Global And Local Inflation In The Context Of Rising Urban Poverty

Utsa Patnaik

THE recent sharp rise in the prices of necessities has caused worry and captured everyone's attention. As many as 37 countries have recently seen food riots by the urban poor faced with near doubling of prices in a matter of months. The attention being paid only now to the issue, should have been given much earlier to the underlying cause of the inflation which is not of short duration but has been maturing for years, and by the same token this inflation will not now easily abate with short-term measures alone. The basic cause lies in the slow-down in the growth of agricultural output and in particular food grains output, which had fallen below the population growth rate over the past two decades in almost every poor developing country in the world, including in India over its fifteen years of neo-liberal reforms. Nor has the food grains output in advanced countries risen enough to compensate for the decline in developing countries. FAO data show that the average annual world cereal output taking the three year period 1979-81 was 1,573 million tonne for a 1980 world population of 4,435 million. By the three year period 1999-01 average annual world cereal output had increased only to 2,084 million tonne for a world population of 6,071 million in 2000. Thus world cereal output per head of population, declined from 355 kg in 1980 to 343 kg in 2000.

What do neo-liberal reforms have to do with declining agricultural and especially declining food grains growth in developing countries? First, there is decline in growth. These Fund-Bank guided reforms always entail macroeconomic deflation, that is a cut-back in investment and development expenditures by the government and this has been implemented in country after country - in many Latin American and Sub-Saharan African countries the process started as far back as the late 1970s while in India it started later from 1991. A mountain of empirical evidence has been compiled by the Fund itself showing the results - decline in investment rates and slow down in growth in most countries. The slow-down is for the economy as a whole in most countries other than India, and per capita real output has actually been falling in over 30 developing countries since the early 1980s (concentrated mainly in sub-Saharan Africa). In India the slow down has mainly affected agriculture which still supports over two-thirds of the population. The fact of the tertiary sector growing rapidly has led many to close their eyes to the significant decline in agricultural all-crop growth. In short neo-liberal reforms hit directly at the material productive base of the economy particularly agriculture which supports every other activity. There is an argument making the rounds that India's high overall growth no longer has a link with agricultural growth. It is forgotten that every person with rising income will eat and drink more, wear more clothes, demand larger living space and travel for work and pleasure, and all these activities (including the last one of late) produces demands on land directly and for its products. Undermining the agricultural base of the economy is like boring holes in the foundations of a building over a long period until it is fatally weakened and ready to collapse at the first serious shock.

Second, there has been endemic structural shift away from food grains to export crops. Every developing country has been urged by the Fund-Bank and the WTO to open up to free trade, to promote its agricultural exports even when the dollar price per unit of exports may be falling because so many countries are made to compete with each other. In short they are urged to be on a backward bending supply curve, to provide supermarkets in advanced countries with a cheaper and cheaper supply of the goods which the cold temperate advanced countries cannot produce at all or can only produce in limited volumes. Given constant sown area this has meant the diversion in country after country, of food crops producing land to exported cash crops and in many cases has led to absolute fall in food output.

In India 8 million hectares of food crops land has been diverted to export crops since 1991 and investment in food grains research and extension work has noticeably declined. The aim and strategy of the advanced countries has been to promote an international division of labour where our more product-diverse land resources are increasingly used to satisfy the demands both of the fat cattle and rich consumers of these advanced countries, for a large variety of products ranging from soya cake (a cattle feed concentrate) to asparagus, from gherkins to roses. Given unchanged sown area this leads to a downturn in food grains output for our own population. In India the food grains growth rate was 2.8 percent per year in the pre-reform decade of the 1980s, well ahead of the population growth rate of about 2 percent. It fell to 1.7 percent over the decade of the 1990s and in the first 6 years of the present century (triennium ending 2000-1 compared to that ending 2006-7), it has come down to an abysmal 0.34 percent. Per head of population, for the first time since Independence for any length of time, food grain output declined over the 1990s and has been falling even faster in the last few years. But all this has been shrugged aside by policy makers as being of no consequence for food security which they have redefined to mean not self sufficiency but access to imports. Developing countries are told they should open up to grain imports from advanced countries to make good any domestic shortfall, and of late it is the US Department of Agriculture which has been estimating our food output and telling us that we need to import.

Developing country governments have obliged the advanced countries: like the early Kalidasa cutting away at the branch on which he sat, they have been busy destroying the food security of their own populations. The advanced country strategy has succeeded. Further, in country after country under Fund-Bank advice domestic foodgrains procurement and distribution systems have been run down or wound up completely since the objective has been to open up markets in them for advanced country surpluses of grain and dairy products. In India the first step running down the PDS was targeting - access to cheap food being denied to large segments of the actually poor who were arbitrarily labelled non-poor. The second step was to cut allocations of food grains from the central pool to many states. The third step is to narrow the access to the PDS further. A parliamentary committee recently reportedly recommended the removal of the so-called APL population most of whom are actually poor, entirely from accessing the PDS.

Until the current global food crisis started erupting a few months ago, our government was busy facilitating the entry of the food transnational corporations for promoting contract farming in export crops to supply advanced country supermarkets, telling farmers they should 'diversify' their output away from food grains and sending the economic signals to ensure this namely freezing procurement price for foodgrains and running down the quantity procured.

The countries where food riots are now taking place have become substantially food import dependent some years ago owing to these and similar policies they have already foolishly implemented. Why was no attention paid to the alarming fall in per head food grains output and availability in our own country which has been going on for over a decade? I have been tracking this and writing repeatedly about it, some would say ad nauseam, since 1992. Our political classes sat with their hands folded and quietly watched the destruction of our food security where they did not actively aid it. Of what use is it to rant and rave now over rising prices without even at this late hour making the slightest attempt to understand the basic cause, which is essential for taking effective steps to redress the worsening situation?

The reason for the inaction in retrospect, seems to be an intellectual failure. People readily understand food price inflation but they do not it seems, understand that there can be a serious situation of growing real shortage owing to per head output decline which does not show itself in inflation solely because mass purchasing power and hence per head demand is falling faster than output per head is falling. Inflation was unusually low until two years ago -the consumer price index for agricultural labourers, rose a mere 11 percent between 1999-00 and 2004-05, even though per head food grain output was falling fast and the food crisis was growing - but this very low inflation rate was because the adjustment taking place was through declining food intake and increasing mass hunger since employment and incomes particularly in rural areas, was falling. Neo-liberal expenditure deflating measures reduced incomes at the same time that they reduced output. We are in a classic depression scenario in rural India.

The long-term global decline in per head cereal output mentioned earlier, from 355 kg in 1980 to 343 kg in 2000 should normally have produced global inflation as well since per head income rose over the same period and the demand for cereals always rises as income rises. Cereals are not only directly consumed but are converted to animal products through use as feed, converted to processed foods and also used in industrial production - including of late ethanol production. Only one-fifth of the nearly one ton of grain that the average US citizen consumes, is directly consumed, the rest is consumed indirectly. There is a silly argument by some writers that people in this country have diversified consumption away from grain to animal products (milk, eggs, etc,) so per head grain output decline does not matter. This is like saying that a sharp decline in per head coal output does not matter because people have diversified away from using coal to electricity, which merely shows that the person does not know that over four-fifths of electricity is generated from coal.

The long-term imbalance produced by decelerating food output growth and falling per head output in the world economy during the 1980s and through the 1990s became invisible to people because no unusual inflation was seen, on the contrary price deflation occurred in many developing countries, precisely owing to the Fund-guided income deflating mechanisms depressing mass incomes and hence effective demand discussed above, in virtually all developing countries. The peasantry and labour both rural and urban in developing countries world wide ate less and less and absorbed the punishment, while urban intellectuals en masse seemed to be conceptually blind and ignored the problem in their writings. Owing to this suppression of inflation via reduction of mass demand, the gravity of the situation was not understood by them or by most observers. A shock or trigger was required to make the long-term imbalance and decline in nutrition explicit, and this shock has now come, largely courtesy Mr Bush and his Iraq misadventure, from the steep global oil price rise which has little chance of being reversed, and consequent large scale diversion of grain to bio-fuel production in advanced countries.

The model of free trade and export specialisation thrust on developing countries, now stands explicitly discredited. Having given up their own food security for export orientation and on the promise of access to food imports from advanced countries, where do developing countries and India go now, when with the large scale diversion of food grains to fuel production in the North, global food stocks have disappeared and there is spiraling food price inflation. For us there are only two alternatives. One is the correct one of a Grow more Food campaign of the same urgency as we had after World War 11, because our per head food output has plunged back to the level of 50 years ago and we can only import now at an exorbitant price. The second, reactionary alternative proposed by a well known economist in a television interview on April 11, was that the NREG P should be given up - there was no point in encouraging income generation and more demand since food supply was already less than demand. In short, let there be more unemployment, more income deflation and more hunger as a means of dealing with food shortage and containing inflation.

Much as they may wish to do so, even the known Fund-Bank men in the UPA government wedded to deflationary ideology will not dare to follow this economist's reactionary advice, a year before the elections. But, nor is the government taking the correct alternative path of an all-out Grow more Food campaign. The urgency of such a campaign will become even more clear when we see that not only has rural poverty risen, but urban poverty and under-nutrition shows substantial rise between 1993-4 and 2004-5, long before the current inflation got under way. There is just no scope for hurting the rural and urban poor further without descent into food riots or even famine.

As regards rural poverty, the percentage of people not able to spend enough on food to reach 2400 calories daily intake (the official nutrition norm) rose from 75 percent in 1993-4 to 87 percent in 2004-5. The percentage below 2200 calories intake rose from 58.5 nearly 70 percent. Official poverty estimates are much lower and show a spurious decline because, first, its own nutrition norms are not applied to calculate the poverty line, rather the cost of a three decade old fixed consumption basket is simply updated using a price index. This procedure has led to a cumulative underestimation of the poverty line until by 2004-5 it stood at less than Rs 12 per day - which could buy at most 1 kg of rice and not basic food and non-food requirements, which required over double this or Rs 26 per day to be spent. (Detailed discussion of rural poverty with state wise estimates is available in my paper in the July 28, 2007 issue of Economic and Political Weekly).

It is not generally realised that while urban poverty was actually slightly declining before 1993-94, after this over the economic reforms period, urban poverty shows a steep rise by 2004-5 in all except one of the states containing the national capital and four major metros, though the rise is less in other states. The bulk of the rise in urban poverty has come after 2000, even though the inflation rate was very low during 2000 to 2005. The main reason is the impact of second-generation economic reforms involving much higher cost of medicines and health care, transport and utilities, which forced down food expenditure by those whose real incomes were stagnant and reduced nutrition. We think of food as the priority item of spending for the poor, but if the very preconditions for earning income become costly (transport to work place, combating ill-health) then even the poor have no alternative but to cut back further on food spending.

Table 1 shows that urban Maharashtra is the most expensive place for the poor where they have fared worst. There is a massive rise from 52.5 percent to 85 percent in the population unable to access through their spending, even 2100 calories per day, the official urban nutrition norm. Over half the urban population has gone below the lowest nutritional level, 1800 calories compared to just over a quarter a decade earlier. In-migration from rural areas and other states does not explain the scale of the worsening which is mainly on account of the people already there. At the risk of being accused of economic reductionism, I would argue that this indicates the fertile ground provided for the current resurgence of fascist sons-of-the-soil type movements attacking non-Maharashtrians. The real reasons for increasing distress of the urban poor are not addressed and outsiders are made the scapegoats.

In prosperous Delhi, the poverty ratio has risen by 22 points from 35 to 57 followed closely by urban West Bengal where the rise is by nearly 20 points from 49 to 68.5 percent. In both there is increase in poverty depth with more people moving under the lowest intake level, 1800 calories. Tamilnadu with the highest initial urban poverty has shown a marginal rise by 1.5 points only and has been overtaken by Maharashtra with the highest current urban poverty. There is a marginal decline in the percentage below 1800 calories in Tamilnadu but it still has almost two-fifths of urban population not able to obtain even this very low energy intake. It may well be imagined what rapid food price inflation would mean for the millions who have already moved into deeper under-nutrition in the major metros and towns located in these states.

The situation of the Scheduled Tribe and Scheduled Caste population is substantially worse (see Table 2, All-India estimates only). In rural India the position of the STs has worsened most with 44 percent moving below 1800 calorie intake compare to 30 percent a decade earlier. In urban India by 2004-5 three fifths of the STs and two-thirds of the SCs had moved below 1800 calories energy intake whereas for the general population the situation had actually marginally improved. Rapid food price inflation will

Table 1

Direct Poverty Estimates for selected states, Urban India, 1993-94 and 2004-05
Daily Calorie Intake	2400	2400	2100	2100	1800	1800
	1993-94	2004-05	1993-94	2004-05	1993-94	2004-05
Direct Poverty Estimate
1. Monthly per capita Expenditure required for Calorie intake
Delhi	650	3400	445	1150	330	710
Maharashtra	835	3500	558	1150	330	710
Tamilnadu	677	1940	440	1180	308	680
W.Bengal	650	2350	365	1165	230	515
All India	635	1785	395	1000	253	510
2. Percentage of Persons in Poverty
Delhi	53.0	82.5	35.0	57.0	19.5	24.0
Maharashtra	85.5	96.0	52.5	85.0	27.0	52.0
Tamilnadu	87.0	90.0	69.0	70.5	42.5	39.0
W. Bengal	80.0	93.0	49.0	68.5	18.0	21.5
All India	82.5	88.5	57.0	64.5	25.0	22.5

Source: Calculated from NSS Reports 402, 405 for 1993-4 and Reports 508, 513 for 2004-5.

immiserise these deprived social groups who are already subject to severe under-nutrition.

The position shown by these data on urban poverty has been getting worse in the last four years. There is no time to lose. The government has claimed a record food grains output of 227 million tonne for 2007-08, an unprecedented 11 million tonne more than the previous year, which is probably an overestimate designed to dampen inflationary expectations among traders. Even if farmers are indeed responding to the belated rise in central procurement prices during the last year and increasing output which is a welcome development, and even if we take 227 m.t. as correct, total food grains output has risen by less than 5 percent between the triennium ending in 2001 compared to that ending in 2008, whereas population has risen by over 10 percent. It is time for all thinking and progressive people to atone for past inaction and come together to formulate an effective action plan, the starting point of which must be an urgent Grow more Food campaign in every state combined with the revival and effective functioning of the public distribution system.

Table 2

Poverty among ST and SC Populations, 1993-4 and 2004-5, All-India
Daily Calorie Intake	2200	2200	1800	1800
RURAL	1993-94	2004-05	1993-94	2004-05
Percent of Persons with Intake below specified level
1. ST	73.5	82.5	30.0	44.0
2. SC	70.5	79.0	27.0	33.0
3. General	58.5	69.5	20.0	25.0
URBAN
Daily Calorie Intake	2100	2100	1800	1800
	1993-94	2004-05	1993-94	2004-05
Percentage of Persons with Intake below specified level
1. ST	67.5	81.0	33.0	61.5
2. SC	75.0	87.5	39.5	66.5
3. General	57.0	64.5	25.0	22.5

Source: As Table 1 and NSS Report 422 for 1993-4 and Report 514 for 2004-5.

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