Assignment 1- Amith
Kaushik Tanneru
Food
security in India
Public Distribution system (PDS) is
indisputably the indispensable part of Indian Poor. They are also called as fair price shops as
Poor get their food grains, sugar, and kerosene at a subsidized stable price
irrespective of market price. PDS story dates back to the Second World War
after Bengal famine. PDS was setup to distribute the rationed grains as there
was acute grain shortage. After Independence the PDS was
introduced to cover the Industrial urban population to prevent them from food
price shocks. The PDS mission was to ensure price stability and standard of
living of the emerging working class. The government also stabilized price by
banning future trades and restricted banks for lending loans for grain trade. By
and large the food prices did not grow over time. This is in conformity with
the Indian development strategy which was initially modelled after the Lewis
development model [Lewis 1954] wherein the agricultural sector supports
industrialisation by providing cheap labour and food(Suryanarayana and Geetha 1993). Though a majority of population rely on agriculture the
government naively exploited farmers hoping Import substitution Industry (ISI) model
is the only way to achieve a sustainable growth. Apart from urban regions PDS
was also catered to the food deficit places.
Initially the procurement for the PDS
was very less as United States of America supported India with PL-480 food
programme. In 1964 Food Corporation of India (FCI) was established to procure
the food grains from farmers and to encourage them by providing incentives. FCI
procures grains from farmers at Minimum Support Price(MSP). FCI also played
market price regulation role by releasing excess buffer when there was grain
shortage in market. Government took every step to ensure cheap availability of
food so that labours can save more and invest back in economy. The market role
in food prices was regulated.
This approach was followed till 5th
five year plan. PDS was made universal, covering the entire country as a part
of the most popular “Garibi hato” plan,
6th five year plan. In 7th five year plant PDS was recognised as
permanent feature to regulate to control prices and price fluctuations. This
model survived till 1991 Balance of payment crisis.
To sail over the crisis India was
forced to adopt structural adjustment programme (SAP) advocated by World Bank
and International Monetary fund (IMF). SAP is the offshoot of Neoclassical
Economics. SAP advices countries to “tighten
their belt“and reduce their fiscal imbalances. Under SAP the government has
to minimize its role and allow markets to operate under freedom (free markets).
India was forced to follow the Neo classical Economy approach to avail the
interests at low rate.
The fiscal deficit of Indian of Indian
government ballooned during 1980-90 due to vote bank subsidy schemes. In
1992-93 the food subsidy bill of the government was Rs 2,800crore that is
equivalent to about 39 % of the government fiscal deficit. Restrictions
on market led to huge black market for food grains. The ‘fair shops’ were
unfair to its customers by cheating on the quantity goods by wrongly
calibrating the weights. The goods pocketed were diverted to black markets. Due
to these leaks in the system the black market flourished and government
subsidies were wasted. Government was left with no other
option other than to cut food subsidies and productively use the resources. As
a result the PDS was revamped into universal to Targeted Public Distribution
System (TDPS). Under TDPS 40% of Indian population which is considered to be
poor is covered. Differential pricing system was created. Few Studies which
have shown that a 10 per cent increase in food grain prices in the year would
increase rural poverty by 10.6 per cent in the next year [Bhattacharya et
al1991] (Suryanarayana 2008). This concern influenced government not ignore food subsidy to
poor as a bad monsoon can put more people back to poverty. The government
created two categories namely Below Poverty Line (BPL) and Above Poverty Line
(APL). TDPS started catering to BPL. APL can also use PDS at a premium price. In
2000 new category was created for “poorest of the poor” called Antyodaya Anna Yojana (AAY) which
further subsidized the food prices. Under AAY one crore population was covered.
Government advocated that the subsidies for AAY and BPL are indispensable.
As
discussed above the FCI procures food grains at MSP as per recommendations of
commission for agriculture costs and prices(CACP).CACP has to consider international
price situation before recommending MSP , but It has never taken it into
account. So there was a huge gap between MSP and international prices. As part of
liberalization to align with the world economy the rupee was devaluated in 1991.
This further widened gap between the prices. This was used as strong evidence
by farmers’ groups to prove that the system of government intervention, instead
of providing support to farmers, was in fact taxing them, as what was denied to
farmers by not allowing access to international prices was more than what was
paid to them in the form of price intervention. Protests from farmers to
increase the MSP and new economic policy to integrate Indian markets with
global markets forced government to
substantially hike MSP to reduce the gap between domestic and international
prices(Chand
2005).But
the hike in MSP and open markets did not favour farmers as per the neoclassical
economics. The traders and middle men maximized
their utility with rationality by exploiting farmers. The reforms failed to
connect the farmers with market. This can be the limitation of neoclassical
economics as Maximization of an individual’s utility can be determent to
others. Traders utility maximization led to exploitation of small and marginal
farmers.
Meanwhile FCI started stocking up its
warehouses with buffer grain. During 90’s PDS prices were also hiked
(differential price strategy) which brought down the difference between market
price and PDS price. The good quality grain was diverted into black market
because of greedy officers at FCI. FCI is left with only substandard grains. People
started preferring market products as market offered better quality compared to
PDS.FCI cant export the grains due to poor quality of grain. The TDPS strategy
instead of cutting down the food subsidy bill inflated it. The government is
now proposing to increase the number of people covered under the Right to food.
But the debate now is that there is no point in nearly universalizing TDPS,
when the majority current allocation is underutilized due to poor quality of
grains. (Suryanarayana
2008).
Under the SAP government revamped
PDS into TDPS to cut down the subsidy and target them to only needy. But in
practice the government failed to cut down the food subsidy. Year on year it
procured more food grains but failed to dispense them out of PDS or export them
due to their poor quality. The only drain for the grains out of warehouses is
Mid-day meal programme and SC/ST welfare hostels. Even the poorest of poor do
not prefer FCI grain and the quota allocated to them remains underutilized. FCI
sits on huge piles of buffer stock. It is on a procurement spree and is
expanding its warehouses as the existing ones cannot accommodate any more. Huge
procurement by FCI is keeping market prices high as its sucking huge chunk of
grains into its warehouse from ever hungry markets which are depriving common
man to afford grains in a local market.
The government has changed
consumption pattern with introduction of MSP. Over period the farmers shifted
from growing pulses, coarse grains to wheat and rice as latter MSP are higher. Production
of pulses has fallen to alarming levels and we are exporting millions of
pulses.
The way out
The
government should let markets decide what farmers have to grow. FCI should have retracted instead of
expanding as part of reforms. It should restrict itself only in procuring
buffer stocks for market stabilization. Buffer stock becomes more important now
to protect both farmer and consumer interests as the futures for gains is
allowed in market which can lead to price shocks. The entire PDS system has to
be disbanded as it proved to be inefficient in achieving food security and the
market has to be allowed to work. The government can subsidize poor by giving
them food coupons or direct cash transfers so that poor can buy goods from
market. This will plug leaks and reduce the food subsidy bill. The market
prices can give better incomes to farmers. By this India can achieve greater
food security both by increasing purchasing power of poor. The government
should also make sure that the farmers explore markets and earn profits without
being exploited by middle men. By following Neo Classical Economics in both
letter and spirit we can achieve a more stable food security for the nation.
Bibliography
Chand, Ramesh. 2005. “Whither India’s Food Policy?” Economic
and Political Weekly (March 12).
http://www.epw.in/special-articles/whither-indias-food-policy.html.
Suryanarayana, M. H. 2008.
“Agflation and the Public Distribution System.” Economic and Political
Weekly (May 3).
http://www.epw.in/commentary/agflation-and-public-distribution-system.html.
Suryanarayana, M. H., and
S. Geetha. 1993. “Revamping PDS Some Issues and Implications.” Economic and
Political Weekly (October 9).
http://www.epw.in/special-articles/revamping-pds-some-issues-and-implications.html.
