A MOST remarkable and disastrous feature of the last five years of National Democratic Alliance (NDA) rule in India, has been the slide-back to levels of hunger in rural areas not seen for over 50 years. Reports of starvation, farmers suicides and deepening hunger during the last three years should cause little surprise when we consider the official data on foodgrains output and availability. Net foodgrains output per capita has fallen by about 7 kilograms since the mid-1990s owing to the slowing of output growth. Availability (defined as net output plus net imports and minus net additions to public stocks), however, has fallen by thrice as much as output.
Availability is the same as the actual absorption of foodgrains, and the two terms will be used here interchangeably. There was a slow decline in the absorption of foodgrains per head between 1991-92 and 1997-98, after which it fell very sharply, from an average annual level of 174.3 kg in the three-year period ending in 1997-98 to only 151 kg by the pre-drought year 2000-01, an abysmally low level last seen during the early years of the Second World War, which included the years of the terrible Bengal famine.
The massive decline in foodgrains absorption, as compared to 1998, is the result of an unprecedented decline in purchasing power in rural areas following directly from a number of deflationary policies at the macroeconomic level, combined with trade liberalisation, both of which are integral to neoliberal economic reforms. The continuous decline in purchasing power and hence decline in foodgrains absorption has been reflected in a continuous build-up of public food stocks year after year starting from 1998, with the cumulated total standing at 63.1 million tonnes by the end of July 2002, nearly 40 million tonnes in excess of buffer norms and this in spite of declining per capita foodgrains output, and two to four million tonnes of grain exports every year.
Last year, the worst drought year for over a decade, between June 2002 and June 2003, the NDA government exported a record 12.4 million tonnes of foodgrains and continued to export a million tonnes a month, bringing the declared total exports to over 17 million tonnes by November 2003. Let us remember that millions of people were going hungry with the meagre average absorption level of 158 kg in the year of the largest harvest seen to date 212 million tonnes in 2001-02, or 177 kg average output. The difference of nearly 20 kg per head, between output and absorption, was going as addition to stocks, held at increasing costs, and as exports.
The Economic Survey 2001-02 (pages 118-130) argued that excess stocks were a surplus over what people voluntarily wish to consume, and represented a problem of plenty. National Sample Survey data on falling share of cereals in the spending on food were quoted to argue that not only the well-to-do but all segments of the population were voluntarily diversifying their diets to high value foods away from cereals. It said that minimum support prices (MSP) to farmers have been too high, resulting in excessive output and procurement.
For a country which has been seeing falling per capita foodgrains output and sharply rising rural unemployment, these arguments are illogical to the point of being foolish. We now know why the Central government undertook massive food exports last year in a situation of steeply falling food availability and despite a severe drought: it has all been justified and rationalised already, simply by interpreting deepening hunger and starvation as voluntary choice, and way below-normal consumption as overproduction, in a grotesque travesty of reality.
It seems that the question of effective demand, and of demand deflation, is simply not understood by most people. While everyone understands food shortage as in a drought, namely a physical output shortfall which curtails supply, it appears to baffle many that even more severe consequences can arise when the effective demand of the masses falls; that is, even though the physical supplies of foodgrains are there, people starve or move into deepening hunger, owing to their inability to purchase food or to access food.
The reasons for declining rural mass effective demand in the 1990s to date are many, and are connected with deflationary neoliberal reforms combined with trade liberalisation.
First, rural development expenditures, which averaged 14.5 per cent of gross domestic product (GDP), during 1985-90, before reforms, were reduced to 8 per cent of GDP by the early 1990s as part of the deflationary policies advised by the Bretton Woods Institutions (the World Bank and the International Monetary Fund). Since 1998, they have been reduced further, averaging less than 6 per cent of GDP and in some years falling to less than 5 per cent. In real terms, there has been a reduction of about Rs.30,000 crore annually in development expenditures on average during the last five years, compared to the pre-reforms period. If we assume a plausible value of between 4 and 5 for the Keynesian multiplier, this means a drop in incomes in agriculture annually to the tune of between Rs.20,000 crore and Rs.150,000 crore a massive contraction indeed.
Despite all its recent strident talk of development and the costly media publicity to every project, the reality is that no government has followed more systematically anti-development policies than has the NDA during the last five years.
The economy has undergone de-industrialisation with the contribution of industry to GDP, which had been rising in the 1980s, falling from 28 per cent to just over 25 per cent in the course of the 1990s, and large net job losses have taken place in the organised sector.
At the very same time that unemployment was growing and real earnings of the rural masses were falling owing to deflationary policies, the government, under the pressure of advanced countries, removed all quantitative restrictions on trade by April 2001 and exposed farmers to unfair trade, global price volatility and recession-hit external markets. This, even before it was required to remove the restrictions under the WTO regime.
With the implementation of the Narasimham Committee Report after 1994, bank credit became more expensive and reliance on private high-cost credit perforce rose. Reduction of input subsidies and higher power tariffs, all part of the reforms pushed by the Bretton Woods Institutions, were mindlessly implemented even as farmers were in difficulty, plunging virtually all of them, including the normally viable ones, into a downward spiral of indebtedness and causing many to lose land as the latest data indicate. Sale of kidneys and suicides are stark indices of deepening agrarian distress.
While the main prize for utterly servile implementation of deflationary Bretton Woods dictates against mass interests goes to the Central government and its policy advisers, a big consolation prize for the most disastrous State-level policies should go to the Chandrababu Naidu government in Andhra Pradesh which, entering into a direct structural adjustment programme with the World Bank, has hiked power tariff on five occasions. This State has seen more than 3,000 recorded cases of farmer suicides in the last five years as well as suicides of entire families of weavers. In 2002 alone, according to police records (The Hindu, Hyderabad edition, January 6, 2003) as many as 2,580 deeply indebted farmers in three districts Warangal, Karimnagar and Nizamabad killed themselves mainly by ingesting pesticides.
The majority of our economists are obsessed with the question of support price alone, not the issue price which is the relevant one; and by focussing on price alone, they implicitly assume that the population is on the same demand curve as before, whereas in fact the demand curve itself has shifted down so drastically for the mass of the rural population that tinkering with the support price is now likely to deepen the crisis.
An argument often heard is that since per capita income is rising, it is to be expected that people should consume less cereals and pulses, which become inferior goods, and more high-value food; in short, people should diversify their diets. A falling share of grains in the consumer budget as income rises is known as Engels Law. So, it is argued, there is nothing wrong if we see falling absorption of foodgrains per head. This is a total misconception regarding Engels Law and it seems to have contributed to the incorrect official explanations of large stocks as arising from overproduction. It is a misconception because Engel was referring to the fall in expenditure for the direct consumption of grains as income rises, and not to the total absorption of grains which includes direct use as well as indirect use as feed for livestock, to produce milk, eggs, meat, and so on.
Availability of foodgrains thus includes not only direct consumption (as roti, boiled rice, and so on) but also the part converted to animal products by being used as feedgrains (a part of the animal products are exported). It also includes the part converted to industrial products like starch and into processed foods with an urban market. The availability, or absorption of foodgrains per head, because it is for all uses, always rises as a nationss per capita income rises. This is a very well-known fact and supported by an extensive literature on the global food chain, and by the Food and Agriculture Organisations time-series data covering virtually every country.
The recent trend in India of sharply declining foodgrains absorption per head while average per capita income has been rising, is thus highly abnormal, not only in the light of international experience but also in comparison with our past experience we have always seen rising grain absorption per capita as average incomes rose in the past.
Between 1950 and 1991, per capita absorption rose slowly from 150 kg to 177 kg. These gains made over four decades have been wiped out in a single decade of reform, indeed nearly nine-tenths of the fall has taken place during the five years of NDA rule. The only explanation for this is the sharp increase in the inequality of distribution of incomes entailed in the collapse of rural effective demand.
The solution does not lie in trying to justify a bad situation with blatantly illogical theories, or by putting forward spurious estimates showing a reduction in the share of rural population in poverty.
The basic problem is that the quantities consumed by people 30 years ago are being used in current poverty estimates. These quantities, derived from the 28th Round of the NSS relating to 1973-74 (which corresponded to a calorie intake of 2,400 in rural areas), were multiplied by the prices at that time to obtain the poverty-level income in the base year, and since then a price index is periodically applied to update the resulting estimate. Thus a Laspeyres index is being used with quantities in a base year, which by now is far in the past.
The NSS consumption data for 1999-2000 shows that only one-tenth of the rural population had a calorie intake around the norm of 2,400 calories, while two-thirds were below it, giving a total of 77 per cent at or below the norm compared to 69 per cent in 1993, indicating both very high levels of nutritional deficit and a substantial worsening over time. As much as 40 per cent of the rural population in 1999-2000 was at or below an intake of 1,950 calories. Since then the situation has worsened with a further fall in grain absorption.
Yet the corresponding official poverty level estimates, even though they use the same nutritional norm based on the roundabout and faulty Laspeyres index method, show only about 37-38 per cent of the population as being in poverty in 1993 and, according to the government, this declines further to 27 per cent by 1999-2000. It is at most 33-34 per cent or so in that year according to the maximum adjustments made taking into account the change in the reference period in the latter year.
The poverty estimates currently being thrown around have no meaning, and are not worth the paper they are written on. It is high time that the academics and administrators working in the area of poverty estimation used the direct indicators provided by the NSS data and by per head availability.
Utsa Patnaik is Professor of Economics at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi.
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