People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 21

June 02,2002

The Crisis of the Food Economy


Jayati Ghosh


THERE is little doubt that the food and agriculture situation in the country is in a state of crisis. What is more remarkable is that this is now a crisis of fairly long duration, whereby, for nearly two years now, some of the more disturbing aspects have continued without any abatement. Thus, cultivators have been in distress because of rising costs and inadequate financial returns on sales. Foodgrain stocks held by the public sector, which mounted to several multiples of the desired level of stockholding, have continued to remain high and even increased. Meanwhile, there is continued incidence of chronic absolute poverty and malnutrition among a significant section of the population. Areas of distinct food shortage also remain.





The original objectives of India’s public food management system were threefold: (1) to maintain a reasonable degree of price stability; (2) to provide some producer incentives to cultivators by ensuring that prices remained above estimated costs; and (3) to provide a degree of food security to consumers. The system rested on the twin pillars of (a) public procurement with minimum support prices provided at farmgate for a range of major crops, and (b) public distribution organised at the state level through a network of Fair Price Shops, providing some food items at subsidised prices.


Of course it could be argued that the system was never completely successful --- either in terms of its spread or in terms of fully achieving its basic objectives. Nevertheless, over the 1970s and 1980s, the network did certainly expand in physical terms and Indian food and agricultural prices were certainly more stable than world market prices for such commodities.


However, in the 1990s the system came under increasing pressure, and even under attack. For, various measures aimed first at targeting access to the public distribution system to only those officially defined as “poor,” and then at reducing the subsidy offered to other consumers, undermined the consumer network. These measures, which were supposed to reduce the food subsidy, had precisely the opposite effect of increasing it, because they led to a declining offtake (sales) from the Fair Price Shops.


The current level of publicly held food stocks is estimated to be in excess of 65 million tonnes, compared to the buffer norms of 16-24 million tonnes. In consequence, the revised estimate of food subsidy for 2001-02 is a record Rs 17,612 crore on disbursals basis, and total expenditure is likely to be at least 20 per cent larger when amounts outstanding against stocks held by state governments are cleared. Of this, the dominant part is the carrying cost of foodgrain stocks, which exceeds Rs 12,000 crore. This happens to be larger than the central government’s combined plan and non-plan expenditure on agriculture, rural development, and irrigation & flood control.


To understand the patterns that have created this strange situation, it is necessary to look first at the patterns of agricultural growth over the recent past. The decade of the 1990s was disappointing in terms of aggregate growth performance of agriculture, marking a distinct deterioration from the growth rates of the earlier decade. There was a decline in rate of output growth for every single one of the major crop categories. Over the period 1990-91 to 2000-01, the growth rate of foodgrain production dropped to 1.66 per cent per annum, which was lower than the population growth rate of 1.9 per cent over the same period. This was not only the lowest average rate since the mid-1950s, but also amounted to a dramatic drop when compared with the earlier decades.





Nevertheless, in the 1990s there was a shift from net imports to net exports in aggregate foodgrains. While foodgrain exports can be a sign of domestic self-sufficiency and market saturation, they need not be so: India was a net exporter of foodgrain even in the late 19th century, when much of its population was denied access to adequate food. The situation in recent times may not be very different.


The build-up in public stockholding of foodgrains has occurred largely because of the growing disparity between public procurement (which forms an essential part of the minimum support price (MSP) operations designed to guarantee cultivators a floor price that cover costs) and distribution. The gap is of fairly recent origin: as recently as 1997, public foodstocks were below the buffer norm at 15 million tonnes. However, they have increased continuously thereafter, with the largest increases in the past two years to reach the present high levels.


This imbalance between procurement and offtake reflects wrong administered prices at both points of the system. Minimum support prices have increased (often due to political pressure) much more than the general price index or international prices of these goods. This has caused more output to be sold to the Food Corporation of India, regardless of public requirements. This is why the share of public procurement as a share of domestic production has gone up so much, from 13 per cent in the 1980s to more than 17 per cent in the late 1990s.


The process of reduced offtake over time can be explained by the rising issue prices of foodgrain at Fair Price Shops over the 1990s. The situation was aggravated in 1996-97 by the introduction of the Targeted PDS, which made PDS less attractive to those above poverty line (APL) and increased the unit subsidy for those below poverty line (BPL) but on a reduced initial quota of only 10 kilograms per household per month.





Subsequently, in April 2000, an attempt was made to reduce the food subsidy by increasing all issue prices for APL households to the full economic cost, charging BPL households half the economic cost but doubling the monthly quota to 20 kilograms per household. This led to a collapse in offtake by APL households. Much of this had in fact been predicted by critics of the policy at the time, but to no avail. The consequence of this combination was that foodgrain stock with the FCI continued to be built up, and each successive harvest only added to the “problem.”


The central government has proved to be very resistant to the idea of large-scale increase in employment schemes (food for work programmes) which would use the foodstocks productively. Some minor increase in allocation for such schemes has led to some reduction in stocks but certainly not enough to make much real impact. Subsequent reductions in the central issue prices of basic foodgrains have also not really helped to lure APL consumers back to ration shops, because the PDS network has actually shrunk after 1997. There are concerns about quality of long-stored grain, and the prices still do not really compare favourably with open market prices.


All this is occurring within the context of declining per capita availability of foodgrain for the Indian people. In fact, per capita cereals availability in 2001, at 417 grams per day, was the lowest it had been since 1975, which was itself an outstandingly bad year.


So it is abundantly clear that the present mess in the food economy of the system is the result of policy mistakes of the recent past, rather than the outcome of any externally driven process. It is equally clear that solutions to the problem are also well within the scope of domestic policy-making. The current food crisis of plenty amidst want reflects very basic economic mismanagement by the government, and each day that it continues is a pointer to the continued mismanagement that is now reaching criminal proportions.