No mechanism to protect the poor

PROFESSOR UTSA PATNAIK does not agree with the poverty estimates of the government.-T.K. RAJALAKSHMI

Interview with Utsa Patnaik, Professor of Economics, Jawaharlal Nehru University.

IN a period characterised by all-round price rise, the issue of food security assumes extreme significance, especially for the rural and urban poor. At a time when the need for a universal public distribution system is increasingly felt, the governments categorisation of a very small percentage of the people as being below the poverty line and eligible for rations has invited a lot of criticism. Utsa Patnaik is among those who do not agree with the poverty estimates of the government. She feels that the current price spiral must have aggravated the sufferings of a much larger number of people than is realised.

In this situation of unprecedented price rise, how important do you think is the issue of food security?

The major policy thrust of the last 15 years, which has slowly changed only in the last few months, has been that food security is not all that important. It was taken for granted that we would be able to maintain our food security. This policy direction has mainly involved reducing the food subsidy and running down the public distribution system [PDS].

The roots of the present inflation do not lie in the global inflation as is being claimed by the Deputy Chairperson of the Planning Commission. I dont agree with that view as what we are witnessing in India is not a short-term phenomenon. If one looks at the question of foodgrains, the working of the PDS was made possible, between 1965 and 1990, by the phenomenal expansion of foodgrain production in the country. The moment our entire economic strategy began to be guided by the neoliberal paradigm, one of the major decisions was to cut subsidies.

In the early 1990s, there was already an attempt to cut subsidies as the issue price of foodgrains from the PDS was almost doubled while the procurement price given to farmers rose very little. This ignored a simple fact of macroeconomics: if this was done, the poor would be priced out and they would be unable to buy the foodgrains. So we had a build-up of stocks, the cost of holding which increased the food subsidy.

Targeting was introduced in 1997, driven by the propaganda of focussing the subsidy for the poor. We got into the disastrous system of targeting; the distinctions of Below Poverty Line, Above Poverty Line, and so on. If one looks at the history of targeting in other countries, it becomes clear that it has always been a prelude to winding up of state intervention in procurement. That has been the ultimate aim of the International Monetary Fund, the World Bank and the World Trade Organisation. They specifically say that the state should not intervene to buy and sell at prices other than global prices.

The WTO agreement on agriculture states that for food security purposes, the government can maintain food stocks but then, at the same time, it says that the government cannot offer farmers prices that are higher than global market prices. Global prices are very volatile. The governments role here is to protect both the farmer and the consumer. The whole rationale of the PDS lies in that.

By the end of the 1980s, the Food Corporation of India [FCI] was intervening to a very significant extent. My calculations show that 45 per cent of all foodgrain sales in the economy were made to the FCI, which meant that the minimum support price to farmers and the issue price could be effectively implemented. Private traders werent able to raise the prices too much above the rates at the fair price shops. All this began getting jettisoned as soon as the shift to the new paradigm began. Nearly 8 million hectares of our agricultural land have been shifted to horticultural crops, cotton, sugarcane, and so on. The farmers who took to these crops have ultimately not benefited since they have been ruined by exposure to sharp price declines as protection was removed.

So, on the one hand the PDS began to be run down, and on the other, the shift in cropping patterns began. Farmers were literally lured into shifting from growing millets to cotton or expanding coffee or pepper by temporarily high global prices. Effectively, by 2001, the protection to our farmers was also removed. The quantitative restrictions went and tariffs were put at very low levels. The moment the world prices started crashing, these farmers became insolvent, within two years or so, and the suicides started.

In the case of the food economy, the picture has been quite complex. Why we did not have inflation earlier was because there was a faster rate of fall in the purchasing power of the people than there was in foodgrain production per head. But that has changed in recent years. The growth rate of foodgrain production began coming down in the 1990s. It came down to 1.7 per cent a year as compared to 2.8 per cent a year in the 1980s and in the last six years it has fallen further to below 0.5 per cent per annum. That was a sharp deceleration and that is what Ive been predicting. I have been arguing this for a long time that if you divert area and resources from foodgrains, the growth rate is going to come down. In fact, it came down below the growth rate of the population.

After 2000, the rate of decline has been very fast. Our political class is very sensitive to inflation but not to the farmers and labourers. The farmers were getting more and more into distress as output prices were falling from the mid-1990s. And, secondly, as the government had been cutting back on rural development expenditure, unemployment began rising fast, particularly in rural India, and this resulted in declining purchasing power. A combination of all these factors resulted in a decline in per capita demand for foodgrain which reached the level we had before WW II. There was an enormous build-up of foodgrain stocks to 64 million tonnes by 2002. This build-up was happening because per head demand was falling even faster than per head output was declining.

Our government and economists were completely blind to this as they thought of stocks only in terms of overproduction; that we are producing more than what people voluntarily wanted. But this approach was incorrect. This ignored the fact that it was not voluntary. If people lose purchasing power due to unemployment caused by the government cutting down on development expenditure, by crashing world prices of cotton or pepper, it is not a voluntary choice; they have to reduce consumption. The government advised farmers to switch out of foodgrains, procurement price was frozen and procurement run down. Farmers responded to these signals by cutting back output which has been stagnant for seven years after 2000. Now the situation is so bad that our very obtuse policymakers, having created this situation, have woken up to the reality that something is dreadfully wrong. The growth rate has fallen so much in the last six years that the per capita output is now lower than the demand and that is why the government has been forced to import. There is an outcry against imports but this outcry should have happened earlier when output was going down for over a decade. Now if they do not import, they would not be able to run even the Antyodaya or a minimum welfare programme.

The logic that these people have been following for 15 years is that food security does not matter, farmers should produce to supply supermarkets in advanced countries under contract to transnationals, and we can always import food if required. This ignored the fact that if we are growing cash crops, there is no control over the foreign exchange earnings if the unit dollar price of export crops falls. We are all in a competitive race to the bottom with 80 other developing countries all exporting the same products. We are in a bind now, the only reason why the government has woken up is because the global price for wheat has almost doubled in less than a year and that is due to the high global price of oil leading to large-scale diversion of grain to ethanol production in advanced countries.

Even if our government now goes to the global market, they have to pay an enormous rate to buy grain. They have woken up 10 years too late. They have raised the procurement prices now. But after declaring the economy open and free trade the norm, why should farmers sell at a lower price to the FCI? They would rather sell it to the corporates or export and get higher prices. It is already happening.

It is not only foodgrain prices that are going up. Livestock product prices have also risen. The reason for that is twofold; the feed for livestock is a byproduct of grain production. When there is a decline of per capita cereal output, the feed output also goes down. Marginal farmers have really got affected by this as they have been unable to maintain even their minimal livestock. From the National Sample Survey data on land and livestock, I found that there was a rise in landlessness in terms of operated area. There has been an enormous loss of livestock of small and marginal farmers. Part of it has been sold to the richer farmers but the average livestock holding has gone down. It is not a short-term problem; it is a structural problem that has been created by an attack on the very basis of our production and this requires very strong measures to revive our agricultural economy.

In the 2005-06 Plan document, the Planning Commission observed that the PDS was the most significant instrument to moderate open market prices and ensure food security at assured prices. You have been criticising the Planning Commission for adopting an arbitrary methodology to determine the BPL population in order to deflate the level of poverty.

There are two aspects to it. From 1997 onwards, the government started cutting allocations of foodgrains to the States. They started taking an average of the preceding 10 years as an indication of what the allocation should be. Now what had happened in the last 10 years was that as unemployment rose and purchasing power began going down and people were buying less food and by reducing allocations on that basis, it was as if the government was rationalising the loss of purchasing power. This was tantamount to saying we should have permanent loss of purchasing power and permanent hunger in our country.

People sitting in the Yojana Bhavan [Planning Commission] are not affected by cuts in foodgrain allocation. They buy from the open market anyway but their decisions affect the lives of millions of poor people in this country. If they are doing it unconsciously, then they are simply incompetent as economists; if they are doing this consciously, they do not deserve to occupy the chairs that they do. The reason for the decline in PDS offtake was that the segment of our population that needed the fair price shops most faced rising unemployment, loss of purchasing power and higher prices. The last happened because of the rise in issue prices as the government was trying to cut the food subsidy.

Second, targeting intensified the problem. The government put a whole lot of people who were actually poor in the APL category and this compounded the problem. Earlier they were being priced out; now they were institutionally barred. A new permit system was introduced where people had to show they were BPL.

There is this argument that people are not able to access foodgrains from the PDS because of a lot of wastage and because of leaks into the open market. It is not because they do not have purchasing power.

A certain amount of wastage does take place but it can be addressed by better transportation systems and better forms of preserving foodgrain. Even the private trader encounters a certain amount of spoilage. But how does it get better by winding up the FCI and giving it all to the private trader? It is not a logical argument at all. But there can be a certain scope for dishonesty when the gap between the PDS prices and the open market prices is very large, and then there is an incentive to divert foodgrain and get higher prices. But this can happen in any system which is open to abuse. Safeguards have to be put in place. People do not have the purchasing power. This arbitrary BPL/APL distinction has to be removed. Foodgrain has to be sold at BPL prices to everybody. To restore purchasing power, other things have to be done like increasing rural development expenditure and implementing the National Rural Employment Guarantee Programme [NREGP] sincerely. Why couldnt the government have started it in 1994? Why did they suddenly wake up and start increasing allocation only this year? I looked at the NREGP and found that the National Democratic Alliance government was already giving a certain amount for all the employment generation schemes.

What this government did was to only increase the allocation by 10 per cent to Rs.12,900 crore in the districts where the programme was introduced. And then the allocation was cut down to Rs.12,000 crore in the 2007 Budget. It is only in this Budget that the allocation has been increased, but it is still very small. Adequate budgetary provisions have to be made.

Government data show that the consumption of pulses by the poor is low; that the per capita cereal consumption has been declining for the last two or three decades; that only 28 per cent of the population was eligible for PDS at the all-India level in 2004-05. The Arjun Sengupta Committee report on the working and living conditions of workers in the unorganised sector states that 77 per cent of the population subsists on less than Rs.20 a day.

What the government decides as non-poor are actually poor. The governments estimate of the rural poor is only 28 per cent now for 2004-05 (those spending less than Rs.12 per day) whereas the actual percentage below the governments own nutrition norm is 87 per cent, spending less than Rs.26 per day. The entire basis of the Planning Commissions estimates of the number of poor people is not correct because the poor cannot be counted and poverty compared over time by reducing the consumption standard over time. They are following a method that is spurious. They have abandoned their own nutritional norm. They take the quantities people consumed in 1973 and whatever the cost then, they update it by a price index to get the poverty line for more recent years. But that does not capture the change in the actual cost of living.

I joined my University as a Reader in 1973 and my gross monthly salary was Rs.1000; if I apply the consumer price index for an urban non-manual employee, then a Reader joining today should get less than Rs.5,000. When the government determines the salaries of its employees or teachers in universities, it does not apply just the price index. If it does, then one would reach absurd salaries. They use this method only for counting the poor.

The true poverty line can be obtained easily from the NSS data. The Planning Commission did it only once, in 1973-74, when it applied the nutrition norm that is, how much does a person need to spend every month to get a certain amount of nutrition. After that, it abandoned the definition of poverty line completely. They have not factored in the nutrition norm for 30 years now. The poverty line they have got at present is crazy. The all-India official poverty line gives only 1,800 calories and not the nutritional norm, which is 2,400 calories and costs over double the official poverty line. Moreover, for some States, it is much lower than that and in others it is higher.

The poverty line has been pushed down so low in States like Andhra Pradesh and Tamil Nadu, enabling them to say that very few people are poor but it is not mentioned that people cannot access even 1,600 calories at these poverty lines. Their bogus poverty estimates are used as a guide for allocating foodgrains. The genuinely poor States are left behind. Government policy now is based on a set of perceptions that are diametrically opposite to that of reality. They have used the NSS data in a selective manner. No academic has any business to look at the expenditure data only and not at the calorie part of it. It is in a sense suppression of information and not academically justifiable. Even if I take the lower nutritional norm of 2,200 calories, not the official norm, 70 per cent of the people are below the poverty line; if I take the actual nutritional norm of 2,400 calories, then 87 per cent are below the poverty line. There is a huge increase in poverty as compared with 1993-94. Only a universal PDS makes sense where the poor are now nearly nine-tenths of the rural population.

It is felt that by addressing the crisis of agricultural production alone, the problem will be solved. Does it automatically translate into more purchasing power?

Neoliberal policies have attacked both production and access. The issues are intimately connected because for farmers an attack on their production is an attack on their incomes and with decline in growth labourers get unemployed as well. Some belated measures have been taken to revive agricultural production but a lot more needs to be done. The government needs to revive the Commodity Boards and they need to do their job of procurement of commercial crops. State intervention in the market is very essential to protect both the consumer and producer from fluctuations. This is to ensure that farmers do not suffer from price falls and consumers do not suffer from price rise. If the procurement and distribution system had not been run down, we would not have been in a mess today. Today, we do not have the mechanism to protect the poor from inflation.