The public distribution system has been affected by inefficiency and corruption, and these problems are likely to be exacerbated by narrow targeting based on income and exclusion of persons vulnerable to food insecurity.
IT is a cruel paradox of the food economy of India today that while more than 500 million people are undernourished and many more are vulnerable to food insecurity, 45.5 million tonnes of foodgrains are being held by the Government of India. These stocks are enough to provide 70 kg a person, that is, about one-half an individual's annual cereal requirement, to more than 600 million people. Instead of immediately expanding and improving the system of public distribution of foodgrains, the government's po licy is to cut back the public distribution system (PDS) further. Rather than using the abundance of grain as an opportunity to raise consumption among the people, the government has declared its intention to sell its stocks in foreign markets at subsidi sed prices. Foreign buyers of Indian rice and wheat will only have to pay the rates charged to "below-poverty-line" (BPL) consumers in India.
In an era of liberalisation and orthodox structural adjustment, reducing the budget deficit has become an important independent goal of economic policy, and the growing food subsidy is alleged to be an important reason for the budget deficit. The first m isconception here is that the food subsidy bill in the budget is a subsidy to consumers, which it is not. The food subsidy consists of the payments made by the government to the Food Corporation of India to cover the FCI's operational deficit. The FCI pr ocures grain, stores it for distribution and for buffer stock operations, and distributes it to the PDS retail network. The difference between the earnings from the sale of grain and the economic costs (including costs of procurement) is the subsidy give n to the FCI. The second misconception is that the rise in this bill is mainly on account of the inefficiencies of the FCI. One of the most important and steadily rising components of costs of the FCI is the procurement price at which the FCI purchases r ice and wheat. This price is set by the Cabinet, not by the FCI, and is in effect a producer subsidy. Another reason for rising costs is the rise in costs of storage. The third misconception is that the subsidy bill has risen hugely in recent years. Figu res of the budgetary food subsidy over the last 30 years (1966-67 to 1996-97) indicate that the food subsidy has remained more or less unchanged as a share of gross domestic product (averaging 0.3 per cent of GDP over this period). India's food subsidy b ill is also small in comparison to other countries. In Sri Lanka, for example, even after the introduction of targeted food stamps, food subsidies still accounted for 1.3 per cent of GDP, more than four times the proportion in India.
A major reason for the increase in stocks of government-held foodgrains is the very low provision of grain by the government to the PDS. The quantity of grain supplied to the PDS has been steadily declining and actually plummeted substantially last year. From a peak of 20.8 million tonnes in 1991, the quantity of grain distributed through the PDS fell to 14 million tonnes in 1994. While there was a reversal of this trend between 1995 and 1998, the latest data available show that only 10.9 million tonnes were distributed in 1999-2000, barely half the quantity distributed at the start of the decade. The distribution of grain through the PDS has fallen even further in the current financial year. The amount of rice and wheat supplied to the PDS between Apr il and November 2000 was around 71 per cent of the level over the same period in 1999. In November 2000, 2.5 million tonnes of wheat were distributed to the PDS; the corresponding figure for November 1999 was 3.5 million tonnes.
The decline in the quantity distributed is a consequence of the policy changes of the last few years, in particular the policy of restricting supplies to the needy in the name of targeting grain to the income-poor. In 1997, the Government of India introd uced the Targeted PDS (TPDS) in which households were to be demarcated on the basis of an income criterion into "below-poverty-line" and "above-poverty-line" (APL) populations, with the two groups treated differently in terms of quantities and prices.
The change that has had perhaps the most destructive impact on the PDS is the introduction of targeting, based on the income poverty line. It has led to the exclusion from the BPL category, and subsequently from the PDS, of millions of undernourished peo ple and people at the risk of undernourishment. In a country such as India, with a population that is predominantly rural and a workforce that is predominantly outside the formal sector, the identification of beneficiaries on the basis of a narrow income poverty line is conceptually and practically problematic. For instance, for a casual labourer whose earnings fluctuate from day to day, a static (one-time) poverty line is an inappropriate indicator of vulnerability. Another important aspect of income t argeting in India is that the official poverty line used as a cut-off is set at an absurdly low level, corresponding to the expenditure required to purchase a minimum of calories. It is in no way an indicator of the adequacy of purchasing power to provid e for a minimum decent standard of living.
The most recent survey data on malnutrition from the National Family Health Survey 1998-99 show that 47 per cent of boys and girls in the 0-4 age group are malnourished on a weight-for-age criterion. The surveys of the National Nutrition Monitorin g Bureau showed that 48.5 per cent of adults were malnourished in 1993-94 (based on the Body Mass Index criterion). Around one-half of the population is malnourished, and another 20 per cent is at the risk of undernutrition. When 70 per cent of the popul ation is food-insecure, a policy that targets PDS at less than 37 per cent of the population is one that abandons any attempt to provide food security to the general population.
Further, in practice, in many States, an even smaller proportion of families has been actually identified as BPL. There are huge practical problems of income measurement, and in practice, arbitrary criteria are used to identify BPL households (since no d etailed income and expenditure survey can be conducted for the entire population). This process has led, inevitably, to large errors of targeting and large-scale exclusion of persons vulnerable to food insecurity from the PDS net.
The latest policy announcement, the Antyodaya scheme, narrows the base of the PDS even further. The scheme offers 25 kg of grain to each of the poorest 10 million families in the country. The Planning Commission has, in fact, recommended that "the covera ge of TPDS and food subsidy should be restricted to the population below poverty line" and that PDS for APL be "abolished" on the grounds that "for others who have the purchasing power, it would do merely to ensure availability of grain at stable price i n the market - no need for food subsidy to this population" (Mid-Term Appraisal of the Ninth Five-Year Plan, 1997-2002; pp 163-165). For the Planning Commission, those who remain undernourished but happen to be identified as being above the income poverty line are persons with adequate purchasing power, and no right or entitlement to a place in the public distribution of food.
Apart from narrowing severely the coverage of public food distribution, the TPDS also altered the principle of entitlements from a per capita norm to a family norm, with BPL households entitled to a uniform 10 kg of grain irrespective of fa mily size and need. To put this in perspective, the annual level of cereal intake recommended by the Indian Council of Medical Research (ICMR) is 135 kg a person (or 11.25 kg a month). For a five-member family, the new ration scale, of about 2 kg a pe pe rson a month, provides less than 18 per cent of the recommended intake. In response to criticisms of this entitlement, the last Budget doubled the allocations for BPL families, from 10 to 20 kg a family a month.
The TPDS introduced a dual price policy. From March 2000, the central issue prices have been set at half the "economic cost" incurred by the FCI for BPL households and at the full "economic cost" for APL households. In effect, there is no longer a price subsidy for the so-called APL consumers.
In the last Budget, the prices of rice and wheat for BPL families were increased by 68 per cent. For APL families, which have already seen large price increases since the initiation of the TPDS, the price of wheat has increased to 23 per cent and the pri ce of rice to 29 per cent.
India's PDS has long been afflicted by problems of inefficiency and corruption. Contrary to official claims, these problems are likely to be exacerbated by narrow targeting. The way out of what official India considers a "crisis" of huge stocks is not by lowering procurement, exporting stocks and reducing and restricting the scope of public distribution. There is still a widespread need for a set of food subsidy policies in India (including the PDS and other nutritional support programmes) because of th e persistence of chronic hunger and malnutrition on a mass scale. The long-term policy on the PDS and the food economy in general must be guided, above all, by the consumption needs of the poor and undernourished.
Madhura Swaminathan is a Professor at the Indian Statistical Institute in Kolkata.