Monday, April 8, 2013

Food: The Mistakes of an Earlier Decade Repeated

THERE is a curious sense of déjà vu about the developments in the last few years on several fronts. As was the case a decade ago, the general elections are only a year away, and the economic situation is as grim as it was in 2003 when the NDA government formulated its pre-election ‘India shining’ slogan. Perhaps the recognition of the grimness is more widespread today since even the ruling classes can hardly claim that India is shining, and only a couple of World Bank poverty estimators have had the temerity to say that the poor in India are shining too. The similarities with a decade ago are eerie: enormous unsold food grain stocks have built up over the last three years, just as in the four years preceding 2003 huge food stocks had embarrassed the then NDA government. The latter had exported 22 million tons of food grains during the severe drought years of 2002-2003 while people especially in rural India starved; already India has exported over 15 million tons during this year and a total export in excess of over 20 million tons is likely, even though per capita grain availability for the Indian population is down to a historic low and both average calorie intake and protein intake have continued their decline.


The way economic affairs have been run in this country is utterly irrational not primarily because policy makers in power are unintelligent, but because they are intellectually servile: they have abased themselves before the requirements of finance capital to a degree where they have left no scope for the pursuit any rational policies to benefit the people. Particularly striking is the fact that the patent failure of the governments in the advanced capitalist world to order and regulate their own economies, their failure to rein in the unemployment and distress created by the pursuit of public policies subservient to finance, has not altered one whit the subservience of Indian policy makers to these very same dogmas of finance. One major part of the dogma is to follow policies of fiscal contraction even when unemployment is rising, and the last two budgets have given shape to this dogma by reducing expenditure in real terms. Another dogma is to cling to targeting the food subsidy and thereby artificially reduce the access of the actually poor to affordable food grains from the public distribution system.

When very large public food stocks build up, as happened a decade ago, and has been repeated in the current period, it is not an indication of over-production but of under-consumption. Under-consumption results on the one hand from rising unemployment, and consequent loss of purchasing power, and on the other from the government deliberately reducing access to food grains, by clinging dogmatically to targeting and refusing to restore a universal distribution system, as had prevailed in the country before 1997. In fact the reduction of access through targeting is being compounded through the recent schemes for substituting cash for grain entitlement, which, in the current period of rapid food price inflation, clearly reduces the real command over food of the alleged beneficiaries.

A decade ago, before the 2002-03 drought year, the NDA government had systematically cut back on rural development expenditures in real terms, and had, in addition, exposed producers to global price volatility, thus promoting   agrarian distress and farmer suicides on an extensive scale. It also implemented targeting vigorously, to an extent where the distribution of grain from the PDS reduced drastically.  The per capita domestic availability of food grains by 2001 had declined to the lowest level in over four decades. Income deflation on a mass scale, resulting from a reduction of nominal purchasing power, combined with a denial of entitlement to affordable grain, through targeting out millions of the actually poor, lay behind the mounting unsold food stocks.

Rising stocks were thus coming out of more and more empty stomachs. By mid-2002, unsold public food stocks of 64 million tons had built up, in excess of buffer norms to the tune of 40 million tons. Instead of taking measures to distribute the stocks within the country – the most effective way would have been to do away with the artificial Below-Poverty-Line and Above-Poverty-Line divide –the NDA government chose to export out of stocks at a subsidised price, while the importing countries used Indian grain to feed their cattle and pigs.  Only the severe drought induced a modicum of expansionary fiscal policies from 2003; no doubt one objective was also to garner popular support before the 2004 general elections. 

Such was the euphoria when the UPA-1 government came to power in 2004 that there was little public criticism of the ominous policies of fiscal contraction it immediately put in place. One of its first measures was to notify the FRBM Act and reduce the fiscal deficit drastically to 2.7 per cent of GDP by  2006-07, even though there was no external payments problem that, even on the flawed neo-liberal logic, could have been adduced as warranting such contraction. The finance minister while thus creating further income deflation and unemployment, proudly quoted the 2.7 per cent figure in his March 2008 budget speech to claim that the target of 2.8 per cent deficit to GDP ratio had been more than met, and that India’s economic reforms were on track.

Fiscal contraction could not have been more badly timed, on the eve of major global recession from the end of 2007. One is reminded of the misguided deflationary policies of Japan’s finance minister K Inouye in 1928 on the very eve of financial crisis and depression in the advanced countries and the collapse of US demand for Japan’s exports. With such contraction of public spending combined with global recession impacting exports, it is hardly surprising that India’s employment figures from the National Sample Survey show a virtual collapse between 2004-5 and 2009-10. While annual employment grew at 2.7 per cent during 1999-2000 to 2004-5, it came down to only 0.88 per cent between 2004-5 and 2009-10. The decline in rural India was from 2.21 per cent to 0.42 per cent and in urban India from 4 to 1.9 per cent.  It has been widely noted that there has been an absolute decline in female employment in rural India.   

Another measure by UPA-1 government was to run down the public procurement and distribution system for years on end. Under the mistaken idea that growing food stocks in the past represented over-production, procurement prices were kept stagnant for five years and grain output reached a plateau of 213 to 215 million tons between 2002 and 2007. It was only with the global food price spike of 2008 and food riots in dozens of developing countries that procurement prices were at last increased to a significant extent; and farmers responded by increasing output.  After a moderate drought year in 2009-10, food grains output peaked at over 250 million tons by 2011-12 bringing per capita net output back to a level above the 175 kg mark. Demand deflation owing to rising unemployment had already gone so far however that there was a steady build-up of stocks and the three-year average availability during 2008-10 declined to below 160 kg per capita, one of the lowest in the world.


Availability is measured by subtracting from output both net exports and net increase in stocks. The more stocks increase, and the more exports there are, the lower will be the domestic availability for the population. The restriction of   domestic demand owing to the loss of mass purchasing power is reflected not only in rising stocks but also in larger exports. At 17 million tons in 2007 India exported the largest ever amount of food grains in a single year, and its domestic availability that year fell below that of the least developed countries. If over 20 million tons are indeed exported this year as expected, then even this dubious record too will be broken.

By June 2011 public food stocks were a mountainous 82 million tons, nearly 60 million tons in excess of buffer norms. In January 2013 the normal quarterly stock level should have been about 22 million tons while actual stocks were 65 million tons; and this has shot up further after procurement from the rabi harvest. By refusing to remove targeting, including in the proposed National Food Security Bill, the government in effect has created a dam holding back an ocean of grain from the parched landscape of an increasingly underfed population.

Both rural and urban average daily intake of energy (calories) and protein have been declining. The average daily rural /urban energy intake was 2020/1946 calories in 2009-10, compared to 2221/2089 calories in 1983. And the average protein intake in rural/urban India was 55/53.5 gms in 2009, compared to 62/57 gms in 1983. By now, a further decline is likely to have taken place.

This decline is primarily owing to the decline in food grains consumption, since staple grains remain the main source of both energy and protein for the population. While the bulk of the population is more and more underfed, an increasing share of the food subsidy is going uselessly simply to meet the cost of holding stocks. What could be more irrational than such a denouement? This is the real face of neo-liberalism, where administrators blindly follow the economic dogmas of finance capital, regardless of the hardships to the people and the burden on the exchequer.

There is one major difference, however, between 2003 and 2013. In the past the imminence of the general elections meant some let-up in the contractionary fiscal policies; there was some increase in public development spending in real terms and hence some expansion in employment and in mass purchasing power. But this year is an exception: even though the general elections are around the corner, fiscal contraction continues, because the government is panic stricken at the widening current account deficit. Rather than tackling the problem of the current account deficit directly through import restrictions, it thinks, fallaciously, that the only way out is to entice more foreign investment; and to this end, every other pressing consideration is sacrificed, and measures of income deflation are imposed on the people in order to appease finance capital.

Given this scenario there is little prospect of revival of employment and of mass purchasing power. It is all the more important that the Food Security Bill should be revised to do away with targeting completely. In its present form, which retains the problematic provisions for identifying beneficiaries, it will continue to act as a barrier to the distribution of food to those who need it the most. The irrationality of mounting food stocks, mounting exports of food, declining food availability and falling nutritional levels for an abysmally poor population, will be perpetuated. A determined drive by all progressive forces to do away with targeting is required.

Utsa Patnaik People's Democracy 07 April 2013

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