren, who take a straightforward commonsensical view of how to deal with such matters. For them, the solution would be quite simple: use the surplus foodgrain stocks to implement food-for-work schemes in the rural areas and even in urban pockets, and use such work to provide much needed physical infrastructure, which is currently inadequate and poorly maintained.
This would not only reduce the excess foodgrain stocks which are now being held by the Food Corporation of India (FCI) at considerable expense and eaten only by rats but also provide much-needed consumption relief to the poor of the country and simultane ously provide productive employment and contribute to future economic expansion by easing infrastructure bottlenecks. Thus, if the surplus stocks were to be used to alleviate poverty and hunger through properly executed employment generation programmes, this would have the eminently desirable further results of generating rural capital formation and giving rise to positive multiplier effects.
It speaks volumes for India's policy-makers and the elite that such an option is not even seriously considered, and barely gets any attention in the mainstream English language press. This is really hard to explain in terms of any rational discourse, and the explanation can come only from the peculiar political economy of government in India today.
Consider the facts. At present there are about 40 million tonnes of foodgrain stocks being held with the FCI in its godowns. This is approximately double the desired level. This has occurred because of the combination of more procurement in the past few years, with falling offtake from the Public Distribution System (PDS) as the prices have been continuously raised.
The irony is that the higher procurement has not meant that farmers in the country are better off: in fact, their condition is worse than it has been for some time. Cultivators have been very adversely affected by continuing low prices of their produce, even though for many crops there has been a decline in output in the past year, and the economic condition of many farmers has reached crisis point. All this is because the government is no longer able to meet the basic objectives of agricultural price p olicy - to stabilise prices and ensure producer incentives while simultaneously protecting the poor against undue food price increases.
This disastrous conjunction is the culmination of several policies and processes. First, the opening up of agricultural trade to world markets which has brought Indian prices of agricultural commodities closer to world levels, in a context of falling int ernational prices of such goods. Second, the ham-handed attempt to reduce food subsidies by increasing the prices at which food is available though the PDS for the population defined as Above Poverty Line (APL). Third, the attempt to placate sections of farmers by raising the minimum support prices of certain crops like wheat well above the levels at which the FCI's procurement can be balanced by offtake, given the parallel (unstated) agenda of dismantling the PDS.
International prices have fallen or remained low because developed countries have continued their very high levels of direct and indirect subsidies to agriculture despite the stated intentions of the Agreement on Agriculture in the General Agreement on T ariffs and Trade (GATT). And these subsidies have been operating in a world context of depressed demand for agricultural products. And this is precisely the period when the Indian government has removed quantitative restrictions (QRs) on imports for a wh ole range of agricultural and agro-based goods as well as progressively reduced import tariffs.
Thus, farmers have to compete with imports which are cheaper because of subsidies, even as domestic cultivation costs have been going up because of higher fuel costs, higher fertilizer prices and in some areas higher user charges for electricity and wate r as well. And these constraints are becoming more acute because the government system of supporting cultivation through procurement and ensuring public distribution at reasonable prices has all but collapsed.
Thus, the real problem faced by the government is that the increase in procurement - which has still been inadequate in terms of preventing further price falls for farmers - has coincided with a reduction in offtake from the PDS. And this has occurred be cause of the completely misguided attempt to reduce budgetary expenditure on food subsidy by raising the issue prices of foodgrain provided to APL households by the PDS to equal the "economic cost" of the FCI. Thus there has been a doubling of the price of foodgrain for APL households over a 15-month period, while for below poverty line (BPL) households, the price has increased by 80 per cent.
Now, simply to deal with this situation in which stocks with the FCI have reached unmanageable levels even as the poor continue to go hungry in much of the country, the decision has been made to offload stocks to millers through the open market sales sch eme. An anomalous situation has arisen whereby sales to millers through the open market sales route are now made at a lower price than sales to the APL population through fair price shops. Thus, the issue price of wheat provided to fair price shops is Rs .830 a quintal while the price for the open market sales scheme is Rs.650 a quintal in northern India and around Rs.700 in the rest of India.
In effect, this amounts to an abandonment of the PDS. This is bad news not just for food consumers: it also bodes ill for farmers. This is because no minimum support price scheme can be sustained without large procurement, and without a functioning PDS t here is no justification for large procurement. So the government is also implicitly washing its hands of any attempt to provide minimum support to farmers, even while exposing them to heavily subsidised import competition.
Meanwhile, multinational companies dealing in food production, storage and distribution are waiting in the wings gleefully. The government has already declared its intention to rely on their "help" in managing the unbearable load of food stocks. It is on ly a matter of time before the effective dismantling of the public food distribution system is followed by the entry of multinational companies that can exploit the simultaneous and collective impoverishment of Indian farmers and food consumers to their own advantage.
The other suggestions that have come from official channels to deal with the current mess are even more ludicrous. Thus, the Union Minister for Food, Consumer Affairs and Public Distribution has suggested that each Member of Parliament be given 10,000 to nnes of foodgrain to dispose of as he/she sees fit! Another option that is being considered is to ask the Planning Commission to identify the very poorest households in the country and deliver grain to them.
All this would be laughable if it did not have such tragic implications for hundreds of millions of people. The tragedy is not only in terms of the continued material pressure because of high food prices and low employment opportunities that is so marked especially in the countryside, but because of the wasted opportunity.
The standard bureaucratic response when asked about why the food stocks cannot be used productively through employment generation schemes is, "Where is the money? This is the era of fiscal discipline - the government cannot just go ahead and spend on suc h areas." This type of response simply illustrates the basic economic fallacy which has got so entrenched through sheer repetition.
The point is that while there are such excess food stocks, such spending simply cannot be inflationary. Even if it were financed entirely through deficit financing, much of the money so expended would simply accrue to the FCI, which in turn could use thi s to reduce the level of borrowing it is currently undertaking simply to finance the stock holding. The governments' net indebtedness would not have gone up; the total interest obligation would not go up and could even go down. So in fiscal terms there i s no justification for denying such a scheme.
It is true that much of the bureaucracy and the urban elite have fallen prey to the bad economics imposed by finance capital. But what remains inexplicable is why the politicians - many of whom must still have to answer for their actions to the people - also fall for this peculiar position and do not push for the productive use of the rotting foodgrain stocks. Perhaps it is the case that still, not enough of the citizens of the country know the actual dismal facts. If they did, they would surely demand that a more rational and democratic outcome is achieved.
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