Falling Purchasing Power &

Decline In Foodgrains Absorption

Utsa Patnaik

Large decline in foodgrains absorption per head is owing to falling purchasing power, not ‘voluntary choice’

THE per capita availability or absorption of foodgrains in India has declined alarmingly during the decade of deflationary neo-liberal economic reforms, to only 155 kg annually taking the three year average ending in 2002-03. This current level is the same as fifty years ago during the First Plan period, and it is also the level seen during 1937-41 under colonialism. This means that the food security gains of the four decades of protectionism up to 1991, have been totally reversed.

FOODGRAINS AVAILABILITY

After Independence, from the early 1950s to four decades later, taking the 3 years ending 1991, the per capita foodgrains availability had climbed slowly from 155 kg to 177 kg the achievement not only of ‘Green Revolution’ but of expansionary policies slowly raising mass incomes and demand, without too much rise in already high inequality. While the Green Revolution had many problems, its positive achievement in raising grain availability and absorption, should not be underestimated. As the new regime, of deflationary economic reform policies from 1991 eroded mass employment and incomes, we find a decline of per capita absorption to 174 kg by the triennium ending in 1998 and a very steep fall after that to the current abysmally low 155 kg level. Forty years of successful effort to raise availability has been wiped out in a single decade, with over four-fifths of the decline coming in the last six years.

Availability or absorption, is calculated from the hardest data we have, on annual net output adjusted only for change in public stocks and in trade, so by definition it has to cover all final uses – direct use for consumption as grain and its products, use as feed for converting to animal products (a part of this is exported), and industrial use. Per head availability/ absorption (the two are used as synonyms)  is now one of the lowest in the world, with only Sub-Saharan Africa and some least developed countries registering lower absorption than India. Since urban India has been increasing average absorption and average calorie intake, it is rural India where the fall has been very steep. For comparison, China absorbed 325 kg grains per capita  (excluding tubers) in the mid-1990s compared to India’s less than 200 kg at that time, Mexico absorbed 375 kg,  European countries absorbed 700 kg or more and USA absorbed 850 kg.

Although grain output per head fell by about 6 kg over the last six years ending in 2002-03, as may be checked from Table 7 the per head absorption has fallen much more, by nearly 20 kg over the same period. The average Indian family of four members is absorbing 77 kg less of food grains annually than a mere six years ago and since in urban India absorption has risen (calorie intake has also risen), it is the rural family which is absorbing much less. This abnormal fall is because of the loss of purchasing power for reasons already discussed, and it got reflected in a massive build-up of unsold public food stocks, reaching 63 million tonnes by July 2002, nearly 40 million tonnes in excess of the normal stocks for that time of year. Rather than starting large-scale food-for work schemes to restore lost work and incomes, over 17 million tonnes of foodgrains were got rid of by the NDA government by exporting out of stocks with subsidy, and it went mainly to feed European cattle and Japanese pigs.

There can be two very different ways that such huge food stocks can build up: demand growth is normal but output increases much faster, or alternatively output increase is normal, but demand reduces very fast owing to loss of incomes, and the demand curve shifts downwards. In both cases supply exceeds demand, but for very different reasons. As already shown output growth has not been normal but has actually gone down, so the first reason does not hold. It is mass effective demand, hence absorption which has declined to a much greater extent, so it is the second reason and not the first which accounts for the present paradox of increasing rural hunger and record grain exports. If rural demand had been maintained even at the 1991 level (forget about any increase) the absorption of foodgrains today would be 26 million tonnes higher than it is, and there would be no crisis in the agriculture of Punjab and Haryana, which have lost an internal market to that extent in the last six years alone. Instead of current rural per capita calorie intake declining to below the urban average, energy intake would have been maintained.

OFFICIAL DENIAL OF FACTS

The official position is one of wholesale denial of these obvious facts and the creation of what can only be called a fairy tale fit only for intellectual infants. It is argued that there is voluntary reduction in food grains intake and thus there is ‘over-production’ requiring a cut-back in cereals output – a position not supported by the facts. The full fairy tale set out in official publications goes like this: every segment of the population is reducing demand for cereals because average income is rising; (here, the increased income  is assumed to be distributed in the same way as earlier, with no increase in inequality). People of all expenditure classes are voluntarily diversifying their diets away from cereals. The only reason that farmers continue to produce more cereals than demanded, and hence big stocks build up, is because too much output has been encouraged by ‘too high’ administered, minimum support prices of cereals. So MSP should be cut, cereals output in excess of what is demanded at present should be discouraged and the output pattern in agriculture should be diversified to more commercial export crops under the aegis of agri-businesses.

This analysis is completely incorrect and is inconsistent with the hard facts of rising unemployment, falling output growth, swamping of farmers in debt and land loss, and resulting deep agrarian distress. It is dangerous in reaching policy conclusions which are the opposite of those required, and which if implemented will reduce food security further and pauperize even more farmers.

To give an analogy, albeit an imperfect one, suppose that a patient has been wrongly diagnosed by a doctor and loses weight rapidly to the extent of 30 kg. The doctor then blames the tailor for making the clothes of the patient too big and advises that the old clothes should be thrown away and new ones sewn to fit his wasted body. Such advice will certainly alarm the patient for it shows that an abnormal situation is being rationalised as normal and no treatment to restore the patient to health will be followed. The official position on foodgrains output and food security, regrettably shared by many academics who seem not to have applied their minds to the matter, is indicative of such illogical reasoning and is alarming indeed for farmers and labourers in distress. The official prescription of reducing MSP, ending open-ended procurement and cutting back on output will worsen food deprivation and deepen poverty for the millions of farmers and labourers already in deep distress. The idea that price fall benefits ‘the consumer’ ignores the fact that three-fifths of consumers in a poor country are themselves rural producers or dependent for jobs on producers, and deflation harms their incomes. 

ALARMING SITUATION

It is an alarming scenario too for the farmers of Northern India who over the last four decades have been asked to specialise in foodgrains production, and have performed magnificently, selling their rising surpluses uncomplainingly to the Food Corporation of India even when the domestic procurement price was far below world price in the 1970s and again in the decade up to the mid 1990s. They have ensured cheap food to urban areas and food deficit regions by not seeking to maximise their own incomes. Today, as a result of the official embracing and putting into practice of mindless deflationary policies which have reduced mass purchasing power, they have lost internal grain markets to the tune of 26 million tonnes and are being given the irresponsible advice to ‘diversify’ and export to world markets even though these continue to be in recession, and even though all international organisations predict continuing fall in agricultural terms of trade up to 2009-10. Calculations by FAO shows that the terms of trade for agriculture globally, with 1990-91 as base year equal to 100, was about 50 by 2001, compared to over 200 in the 1970s. All projections up to 2009-10 by international bodies, show continued absolute price fall and further decline in terms of trade.

The question that is neither raised nor answered in official publications like the Economic Survey and the Reserve Bank of India’s Report on Currency and Finance which articulate the fairy tale of voluntary diversification, is - How can people suffering employment loss and facing unprecedented crop price declines, be inferred to be better off and be voluntarily reducing cereals demand, and how is it that the current reduced level of total absorption of food grains per head of 155 kg per annum, is not seen in any country except the least developed and sub-Saharan African countries? The observed falling share of food expenditure in total expenditure for almost every expenditure group, is officially cited as proof of every income segment including the poorest diversifying diets and becoming better off, and seems to have persuaded some academics. No attention is paid to steadily falling average calorie intake in rural India as ‘diversification ‘ proceeds. The argument is quite fallacious and is based on a simple confusion between the necessary and sufficient conditions for improvement.

A falling share of food expenditure in total expenditure is a necessary, but not a sufficient index of the consumer becoming better off. The food spending share can fall when a person is getting worse off because income is falling, and some food expenditure has to be sacrificed to buy fuel (which is jointly demanded with food grains), incur transport costs in search of work, and so on. Data for sub-Saharan African countries show dietary ‘diversification’ i.e falling share of calories from cereals and rising share from animal products, when absolute calorie intake is declining quite steeply as per capita income declines. In effect, a Sub-Saharan Africa already exists in rural India today.

The bizarre official efforts to re-invent increasing hunger as free choice, are buttressed by spurious estimates of the population in poverty which will be discussed in more detail in a later paper.

Table 7

Summary of  Annual per capita  Foodgrains  Output  and Availability in  India in the Nineties ( Three Year Average)  

Source: Government of India, Ministry of Finance, Economic Survey, various years. 

Delivering the Moonis Raza Memorial Lecture in Delhi on April 4, 2005 , Prof V S Vyas  has pointed out using the unpublished data from the latest NSS round on consumption, that today, eight of the sixteen large states in India have more than one-third of rural population consuming below 1800 calories daily, the bare minimum specified by the FAO for sustaining life. I find that five years ago, according to the 55th Round NSS data, three states had more than one-third of rural population with intake less than 1800 calories, so the position has worsened greatly during the last five years. This is entirely consistent with the steep drop in per capita foodgrains absorption to which I have repeatedly drawn attention.

The official position is inhumane in rationalising increasing hunger as voluntary choice, basing its prescriptions on bad theory and fallacious reasoning. The only solution which is both humane and is based on sound economic theory, is to restore lost internal purchasing power through a universal Employment Guarantee, to spend to begin with, at least Rs 65 to 75 thousand crores annually on rural development (this is only 2.3 per cent of the 2005-06 estimated NNP), and to raise this steadily by an additional 0.5 per cent annually until it reaches at least 4 per cent of NNP by 2009-10. Only then would the same spending share be reached as during the 7th Plan, two decades after reforms started.  This has to be supplemented by a revived universal and not targeted, public distribution system. 

Will Kumbhakarna wake up?