food crisis

'No mechanism to protect the poor'T.K. RAJALAKSHMIInterview with Utsa Patnaik, Professor of Economics, Jawaharlal NehruUniversityhttp://www.frontlineonnet.com/fl2508/stories/20080425250802400.htmIN a period characterised by all-round price rise, the issue of foodsecurity assumes extreme significance, especially for the rural and urbanpoor. At a time when the need for a universal public distribution system isincreasingly felt, the government's categorisation of a very smallpercentage of the people as being below the poverty line and eligible forrations has invited a lot of criticism. Utsa Patnaik is among those who donot agree with the poverty estimates of the government. She feels that thecurrent price spiral must have aggravated the sufferings of a much largernumber of people than is realised.Q: In this situation of unprecedented price rise, how important do you thinkis the issue of food security?The major policy thrust of the last 15 years, which has slowly changed onlyin the last few months, has been that food security is not all thatimportant. It was taken for granted that we would be able to maintain ourfood security. This policy direction has mainly involved reducing the foodsubsidy and running down the public distribution system [PDS].The roots of the present inflation do not lie in the global inflation as isbeing claimed by the Deputy Chairperson of the Planning Commission. I don'tagree with that view as what we are witnessing in India is not a short-termphenomenon. If one looks at the question of foodgrains, the working of thePDS was made possible, between 1965 and 1990, by the phenomenal expansion offoodgrain production in the country. The moment our entire economic strategybegan to be guided by the neoliberal paradigm, one of the major decisionswas to cut subsidies.In the early 1990s, there was already an attempt to cut subsidies as theissue price of foodgrains from the PDS was almost doubled while theprocurement price given to farmers rose very little. This ignored a simplefact of macroeconomics: if this was done, the poor would be priced out andthey 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 thesubsidy for the poor. We got into the disastrous system of targeting; thedistinctions of Below Poverty Line, Above Poverty Line, and so on. If onelooks at the history of targeting in other countries, it becomes clear thatit has always been a prelude to winding up of state intervention inprocurement. That has been the ultimate aim of the International MonetaryFund, the World Bank and the World Trade Organisation. They specifically saythat the state should not intervene to buy and sell at prices other thanglobal prices.The WTO agreement on agriculture states that for food security purposes, thegovernment can maintain food stocks but then, at the same time, it says thatthe government cannot offer farmers prices that are higher than globalmarket prices. Global prices are very volatile. The government's role hereis to protect both the farmer and the consumer. The whole rationale of thePDS lies in that.By the end of the 1980s, the Food Corporation of India [FCI] was interveningto a very significant extent. My calculations show that 45 per cent of allfoodgrain sales in the economy were made to the FCI, which meant that theminimum support price to farmers and the issue price could be effectivelyimplemented. Private traders weren't able to raise the prices too much abovethe rates at the fair price shops. All this began getting jettisoned as soonas the shift to the new paradigm began. Nearly 8 million hectares of ouragricultural land have been shifted to horticultural crops, cotton,sugarcane, and so on. The farmers who took to these crops have ultimatelynot benefited since they have been ruined by exposure to sharp pricedeclines as protection was removed.So, on the one hand the PDS began to be run down, and on the other, theshift in cropping patterns began. Farmers were literally lured into shiftingfrom growing millets to cotton or expanding coffee or pepper by temporarilyhigh global prices. Effectively, by 2001, the protection to our farmers wasalso removed. The quantitative restrictions went and tariffs were put atvery low levels. The moment the world prices started crashing, these farmersbecame insolvent, within two years or so, and the suicides started.In the case of the food economy, the picture has been quite complex. Why wedid not have inflation earlier was because there was a faster rate of fallin the purchasing power of the people than there was in foodgrain productionper head. But that has changed in recent years. The growth rate of foodgrainproduction began coming down in the 1990s. It came down to 1.7 per cent ayear as compared to 2.8 per cent a year in the 1980s and in the last sixyears it has fallen further to below 0.5 per cent per annum. That was asharp deceleration and that is what I've been predicting. I have beenarguing this for a long time that if you divert area and resources fromfoodgrains, the growth rate is going to come down. In fact, it came downbelow the growth rate of the population.After 2000, the rate of decline has been very fast. Our political class isvery sensitive to inflation but not to the farmers and labourers. Thefarmers were getting more and more into distress as output prices werefalling from the mid-1990s. And, secondly, as the government had beencutting back on rural development expenditure, unemployment began risingfast, particularly in rural India, and this resulted in declining purchasingpower. A combination of all these factors resulted in a decline in percapita 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 by2002. This build-up was happening because per head demand was falling evenfaster than per head output was declining.Our government and economists were completely blind to this as they thoughtof stocks only in terms of overproduction; that we are producing more thanwhat people voluntarily wanted. But this approach was incorrect. Thisignored the fact that it was not voluntary. If people lose purchasing powerdue to unemployment caused by the government cutting down on developmentexpenditure, by crashing world prices of cotton or pepper, it is not avoluntary choice; they have to reduce consumption. The government advisedfarmers to switch out of foodgrains, procurement price was frozen andprocurement run down. Farmers responded to these signals by cutting backoutput which has been stagnant for seven years after 2000. Now the situationis so bad that our very obtuse policymakers, having created this situation,have woken up to the reality that something is dreadfully wrong. The growthrate has fallen so much in the last six years that the per capita output isnow lower than the demand and that is why the government has been forced toimport. There is an outcry against imports but this outcry should havehappened earlier when output was going down for over a decade. Now if theydo not import, they would not be able to run even the Antyodaya or a minimumwelfare programme.The logic that these people have been following for 15 years is that foodsecurity does not matter, farmers should produce to supply supermarkets inadvanced countries under contract to transnationals, and we can alwaysimport food if required. This ignored the fact that if we are growing cashcrops, there is no control over the foreign exchange earnings if the unitdollar price of export crops falls. We are all in a competitive race to thebottom 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 isbecause the global price for wheat has almost doubled in less than a yearand that is due to the high global price of oil leading to large-scalediversion of grain to ethanol production in advanced countries.Even if our government now goes to the global market, they have to pay anenormous rate to buy grain. They have woken up 10 years too late. They haveraised the procurement prices now. But after declaring the economy open andfree 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 priceshave also risen. The reason for that is twofold; the feed for livestock is abyproduct of grain production. When there is a decline of per capita cerealoutput, the feed output also goes down. Marginal farmers have really gotaffected by this as they have been unable to maintain even their minimallivestock. From the National Sample Survey data on land and livestock, Ifound that there was a rise in landlessness in terms of operated area. Therehas been an enormous loss of livestock of small and marginal farmers. Partof it has been sold to the richer farmers but the average livestock holdinghas gone down. It is not a short-term problem; it is a structural problemthat has been created by an attack on the very basis of our production andthis requires very strong measures to revive our agricultural economy.Q: In the 2005-06 Plan document, the Planning Commission observed that thePDS was the most significant instrument to moderate open market prices andensure food security at assured prices. You have been criticising thePlanning Commission for adopting an arbitrary methodology to determine theBPL population in order to deflate the level of poverty.There are two aspects to it. From 1997 onwards, the government startedcutting allocations of foodgrains to the States. They started taking anaverage of the preceding 10 years as an indication of what the allocationshould be. Now what had happened in the last 10 years was that asunemployment rose and purchasing power began going down and people werebuying less food and by reducing allocations on that basis, it was as if thegovernment was rationalising the loss of purchasing power. This wastantamount to saying we should have permanent loss of purchasing power andpermanent hunger in our country.People sitting in the Yojana Bhavan [Planning Commission] are not affectedby cuts in foodgrain allocation. They buy from the open market anyway buttheir decisions affect the lives of millions of poor people in this country.If they are doing it unconsciously, then they are simply incompetent aseconomists; if they are doing this consciously, they do not deserve tooccupy the chairs that they do. The reason for the decline in PDS offtakewas that the segment of our population that needed the fair price shops mostfaced rising unemployment, loss of purchasing power and higher prices. Thelast happened because of the rise in issue prices as the government wastrying to cut the food subsidy.Second, targeting intensified the problem. The government put a whole lot ofpeople who were actually poor in the APL category and this compounded theproblem. Earlier they were being priced out; now they were institutionallybarred. A new permit system was introduced where people had to show theywere BPL.Q: There is this argument that people are not able to access foodgrains fromthe PDS because of a lot of wastage and because of leaks into the openmarket. It is not because they do not have purchasing power.A certain amount of wastage does take place but it can be addressed bybetter transportation systems and better forms of preserving foodgrain. Eventhe private trader encounters a certain amount of spoilage. But how does itget better by winding up the FCI and giving it all to the private trader? Itis not a logical argument at all. But there can be a certain scope fordishonesty when the gap between the PDS prices and the open market prices isvery large, and then there is an incentive to divert foodgrain and gethigher 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 besold at BPL prices to everybody. To restore purchasing power, other thingshave to be done – like increasing rural development expenditure andimplementing the National Rural Employment Guarantee Programme [NREGP]sincerely. Why couldn't the government have started it in 1994? Why did theysuddenly wake up and start increasing allocation only this year? I looked atthe NREGP and found that the National Democratic Alliance government wasalready giving a certain amount for all the employment generation schemes.What this government did was to only increase the allocation by 10 per centto Rs.12,900 crore in the districts where the programme was introduced. Andthen the allocation was cut down to Rs.12,000 crore in the 2007 Budget. Itis only in this Budget that the allocation has been increased, but it isstill very small. Adequate budgetary provisions have to be made.Q: 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 twoor three decades; that only 28 per cent of the population was eligible forPDS at the all-India level in 2004-05. The Arjun Sengupta Committee reporton the working and living conditions of workers in the unorganised sectorstates 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 government'sestimate of the rural poor is only 28 per cent now for 2004-05 (thosespending less than Rs.12 per day) whereas the actual percentage below thegovernment's own nutrition norm is 87 per cent, spending less than Rs.26 perday. The entire basis of the Planning Commission's estimates of the numberof poor people is not correct because the poor cannot be counted and povertycompared over time by reducing the consumption standard over time. They arefollowing a method that is spurious. They have abandoned their ownnutritional norm. They take the quantities people consumed in 1973 andwhatever the cost then, they update it by a price index to get the povertyline for more recent years. But that does not capture the change in theactual cost of living.I joined my University as a Reader in 1973 and my gross monthly salary wasRs.1000; if I apply the consumer price index for an urban non-manualemployee, then a Reader joining today should get less than Rs.5,000. Whenthe government determines the salaries of its employees or teachers inuniversities, it does not apply just the price index. If it does, then onewould reach absurd salaries. They use this method only for counting thepoor.The true poverty line can be obtained easily from the NSS data. The PlanningCommission did it only once, in 1973-74, when it applied the nutritionnorm – that is, how much does a person need to spend every month to get acertain amount of nutrition. After that, it abandoned the definition ofpoverty line completely. They have not factored in the nutrition norm for 30years now. The poverty line they have got at present is crazy. The all-Indiaofficial poverty line gives only 1,800 calories and not the nutritionalnorm, which is 2,400 calories and costs over double the official povertyline. Moreover, for some States, it is much lower than that and in others itis higher.The poverty line has been pushed down so low in States like Andhra Pradeshand Tamil Nadu, enabling them to say that very few people are poor but it isnot mentioned that people cannot access even 1,600 calories at these povertylines. Their bogus poverty estimates are used as a guide for allocatingfoodgrains. The genuinely poor States are left behind. Government policy nowis based on a set of perceptions that are diametrically opposite to that ofreality. They have used the NSS data in a selective manner. No academic hasany business to look at the expenditure data only and not at the caloriepart of it. It is in a sense suppression of information and not academicallyjustifiable. 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 centare below the poverty line. There is a huge increase in poverty as comparedwith 1993-94. Only a universal PDS makes sense where the poor are now nearlynine-tenths of the rural population.Q: It is felt that by addressing the crisis of agricultural productionalone, the problem will be solved. Does it automatically translate into morepurchasing power?Neoliberal policies have attacked both production and access. The issues areintimately connected because for farmers an attack on their production is anattack on their incomes and with decline in growth labourers get unemployedas well. Some belated measures have been taken to revive agriculturalproduction but a lot more needs to be done. The government needs to revivethe Commodity Boards and they need to do their job of procurement ofcommercial crops. State intervention in the market is very essential toprotect both the consumer and producer from fluctuations. This is to ensurethat farmers do not suffer from price falls and consumers do not suffer fromprice rise. If the procurement and distribution system had not been rundown, we would not have been in a mess today. Today, we do not have themechanism to protect the poor from inflation.