PDS & FOOD SUBSIDY

Come Forward To Oppose These Wrong Moves

 S Ramachandran Pillai

THE ministry of finance had convened a meeting of economists, government officers, representatives of certain peasant organisations and NGOs on food subsidy, on May 25, 2005 at New Delhi. I attended the meeting as the president of the All India Kisan Sabha. 

While introducing the subject, the finance minister had said that the government had not reached any conclusion on the issue but intended to organise a purposeful dialogue to help the government take a decision later. But the background paper and the issues posed in it give enough indication about the intention of the government. The dismantling of the public distribution system (PDS) is continuing and the finance ministry wants to expedite it. 

GOVT’S NOTE

The background note on food subsidy starts with the assertion that the main problem with food subsidy is that the cost of the services is not commensurate with the benefits to the consumers. According to the note, the circumstances that led to the present situation are as follows:

1. There are inclusion and exclusion errors in identifying the below poverty line (BPL) population and the state government figures are at variance with the Planning Commission of India’s estimates. 

2. The economic cost of foodgrains and the carrying cost are progressively increasing. 

3.  The beneficiaries under the ‘Antyodaya Anna Yojana’ are substantially higher than the estimate of chronically hungry people, calculated by the National Sample Survey Organisation’s consumer expenditure survey. 

4. There are serious and systemic leakages which lead to a negation of the original objectives. 

5. The viability of fair price shops has become a serious problem at the grassroots level.

The policy options proposed in the paper are :

1.  Discontinue the open-ended procurement of foodgrains. Minimum support price should correspond only to all cash costs and imputed cost of family labour (C 2 cost). A simple average C 2 cost will be fixed as uniform minimum support price for all regions.

2. Develop a system of price insurance on the lines of farm income insurance programme, without any subsidy obligation.

3. Reimbursement of costs to the Food Corporation of India will be based on cost norms rather than on actual basis.

4. Introduce food coupons for the BPL beneficiaries.

5. Locate the public distribution system shops in areas where the poor live and to discourage the non-poor from benefiting, etc.

WHY TO ENSURE FOOD SECURITY

However, the finance ministry should have called a meeting to discuss the ways to ensure nutrition security and food security to the people in India. For, the National Common Minimum Programme of the UPA government promises the following to the people: “The UPA will work out in the next three months a comprehensive medium term strategy for food and nutrition security. The objective will be to move towards universal food security over time, if found feasible.” The government has so far not cared to address this issue which is vital to millions of vulnerable sections of the people. 

The most important task in the present situation should be to guarantee adequate physical and economical access to food, so as to ensure food security and end endemic hunger. A well-functioning public distribution system alone can be the means to ensure adequate physical access to food at the local and household levels. 

India stands first in terms of the absolute number of persons suffering from chronic hunger. The proportion of the malnourished population in India is appalling and, at international level, comparable only to the countries of Sub-Saharan Africa.  According to the National Sample Survey, the average per capita per day caloric intake fell from 2266 kcal in 1972-1973 to 2183 kcal in 1993-94 and further to 2149 in 1999-2000. Among the lowest 30 per cent rural households in respect of consumer expenditure, the per capita calorie intake fell from 1830 kcal in 1989 to 1600 kcal in 1998.

The impact of so inadequate calorie and food intake falls most severely on women and children. According to the National Health Survey of 1998-99, 47 per cent of the children below the age of 3 were malnourished. In addition to this, India is facing a large-scale agrarian crisis, a crisis of employment and a crisis of purchasing power among the working people, both in rural and urban India. The rising number of suicides among the peasants and agricultural workers in many states is a vivid indicator of the growing crisis in the rural economy.

DANGEROUS SUGGESTION

In this situation, the suggestion to do away with open-ended procurement is a dangerous one and will have serious disastrous consequences. The minimum support price and open-ended procurement have contributed, despite all limitations, to the growth of foodgrain and agricultural production and to food security. The changes made in the agricultural policies, consequent to the implementation of the new economic policies, have resulted in foodgrain production falling below the rate of population growth and a fall in the rate of growth of agricultural production.  

It was in this context that, after examining various options for producer support, the Abhijit Sen Higher Level Committee on Long Term Grain Policy (HLC 2002) came to the conclusion that open-ended purchase was WTO compatible and should continue to sustain and support grains producers. If procurement is limited to fixed targets, then only some cultivators in some states will benefit from the procurement price and purchase policy. Such a policy cannot give any guarantee to the peasants that their agricultural crops will be purchased. The Abhijit Sen committee rightly concluded that the minimum support price and open-ended procurement should continue and both the reach of procurement in respect of crops and the geographical spread of procurement centres need to be expanded. It was also pointed out that  the price setting of minimum support prices for a range of crops encourage a balanced mix of crop production. Further, to extend the reach of this policy, it was suggested that the minimum support price system should be given a statutory status. Instead of taking steps to implement the recommendations of the Abhijit Sen committee, however, the finance ministry is proposing to give up the minimum support price system and open-ended procurement. The peasantry will not allow this disastrous move to happen. 

The suggestion of the government to discontinue the open-ended procurement and to fix targets on the basis of norms fixed by the government and the inadequate price fixing formula will have serious adverse effects on agricultural production and foodgrains production. The crisis in agricultural sector will aggravate and millions of peasants and agricultural workers will be thrown out of agriculture, to face total ruin. According to the finance ministry’s note, the farm insurance programme can be a substitute to the open-ended procurement. The existing scheme of crop insurance is only very limited in coverage and suffering from a number of problems. Moreover, according to the finance ministry, a comprehensive and large-scale insurance programme should be “self-financing without any subsidy obligation.” Most crop yield or income insurance programmes in other countries are, however, highly subsidised. Japan has a crop insurance scheme for rice, in which 50 per cent of the premium is subsidised. Without subsidies, premium rates can only be high and unaffordable to the mass of rural cultivators in India. It seems from the background note that the finance ministry believes that the peasants in India are capable of taking care of themselves and the operation of the capitalist market forces in the agricultural sector will lead the peasantry to prosperity.

EXPERIENCE OF PDS TARGETING

The experience of targeting of the public distribution system is that it has led to the exclusion of a large number of needy persons. There are many reasons for this exclusion, but the most important of them is the unsuitable and inappropriate definition of the eligibility for BPL status. The criteria fixed for deciding poverty line were defective, very restrictive and based on an old and outdated formula.   The choice of any other criteria, such as nutritional status, brings a much larger population into the eligible category. In the United States, any household that spends more than 33 per cent of its income on food will get access to subsidised food. If that criterion were used in India, then 95 per cent of the population would be eligible for food subsidy. In China, the criterion to establish poverty is that a household spends 50 per cent or more of its income on food. By that criterion, 80 per cent of India’s rural population should get food subsidies.

Targeting always leads to error of wrong exclusion of eligible persons. These errors of wrong exclusion of the genuinely poor or deserving households are serious and will deprive them of their right to be free from hunger. India  is a signatory to the Rome declaration on world food security that affirmed “the fundamental right of everyone to be free from hunger.”

Targeting of the public distribution system has also dealt a severe blow to the viability of the fair price shops. If shops have more users, more commodities and higher turnover, profits would also rise. It is not further targeting that can raise the viability of fair price stores but universal coverage of the public distribution system.

Instead of discussing any further targeting, therefore, the government should take appropriate measures to achieve universal coverage of the public distribution system. This is also what the UPA’s National Common Minimum Programme says.

EXPERIENCE OF FOOD COUPONS

One of the other options suggested in the background paper is to supply grain at a uniform price for all households at the above poverty line (APL) prices and distribute food coupons to the BPL beneficiaries for the differential between the APL and BPL prices. The international experience shows that this suggestion is disastrous, as food coupons and food stamps have always been the means of narrow targeting or reducing the coverage of food distribution and they reduce the real value of food subsidy.

The background paper also speaks of the role of food stamps. Giving stamps rather than grains means the state is giving up its responsibility of physical delivery of foodgrains. The quantity, price and quality of the grain supplied by a private store cannot be ensured. The experience of the other countries is that many private stores refused to accept stamps because of the delay in getting reimbursement. It is also difficult to ensure the participation of a private store in the scheme, stocking of adequate quantities of commodities to be given to stamp holders, and that they do not overcharge for or underweigh the commodities. If the prices are not controlled, the real value of food stamps can only decline.

The international experience also shows that it is very difficult to control prices in the private market and, wherever food stamps were experimented, the value of the food stamps has declined. The system of coupons and stamps imposes additional burden on poor households to collect coupons or stamps regularly, store the coupons, locate a suitable store and verify the prices. If there is only one adult in a family, the stamp and coupon system become quite burdensome.

TRANSPARENCY & ACCOUNTABILITY

There is no denying the fact that there is leakage, large-scale diversion of foodgrains from and wastage in the public distribution system, etc. Leakages are mainly taking place at two sites --- at the Food Corporation of India, the nodal agency that is responsible for procurement, storage and distribution, and at the level of local administration and delivery, the fair price shop, ration controller etc. The operational costs of distribution and storage by the Food Corporation of India should be controlled through greater transparency and accountability in its functioning. Improvement in the administration of fair price shops is necessary. Decentralisation of some functions to the local level, democratically elected panchayat, involvement of the mass organisations, transparency etc can help improve the administration and monitoring of the working of the public distribution system. The attempt should be to improve the system and not to dismantle it. 

In view of the above, the government must desist from implementing the policy options proposed in the background note. Instead of further targeting and dismantling the public distribution system, it needs to be strengthened, with universal coverage, as a large majority of the population is vulnerable to food deprivation. The minimum support price and the open-ended procurement system should be strengthened and expanded to more crops and states.

The peasants, agricultural workers, workers and all other sections of the common people will have to come forward to stop the government from implementing the options proposed in the background paper.