Aspects of India's Economy Nos. 36 & 37: The Real State of India's Economy

The Real State of India's Economy
Appendix 2: Starving and Stunting the People

There has been a debate in academic circles for three decades now on the trends in the poverty our people suffer. Recently, much of this debate has hinged on how to interpret the consumer expenditure data of the National Sample Survey, particularly that of the 1999-2000 round. That round made some important changes from past surveys in the questions asked to the respondents regarding their consumption, as a result of which its results are not comparable with the results of earlier rounds. Despite this, the Government has used the dubious data to claim that the percentage of the population in poverty fell from 36 per cent in 1993-94 to 26 per cent in 1999-2000. More scrupulous economists contest this, and argue that if one ignores the contaminated data of the 1999-2000 round, it will be seen that poverty did not decline during the 1990s.

Let us leave this seemingly complex technical debate aside, and focus on a straightforward and more meaningful question: How many people get what medical science deems the minimum nutrition required to be in good health.

This measure, it should be noted, is different from the poverty debate mentioned above. For the rulers' method for measuring income poverty does not look at whether the people actually got their minimum food needs. Rather, their method is to see whether the household's income is sufficient to buy a certain basket (ie a certain combination) of commodities and services which includes adequate calories. Remarkably, the composition of this basket has been arrived at through three-decade-old surveys of consumer spending. If, for whatever reason, a household does not buy that decades-old combination of commodities and services, but another one, in which sufficient calories are not included, the poverty studies assume that people do this by choice. The household is therefore deemed "not poor" despite its failure to consume the medical minimum of calories. Thus, while recent NSS data reveals that three-fourths of the people in fact do not get the bare minimum of calories, official figures blithely claim that only a fourth of the people are below the poverty line. In other words, half the population is deemed to be voluntarily under-eating.

This bizarre conclusion ignores the fact that various other items which make up a larger share of actual expenditures today may be involuntary. For example, firewood may no longer be available from the forest and fuel may have to be purchased; bus travel to one's employment may have become more expensive relative to other items; the various expenses needed to put a child through school may have gone up; or doctors' fees and the cost of medicines may have risen similarly. In such cases a poor household may have little choice but to make room for these and cut back even on food expenditure, since the alternative may be loss of a job, a worse future for the child, or prolonged illness resulting in lost income. Most people in our country face such situations all the time.

Besides, if the price of cereals goes up within an already tight budget, in which all other expenditures have already been reduced to the minimum, the only way to adjust to the price hike might be to cut back on cereals intake. After all, such a cutback does not necessarily result in death in the short term, but merely chronic energy deficiency — a characteristic of half the population of India, with another 20 per cent or so hovering just above that line. That all such people are not considered poor is a devastating comment on the poverty debate.

Drastic cut in cereals intake
Given the National Institute of Nutrition's (NIN) norm of a minimum of 157 kg of cereals per year per capita,¹ one would expect the average for a healthy population to be much higher. In fact, in the period since the new economic policy, people have had to drastically reduce their already low intake of cereals. In 1990-91, per capita consumption of cereals was put at 161.2 kg per year; this fell by 1998 to 144.9 kg — a drop of 16.3 kg per head, or 81.5 kg for a household of five.

These are data from the National Sample Survey, which carried out interviews nationwide on consumer expenditures. A different set of official consumption figures — termed "net availability" of cereals — confirm the drop. Although the method used to arrive at net availability figures is different, these figures too show a drop of 17.8 kg between 1991 and 1998, and a further 9.8 kg by 2001 — a difference of 27.6 kg between 1991 and 2001, or 138 kg for a household of five.

Per capita availability of pulses too declined between 1991 and 2001 from 15.2 kg per year to 10.6 kg per year, a drop of 30 per cent, or 22.8 kg for a family of five.

Ordinary people, unaware of the official figures, nevertheless know the broad truth from their own experience. Mass hunger, always present in India, became particularly visible in 2001, after the drought of 2000-01. Gujarat and Karnataka witnessed large-scale distress and migration. In Rajasthan, fact-finding teams found the starving eating grass. In Orissa, a steady stream of starvation deaths was reported from Rayagada, Gajapati, Malkangiri, and Kandhamal districts.

In recent years Maharashtra has repeatedly seen starvation deaths in Amravati, Thane, Dhule and Nandurbar districts.

The authorities of course always maintain that nothing is amiss. The Maharashtra government ascribed the deaths of children to backward practices among the tribals. When starving tribals in Orissa were driven to eat mango kernels, and died of poisoning as a result, the state government steadfastly refused to classify these as starvation deaths, and claimed that mango kernels were a local delicacy eaten by choice. The Prime Minister himself dismissed the news of starvation deaths in various parts of the country as "propaganda by the media".

Such a reaction by governments of the various parliamentary parties, while callous, was inevitable. For there could hardly be any more damning indictment of the entire reigning set of policies than this: that, from the diet of those who were already 600 calories a day below the minimum, they have cut another 200 calories.

World Bank design
India is shining: there is no shortage of grain, we are told by the Government. Indeed the godowns were brimming at the height of the drought. In the past, drought years invariably saw a rise in offtake from the PDS. But in 2001, PDS offtake fell 28.9 per cent, as cereals stocks soared to 58 million tonnes. This strange situation was the outcome of systematic Government policy, dictated by the policy of the World Bank and other imperialist institutions.

The backdrop is as follows. The corporations of the imperialist countries are determined to grab a large share of the foodgrains markets of the third world. At the moment they are restrained by the high prices of grain production in the imperialist countries (requiring high subsidies) and the fact of substantial domestic production in many third world countries. Moreover, certain countries such as India have had long-standing systems of food security (public procurement of foodgrains and the public distribution system). However woefully inadequate these systems have been in ensuring adequate nutrition to all the people, they constitute an obstacle to the profit-drive of the multinational agribusinesses today: for to some extent they ensure domestic production (by guaranteeing grain-growers a reasonable price) and discourage speculation and excessive profit in in foodgrains trade (by maintaining substantial public stocks which can be unloaded by the Government on the market at low prices in case of steep price rise). Therefore it is imperative for the imperialist countries to suppress grain production in major third world countries and dismantle those countries' food security systems. This would bring about large-scale grain imports from the imperialist countries, and allow the grain multinationals high rates of profit in such trade. It does not matter to the imperialist countries that these measures will suppress global demand for foodgrains: for any monopolist (or prospective monopolist) the important thing is not the quantum of sales but the extraction of much higher profits even if on reduced sales.

For this reason the World Bank attacked India's Public Distribution System in its key 1991 document India: Country Economic Memorandum, vol. II — Agriculture: Challenges and Opportunities (see Aspects no. 18, pp. 34-74): "Food Corporation of India should reduce its large direct role in purchasing, transport, and storing grain, through subcontracting to licensed agents, wholesalers and stockists, and providing price incentives for farmer storage of grains." Instead of maintaining buffer stocks, India should turn to the world market in times of crisis: "High levels of buffer and working stocks for wheat and rice (currently 19 million tonnes) are both expensive and unnecessary, especially in the light of changing objectives for market interventions and a new role for FCI. India could be adequately protected with a smaller buffer stock, entering the world market to obtain supplementary supplies in prior production years and keeping foreign exchange to handle purchase in deficit years."

Even earlier, in 1990, the Bank had dressed up another argument for reducing the scope of the PDS: namely, that the non-poor were unfairly cornering the subsidised grains. The attractiveness of this argument was that the Bank showed could show concern for the poor: "The basic rationale for food subsidy programmes is simple and compelling. National Sample Survey data show that, despite significant progress against poverty over the last decade, a large number of Indians still cannot afford to meet a basic 2,200 calorie/day diet. Food subsidies, in principle, help meet this need.". At the same time it could suggest piously: "However, the targeting of subsidies and the efficiency of Food Corporation of India (FCI) operations are important issues. A large number of middle-income Indians are entitled to purchase food at subsidised prices at `Fair Price' shops." (India: Trends, Issues, Options, May 1990) These documents thus mapped out the course which Indian governments of various hues have pursued over the last 13 years.

Driving consumers out of the PDS
In 1990-91, before the commencement of the new economic policy, 16.5 million tonnes of foodgrains were distributed; stocks were 15.8 million tonnes at end-March 1991; and the food subsidy was just 0.4 per cent of the GDP. No doubt the PDS grain was very meagre — just about 20 kg per capita of the Indian population for the whole year. Even if the entire amount had been distributed only to those officially considered poor, it would have amounted to around just 50 kg per capita for the whole year. So, far from reducing the PDS requirement, any genuine effort at "targeting" the needs of the poor (as the World Bank claimed it wanted to do) would have increased it. But the Bank's real intention was to remove the poor from the target.

The first steps undertaken under the Bank's direction were to hike Central Issue Prices (the price at which grains are released from the Central pool to the state governments) in 1991-92, 1993-94, and 1994-95 raised from Rs 2.34/kg for wheat and Rs 2.89/kg for rice to Rs 4.02 and Rs 5.37 — increases of 72 and 86 per cent respectively. The most devastating blows, however, came during 1997-2000. First, the Targeted Public Distribution System (TPDS) separated PDS consumers into two categories: "Below Poverty Line" (BPL) and "Above Poverty Line" (APL), with higher prices for the latter.

The same rulers who, in the name of doing away with a "license-permit raj" for industry, were dismantling necessary regulation of large industry and the financial sector, were forcing the poor to acquire a permit, a certificate of their poverty, in order to enter the PDS. Besides, the very idea of the same ration shop selling the same commodities at two different prices was a virtual invitation to irregularities and corruption; so also was placing in the hands of petty authorities the right to exclude a family from the system.

State governments systematically went about driving millions out of the ration shops. Various arbitrarily chosen and unjustifiable indicators — eg ownership of a pucca house, or of a TV set — were used to keep families out of the BPL category. In the giant Mumbai slum of Dharavi, with a population of half a million, the Rationing Control Officer issued BPL cards to only 365 families; this was reduced to 151 in 1999 after re-checks.² The Maharashtra government put the cut-off level of family income for qualifying as "below poverty line" (BPL) at Rs 1,250 a month, which means that most people were cast out as "above poverty line" and disqualified for subsidised rations. (A recent survey reveals that malnutrition among under-five children in slums in Mumbai is higher than in Jawhar, a perennially famine-affected tribal taluka of Thane district, where there have been scandalous famine deaths of children.³)

The Government doubled APL prices between 1996-97 (pre-TPDS) and April 2000 (wheat rising from Rs 4.02/kg to Rs 8.30, rice from Rs 5.37 to Rs 11.30). Thus by April 2000 all subsidy on APL grains was eliminated, and in many places APL prices were higher than open market prices. While the supposed rationale for the TPDS was to target the poor, BPL consumers eventually were not spared: their wheat and rice prices rose from Rs 2.50 and Rs 3.50 in the first year of TPDS to Rs 4.15 and Rs 5.65 in April 2000.

Thus during the 1990s cereals prices rose much faster than the general price level, reversing the trend before 1991. The report of the Commission on Long Term Grain Policy calculates the following: During 1975-76 to 1990-91 cereals prices fell 27.1 per cent relative to the general price level; during 1990-91 to 1999-2000, the new economic policy period, they rose 30 per cent.

Grain mountain used to bolster case for dismantling PDS
Since there was little if any price benefit for APL card-holders in buying PDS grain, APL offtake plummeted to just 2.1 million tonnes in 2000-01. So it was that, as a direct result of World Bank-dictated policy, foodgrain stocks soared from 18.3 million tonnes in December 1997 to 24.4, 31.4, 45.7 and 58.0 million tonnes in end-December 1998, 1999, 2000, and 2001.

It was expensive to maintain this huge mountain of grain priced out of people's reach. The food subsidy bill doubled from Rs 6,066 crore (Rs 60.66 billion) in 1996-97 to Rs 12,060 crore (Rs 120.6 billion) in 2000-2001; and then again doubled to Rs 24,200 crore (Rs 242 billion) in 2002-03. From 0.4 per cent of GDP in 1990-91, before the new economic policy, food subsidy now consumed almost one per cent. According to the Committee on Long Term Grain Policy, "about half of the food subsidy is being spent on holding stocks in excess of the buffer stock levels necessary for food security."

It may seem strange on the face of it that, while the World Bank pressed for the reduction of buffer stocks, its policies should have resulted in the unprecedented growth of stocks. In fact, however, this fit neatly with the World Bank's plans. The Government now pointed to the giant stocks to bolster its argument that the PDS was no longer necessary — there was too much grain. The official Economic Survey 2001-02, under the heading "Foodgrain stocks — problem of abundance", discussed "demand side factors" that it claimed were leading to the build-up of stocks. Among the "demand side" factors listed were that the growth of foodgrains production exceeds population growth. (This claim of the Government is false, as can be ascertained from the table given on the same page of the Survey, showing a drop of 16.9 kg in per capita foodgrains production during the decade 1990-91 to 2000-01.)

A second reason given for the alleged "abundance" was that "Indians have begun to consume less foodgrains per capita by substituting non-cereals foods" such as fruits, vegetables, milk, fish, eggs, and so on. So, it argued, "In view of the changing consumption pattern of the Indian population, both rural and urban, it is time to focus on production of non-cereal foods in states which have comparative advantage in their production". Meanwhile, it claimed, steps needed to be taken to "liquidate stocks" — among them open market sales to grain traders "at prices much below economic cost" to FCI, and "export of foodgrains at much below economic cost". (See Chart 3, Caloric Intake of Bottom 30% of Population).

A third reason advanced by some alleged economists for the falling consumption of cereals is that average physical activity has reduced, and so calorie requirements have fallen. No proper medical studies are cited for either the claim of reduced physical activity or reduced calorie requirement. It is also suggested by some economists that even those whose food intake is very low (indeed much below minimum nutritional norms) have shifted their expenditures voluntarily to non-food items because their sense of well-being has shifted from food to non-food. Trained as such economists are in the production of nonsense to suit the rulers' interests, we need not be surprised at their bizarre claims.

Of course, none of these eminent economists offered a more straightforward explanation for the build-up of stocks, namely, that because of the price hikes, and because of their own declining livelihoods, the vast mass of people could not afford the grain. Given increasing inequality, it is easy to explain the simultaneous reduction in demand for high-priced grain (less demand from the poor) and increase in demand for higher quality foods (more demand from the better-off).⁴

Table 1 shows that, in fact, the per capita calorie consumption of developed countries, despite the low levels of physical labour their populations perform, are much higher than in India. Indeed, per capita calorie consumption in India is much below the average for developing countries, or even for Africa; it is at the level of the world's least developed countries.

Addressing the peasantry, Vajpayee himself did not bother with the "changing tastes" or the "changing lifestyle" arguments. Rather, he told them bluntly that they needed to adjust to global comparative advantage. Speaking at a gathering in Haryana on March 6, 2001, he exhorted them to "Look beyond wheat and paddy", and to switch to "horticulture, floriculture, oilseeds and vegetable production and have a good export potential." The farmer, he explained, had to adjust and respond to the growing pressures of the world market — especially with the removal of quantitative restrictions under WTO — by producing less of food and more of other crops. Only then, he said, would they be able to benefit from the free market. In this way he made explicit the policy of discouraging foodgrains growth as part of 'globalisation'.

We have described above how the price increases since 1991, and in particular under the TPDS (Targeted Public Distribution System) during 1997-2000, led to a sharp fall in offtake. Another factor too played an important part, namely, shrinking economic activity and growing unemployment.

After just three years of rapid growth between 1994-95 and 1996-97, in the following five years manufacturing growth halved. Annual agricultural growth, which averaged 5.2 per cent for the decade 1980-81 to 1989-90, fell to just 0.4 per cent for the period 1993-94 to 2002-03 (RBI Annual Report 2002-03). Employment growth plummeted, as we have seen earlier, and the share of casual employment increased sharply. All this meant that people had less income to spend even on their basic necessities.

After 2001, the Government substantially cut PDS prices for the APL sections, and increased quotas for the BPL sections, in an effort to reduce excess stocks. PDS offtake rose from an abysmal 11.1 million tonnes in 2001-02 to 20.1 million tonnes in 2002-03. (Of course, the Government's decision would have also been influenced by the approach of the 2004 general elections.) However, unemployment and poverty prevented the people from drawing even more despite the sharp price cuts. Compounding the lack of purchasing power was the fact that, with the introduction of the TPDS, many ration shops had found it no longer profitable to continue in business, and had drawn down their shutters, so that there were fewer outlets for TPDS sales.

These two obstacles — the lack of purchasing power and the lack of access — could have been addressed by a large programme of food-for-work schemes, which would have in addition helped construct productive rural assets. The Government obviously did not lack the grains for a massive programme of this type. Acting on a public interest litigation, the Supreme Court also ordered the use of the stocks in midday meal schemes for children. Indeed the Government allocated some additional stocks to such programmes during these years — offtake of cereals under welfare schemes grew from 3.2 million tonnes in 2000-01 to 7.2 million tonnes in 2001-02 and 7.5 million tonnes in April-December 2002.

But the Government (and those who directed its policies, such as the World Bank) off-loading the excess stocks through the PDS and through food-for-work or welfare schemes also carried a danger. For their decade-long undermining of the PDS had only just been completed. Large programmes of this nature would create expectations among people that the Government should continue to ensure cheap grain and to create jobs. Nor did any large programme of rural works have a place in the Government's scheme of things, which wants an end to all public claims on it and has envisaged a rapid end to public investment in agriculture. So the Government preferred instead to unload the embarrassing stocks by pushing exports of wheat and rice — at subsidised rates. It also off-loaded large quantities to domestic traders at similarly subsidised rates. (See Endnote: "The Scandal of Where the Grain Went")

Stocks have now been drawn down to quite low levels. By increasing PDS and other welfare schemes offtake, byselling vast quantities of grain at subsidised rates to exporters and domestic traders, and by simply allowing massive theft of the foodgrains, the Government ensured that the grain mountain was drawn down at record speed. Between April 2002 and November 2003 total offtake soared to an unprecedented 77.9 million tonnes as a result of all three methods mentioned above and the reigning drought conditions, and opening stocks fell to just 22.1 million tonnes in November 2003. In fact rice stocks were by then below the minimum buffer stock norms!

After the elections, whichever party comes into office, the Government will move further ahead with the drive to in effect wind up the PDS. The rulers are confident that they can pass this off by juggling statistics and showing decreasing demand for cereals. Indeed, demand for cereals is highest among the poor, so if poverty and inequality increase, demand for cereals will decrease. Since demand for cereals is higher in poorer states, if regional inequality deepens, demand for cereals will decrease. Since demand for cereals is higher per capita in urban areas, if growth is concentrated in urban areas among the better off, demand for cereals will decrease. In other words, the very processes underway under 'liberalisation', of greater inequality among classes, among regions, and between urban and rural areas, would reduce the purchasing power of those whose diet has a larger share of cereals, and therefore suppress demand for cereals. The need for cereals would remain, but it would not be backed by purchasing power, and hence would become invisible.

Half the population semi-starved
In order to understand the full implications of the withdrawal of PDS, and the reduction in food consumption, it is necessary to keep in mind the already appalling state of the physical condition of the Indian people. A variety of indicators show that roughly half the population is physically sub-normal for sheer lack of food:

(i) The 1993-94 survey of the National Nutrition Monitoring Bureau showed 48.5 per cent of Indian adults to be malnourished, as measured by body mass index.
(ii) The National Family Health Survey (NFHS) 1998-99 uses various measures for malnutrition among children under three years of age: (i) weight for age (which indicates both chronic and acute malnutrition), (ii) height for age (which indicates chronic malnutrition, or stunting), and (iii) weight for height (which indicates acute malnutrition in the period before the survey, or wasting). By weight for age, 47 per cent are undernourished, and 18 per cent are severely undernourished. By height for age, 45.5 per cent are stunted, and 23 per cent severely so. By weight for height, 15.5 per cent are wasting. These indicators for Indian children are generally worse than those for children of sub-Saharan Africa, one of the world's poorest regions. The appalling fact is that this is so in India — a country which can so easily ensure otherwise.⁵

Predictably, all these indicators are worse for women and children of the scheduled castes, scheduled tribes, and of low standard of living. It needs hardly be said that the nutritional status of the child is also strongly related to the mother's nutritional status. Undernutrition is much more common for children of mothers whose height is less than 145 cm or body mass index below 18.5 than for other children. Thus one semi-starved, stunted, physically sub-normal generation gives birth to another.

The Report on Long Term Grain Policy mentions "evidence that the 1990s saw much more erratic outcomes than the earlier trend reduction during the 1970s and 1980s in both child malnutrition, as measured by weight and height for age, and acute demographic stress, as measured by sudden changes in fertility and adult mortality in cereal deficit states."⁶

As we said earlier, given the National Institute of Nutrition's (NIN) norm of a minimum of 157 kg of cereals per year per capita, one would expect the average for a healthy population to be much higher. In fact the present per capita consumption (145 kg per year in 1998, and lower since then) indicates that the majority of people are unable to get even the bare minimum. Under these conditions it is grotesque to argue, as the Government does, that too much grain is being grown.

It needs to be noted that, according to the Report on Long Term Grain Policy, the NIN norm underestimates the cereal requirement, since it assumes a more varied diet than that obtaining in India. The report points out that cereals account for 33 per cent of total food expenditure but 65 per cent of total calories and proteins; that is, cereals are a much cheaper source of nutrition than other food, and any forced shift from cereals to other foods would be at the cost of calories and protein. For the poor (bottom 40 per cent), one third of their food budget was spent on cereals, but three fourths of their nutrition came from them.(See Chart 4, Cereals Consumption of Poorest 40% Rural).

The face of rural hunger
Hunger is a large-scale, perennial feature of the lives of the majority of the Indian people, so much so that it is not worth reporting and those whose consumption is too low accept this state as normal. The actual conditions of mass hunger prevailing in much of the country can be glimpsed just a few hours from the metropolis of Mumbai. In the tribal regions of Maharashtra, large numbers ordinarily live in a state of semi-starvation; it takes only some small push to send them over the edge.

Evidence of this came at the very outset of the World Bank-designed 'reforms'. In Melghat region of Amravati district, the Integrated Child Development Scheme (ICDS) used to supply sukdi, a wheat-based supplement, to lactating mothers and infants. When wheat prices were hiked in 1991 and 1992, the sukdi supplier, Markfed, demanded higher prices. The state government discontinued the scheme. There are widely differing estimates of the number of children who died in the monsoon of 1993 as a result of this decision — the Government put the figure at 316, the Nagpur Union of Working Journalists put it at 800. That such a minor change could have such terrible consequences indicates how delicate the tribals' position was in the first place.

Despite the publicity that such incidents receive for short spells, and the sudden attention the affected pockets receive from ministers for those spells, the same names recur again and again in the press reports of starvation deaths: Melghat, Jawhar, Mokhada, Wada, Nandurbar, Dhule — all tribal regions. The numbers affected are large. During April 2000-March-end 2001, 1,385 children in Nandurbar under the age of six died; officials admitted that most of the deaths were due to malnutrition.⁷ The media reported that in the six tribal-dominated districts of the state 6,000 children died in 1999-2000, swelling to 8,000 in 2000-01; official estimates for the two years were 3,500 each year.⁸ In Thane, some 494 children were reported to have died of malnutrition between April and August 2002.⁹ A fresh series of 15 deaths of children was reported from Nandurbar in September 2003.¹⁰

While it is true that one cannot wholly rely on journalistic estimates of starvation deaths, one should certainly not place much faith in the official figures, which systematically suppress the truth. When, in December 2001, Arun Bhatia, commissioner of the Tribal Research and Training Institute (TRTI), investigated the deaths of tribal children in Nandurbar, he found that Primary Health Centres had failed to report 57 per cent of the deaths. (Indeed, a two-year survey by the agency SEARCH has concluded that as much as 70 per cent of infant deaths in Maharashtra go unrecorded.) Orders to suppress the truth come directly from the ministers: none of the deaths, they repeat ad nauseam, is as a result of malnutrition; they are the result of teenage motherhood, non-institutional delivery of babies, unhygienic living conditions, illiteracy, tribals' preference to consult "witch-doctors", and so on. In line with this, doctors at Primary Health Centres scrupulously avoid mentioning malnutrition as a cause of death. In Wada taluka of Thane, for example, at the height of the controversy over starvation deaths, 84 per cent of the child deaths were the result of "cardio-respiratory failure". When the TRTI, which is after all a state government body headed by an IAS officer, showed in some detail that indeed the deaths of children in Nandurbar in 2001 and in Wada in 2002 were the result of malnutrition, the state government served notice on Bhatia for contradicting the statement of the ministers of tribal development and public health.

What is broadly true of the nation is true of these vulnerable regions as well: demand for foodgrains has shrunk because of poverty. In most cases foodgrains were available in the ration shops in the region, but the tribals did not have enough money to buy them. The TRTI report on the Wada deaths states that the mothers of the starvation victims "said they often had no money to buy grains. The government claims that there is no dearth of grains in the fair price shops in tribal areas. But of what use are these stocks if the local community has no purchasing power?" The state secretary of food and civil supplies, Nila Satyanarayana, strangely made the same point as a defence of the state government: "Adivasis are not lifting stocks from shops because of acute poverty or inaccessibility during monsoons. These deaths are not because of any failure on our part (sic). Our notification in May had ensured that by June 5, the worst affected areas would have three months storage of foodgrains. The problem is not foodgrain availability but poverty."¹¹

Consequences of dismantling procurement and the PDS
Using the fact of reduced grain consumption as well as the alleged diversification of diets, those lobbying for the World Bank approach pressed their view before the Committee on Long-Term Grain Policy: "the Committee had to take note of an opinion that the existing system need not be salvaged and that the present crisis may in fact be an opportunity to do away not only with Minimum Support Prices (MSP) but also with the Public Distribution System (PDS), and restrict the role of the Food Corporation of India (FCI) to maintaining a reduced level of buffer stocks." (emphasis added) Private trade would do the job of reaching grain to the consumers efficiently.

The norms for how much buffer stock should be maintained should be reduced, as ample foreign exchange reserves now ensure that, in case of a shortfall, the Government can draw on the international market. Although the report of the Committee on Long Term Grain Policy has recommended against this view, it is evident that the Government is moving in this direction, with implementation postponed till after the elections.

What would be the consequences of such a step?

First, with State agencies out of the market, the price paid to peasants even in the main area of procurement, namely, Punjab, Haryana and western U.P., would plummet. The Committee estimated in 2002 that "without price support, farm level prices are unlikely to exceed Rs 350 per quintal for either paddy or wheat, much less than what almost all farmers actually received last year and also less than full production cost (including imputed costs for family labour, land and capital) in most states." The immediate loss to wheat and rice farmers in 2001 would have been over Rs 30,000 crore (Rs 300 billion). The fate of these farmers can be imagined from the fact that, as the Report notes, "producer prices are now below the cost of production in many parts of Eastern India where price support operations are not effective". In fact, one of the important reasons why grain output in Eastern India shrank in per capita terms during the 1990s was that prices paid to grain producers were so low. If prices were similarly depressed in the main grain surplus states, output too, which is already stagnating, would fall.¹²

Secondly, despite the low price paid to the peasant, the price paid by the consumer would not fall, but could rise. In other words, the margin between the price received by the peasant and the price paid by the consumer would grow. We can get an idea of this from the US, where giant agribusinesses rule the food trade. The Report notes that in 1999 Indian farmers received about 30 per cent more for wheat than US farmers while Indian urban consumers paid only a fourth for a loaf of bread as their US counterparts. One can imagine what will happen in India when the FCI cannot intervene to check private trade.

Representatives of multinational grain companies told the Committee that they would not make large investments in grain trading in India unless "the potential threat posed by high stock levels is removed". The "high stock levels" referred to here are not the levels of 1997-2002, but the long-standing norms for how much minimum buffer stock should be maintained, which varies during the course of a year from 16 to 24 million tonnes. The multinationals want those norms reduced drastically. They argue that if the FCI maintains enough stocks to control excessive price rise, that would pose a "potential threat" to the profits of multinational grain traders. If, on the other hand, only a small buffer stock were maintained, it would suffice only to tide over very temporary physical shortages and emergencies. For any substantial price intervention, the Government would have to import -- from the same multinational companies, which control the international grain trade. In the international grain trade too prices may rise in response to increased demand from India, defeating the purpose of importing.

On the other hand, if international prices are low, private trade could also use the threat of imports to beat down the prices paid to the peasants. This appears to be already occurring with the increased openness to imports since India's entry into the World Trade Organisation. Normally, when agricultural production goes down, the prices received by the peasant rise faster than the prices of other goods. However, between 1995-96 and 2002-03, there were four years of simultaneous declines in both agricultural production and agriculture's terms of trade. The answer to this puzzle could be that, with the barriers to imports being removed by the Government, and with world agricultural prices depressed, Indian traders were able to use the mere threat of imports to beat down prices paid to peasants.

Indeed the volatility of international agricultural prices is far greater than in India: the reference world wheat price (US No.2 HRW) peaked at US $256 per tonne in 1996 to fall to US $105 in 1999; similarly, the reference rice price (Thai, 100%, second grade) had crossed US $400 per tonne in 1995 and fallen below US $170 in 2001. In the future there is scope for these prices to rise again precipitously. It is nothing but criminal to place the country's peasant incomes and general food consumption at the mercy of such international volatility.

India's present level of cereals consumption is around 15 per cent of world supply, and is larger than the whole of the current international trade in rice and wheat. The entry of India as a major buyer in the world market would thus be enormously risky for India, while very profitable for the international grain trade. This is even more so as world cereals production has been in deficit compared to consumption since 1998-99, and world stocks of rice and wheat have been falling. The Food and Agricultural Organisation (FAO) estimated 2002 world stocks of wheat at 200 million tonnes and of rice at 139 million tonnes, both down substantially from 1998-99 and at levels which are historically low as a ratio of the amount used; and the United States Department of Agriculture (USDA) placed current world stocks lower — of wheat at 156 million tonnes, down steadily from 176 million tonnes in 1998-99; and of rice at 127 million tonnes, again down steadily from 144 million tonnes in 1999-00. (ref.: Report on Long Term Grain Policy)

As India's stocks are depleted, as its buffer stock norms are revised downward, and as its per capita agricultural production falls further, India's import dependence would grow. The imperialist countries are waiting to reap a giant crop of profits:

That is, their monopoly in world grain trade would enable them to fix prices high enough such that they no longer need to subsidise their production.

Indeed there are signs that the drawing-down of world production and stocks is already underway. The world's wheat stocks are expected to hit a 20-year low by the end of 2003-04, and rice stocks will be 20 per cent lower than last year. While wheat production fell 10 per cent, consumption rose. The world consumed 40 million tonnes more than it produced, leading to a 24 per cent drop in stocks. The major exporters — the US, Australia and Canada — are expected to expand their market share from 40 per cent last year to 60 per cent this year. US exports alone are expected to touch an eight-year high of 32 million tonnes, representing a 32 per cent share of world trade in wheat.¹³

ENDNOTE: The Scandal of Where the Grain Went

How much subsidy did the Government pay on sale of PDS cereals to exporters? This is difficult to calculate, because there are different reports of the quantity sold for exports, and the lack of information on the exact price at which grain was sold for exports. According to figures given in Government documents,¹⁴ sale of PDS rice and wheat for export totalled 24.8 million tonnes between April 2000 and November 2003. It is reported in the press that the subsidy on these exports even exceeded the subsidy on PDS grains for those below the poverty line. A conservative estimate for the rate of subsidy on exports would be Rs 5 to 6 per kilo, in which case the subsidy paid on exports would be of the order of Rs 12,500 to 15,000 crore (Rs 125 to 150 billion).

Foreign companies were among the beneficiaries of the subsidies. According to one report two years ago¹⁵ the US firm Cargill was at the time the main buyer of Indian wheat, having bought 7.5 lakh (750,000) tonnes out of four million tonnes sold in the previous 13 months. Other prominent purchasers included the Hamburg-based AC Toefer (500,000 tonnes), the Rotterdam-based Concordia (210,000 tonnes), and Tradigrain (180,000 tonnes).

The Government also made Open Market Sales to domestic grain traders at subsidised prices. Such sales over these four years totalled 13.7 million tonnes; assuming a similar rate of subsidy as on exports, the subsidy to domestic grain traders would be about Rs 7,000 to Rs 8,000 crore (Rs 70 to 80 billion). In this way, of the total food subsidy of Rs 79,000 crore (Rs 790 billion) during 2000-01 to 2003-04, the subsidy on exports plus that on private grain trade would be Rs 19,500 to 23,000 crore (Rs 195 to 230 billion).

Finally, in a more brazen form of theft, 5.2 million tonnes of wheat, valued at Rs 3,200 crore (Rs 32 billion), was found to be 'missing' from the godowns in Punjab.¹⁶ This quantity is larger than the entire offtake of wheat through PDS in 2001-02. Although in the FCI's stock accounts it appears as having occurred in January-February 2003, in all likelihood the theft took place over a longer period. Evidently, those responsible were in positions of authority. Action against the responsible officials was promised at the time; but thereafter there is no mention is to be found in the press about the incident.

Indeed the scale of discrepancies is even larger than this. It appears from the data given in the RBI's Currency and Finance Report 2002-03 (p.12) that some 14.7 million tonnes of foodgrain are missing from the account of the FCI's stocks. (Opening stocks on April 1 2002 [51 million tonnes] plus total foodgrain procurement in the period April 2002 to October 2003 [63.7 million tonnes] minus total foodgrain offtake in this period [77.9 million tonnes] should equal closing stocks on October 31, 2003. However, we find that closing stocks are not 36.8 mn t, as they should be, but 22.1 mn t.) The difference is too large to be accounted for solely by spoilage. No comment is made regarding the discrepancy in the report, nor has the press commented on the huge quantity of missing grain.

All this puts the giant 'food subsidy' bill in a very different light.

(back to Grain Mountain)

Notes:
1. 167.9 kg per "consumption unit" per year per capita, which is then adjusted for differences in consumption by children, the elderly, etc. (back)

2. M. Swaminathan, Weakening Welfare: The Public Distribution of Food in India, p. 97. (back)

3. "Truth about Hunger and Disease in Mumbai", Neeraj Hatekar, Sanjay Rode, Economic and Political Weekly, 25/10/03. (back)

4. Utsa Patnaik has shown that as dairy, livestock and poultry activities grow, demand for grain as animal/poultry feed outstrips direct grain consumption. So in fact as an economy develops it sees rising demand for grain, rising indirect grain consumption per head and rising calorie intake. Whereas, as can be seen in the case of Kenya, if there is growing inequality and withdrawal of access to food, 'dietary diversification' can take place even as calorie intake falls: Because the upper class eats the diversified diet, the poor eat less grain. (back)

5. While the Government would have us believe that the poor are switching from eating cereals to vegetables, fruits, milk, eggs, and meat, the NFHS 1998-99 finds that 74.3 per cent of children aged six to 35 months suffer from anemia, and that 51.8 per cent of women do so as well. Anemia, a low level in the blood of haemaglobin (required to transport oxygen from the lung to the other tissues and organs of the body), usually results from low intake of iron, folates, vitamin B-12, and some other nutrients. In pregnant women, it increases the risk of maternal mortality, as well as premature delivery and low birth weight; in children, it can result in impaired cognitive performance, behavioural and motor development, coordination, language development and scholastic achievement, as well as increased morbidity from infectious diseases. (back)

6. The references cited are Svedberg, Peter, Hunger in India — Facts and Challenges and Chakravarti, Lalita, "Biological Stress Signals in the Millet Zone of India". (back)

12. In this light, it is disturbing that the Committee, which has otherwise voiced its support for the continuation of procurement and the PDS, has stated certain conclusions and made certain recommendations which can be seized upon by the Government for its own ends. The Committee has placed much of the blame for high food stocks on what it considers to be excessively high procurement prices for rice and wheat (whereas in fact the reason for the build-up of stocks was the combination of depressed purchasing power of the masses, inadequate food-for-work schemes, high ration store prices, and the removal of subsidy for "Above Poverty Line" sections). The Committee has thus given the Government an argument to freeze or even reduce procurement prices, at a time when cereals farmers are clearly not prospering even in the main surplus states, and when cereals production is extremely fragile and needs active State support. Secondly, the Committee has recommended that barriers to private trade, economic as well as legal, should be eased. This is precisely what the Government wishes to do, with sinister motives. (back)

14. for 2000-01 and 2001-02, the report of the Committee on Long Term Grain Policy; and for 2002-03 and 2003-04, the RBI's Report on Currency and Finance. (back)