Parliament passed the National Food Security Act on August 26. Sonia Gandhi said that it fulfilled her party’s promise to wipe out hunger and malnutrition. Rahul Gandhi called it a historic legislation, and asked his party men to carry its message across the country. The prime minister called it another example of his government’s people-oriented inclusive style.
All these powerful people either did not know or ignored the criticism of the act by an unusual bureaucrat. Ashok Gulati is chairman of the commission on agricultural costs and prices; last December, he, together with some of his friends, wrote a telling critique of the NFS bill. While the government has created the impression that it has given its chosen poor an inalienable right to foodgrains, section 52 of the act explicitly says that if the government fails to give the grains because of an an act of god or a natural catastrophe, no one can sue it for the failure. In other words, it promises to try its best to supply the grains — and to forget it if it cannot. But it is precisely in the event of such catastrophes that people need food.
Agriculture and foodgrains have been a state subject since British times. While the British government began central procurement of grains during World War II, their rationing was left to provinces. As recently as in 1997-98, a decentralized procurement system was introduced to encourage states to devise their own systems. Some states like Madhya Pradesh and Chhattisgarh started procuring rice with great success. But now, states would be forced to buy grains from the Food Corporation of India for the targeted food distribution system, even if it was cheaper to buy them locally. The FCI has a monopoly of procurement, and being part of the government, it believes in maximizing employment; so its costs are high. In March 2012 it employed 1,55,000 workers — some directly, some on contract, and some casual workers. Contract workers cost Rs 41, direct payments workers cost Rs 137, and departmental workers cost Rs 311 a ton. To maximize costs, the department of labour has banned the use of contract labour. So over time, contract and DPS workers will agitate and be absorbed into departmental labour, and labour costs will go up three to seven times.
Meanwhile, the Central government has concentrated its purchases in a handful of states. That has enabled some of them, like Punjab, to collect enormous sums in taxes, paid by consumers in other states. The government has kept the issue price of wheat and rice to poor families constant since 2001-02, but has gone on increasing the purchase price. As a result, it has made an ever-increasing loss per ton of grains procured. Below poverty line families get wheat at Rs 4 and rice at Rs 6 a kilogram; the loss on supplying them went up from Rs 6 to Rs 18 a kg of rice and from Rs 5 to Rs 14 a kg of wheat by 2001-09. The incomes of even the poor go up with inflation; there is no reason to inflation-proof the issue price. The government is recovering so little of the cost by now that it might as well give the grains free. The chicken industry will grow even faster if it does.
If this expensive centralized system were given up, foodgrains would travel across much shorter distances between states that have small surpluses and deficits, and would lead to the development of many markets in them.
The entitlements are entirely in terms of cereals. Recent consumption surveys show that people are eating less cereals and spending more on other foods and goods. The bill seeks to force cereals on them. They will either not take their entitlements, or they will sell the entitlements and use the money for something else. That can only be called mass corruption. This will be in addition to the elite corruption that the public distribution system engenders. Gulati and his friends estimate the level of corruption in the PDS from National Sample Survey figures. The poor bought 13.2 million tons of foodgrains from the PDS in 2004-05, while the PDS machinery claimed to have supplied 29.4 million tons; 16.2 million tons were siphoned off by politicians, bureaucrats and intermediaries and sold in the market. In 2009-10 they siphoned off 17.1 million tons while 25.3 million tons reached the poor. A quarter of the rice and 59 per cent of the wheat supposedly sent into the PDS was diverted and made corrupt people close to the government rich.
Gulati and his friends point out something that the debate of NFSB has entirely missed: that there is a labour shortage. The high growth rates in the past two decades created employment; as a result, the demand for unskilled, uneducated workers far exceeds the supply. Their wages have been going up fast; that hits most the industry that uses the most unskilled labour, namely agriculture. This, plus the fact that the government procures most grain from a small number of high-wage states, means that the procurement price has gone up rapidly, and will continue to do so.
Meanwhile, more wheat than can be consumed is being produced; and since it is so water-intensive, the water table in Punjab has been falling; 75 per cent of its blocks are overexploited. Thus, valuable water is being used to produce useless wheat. If the government wants to provide cheap grain to a growing population of the poor, it will need more and more grain. But its investment in agriculture is less than 5 per cent of agricultural gross domestic product, while unproductive cost is 15-20 per cent. That is not the way to safeguard the long-term future of agriculture.
The country has grown richer, and as it has done so, people have been eating less grains. Between 1987-88 and 2009-10, the share of cereals fell from 41 to 29 per cent of villagers’ consumption and from 27 to 22 per cent of townsmen’s consumption. Instead, they have been eating more fruit, vegetables, milk and meat; between 1990-91 and 2010-11, the share of cereals in agricultural value added fell from 27 to 21 per cent, while the share of livestock went up from 24 to 29 per cent. The government is pouring huge resources into a declining sector which has no future. Punjab, which has stuck to wheat, which receives massive Central government subsidies, has had an agricultural growth rate of 2 per cent; Gujarat, whose farmers ignored government subsidies and went into animal husbandry, has experienced agricultural growth of 9 per cent.
On the basis of this evidence, Gulati and his friends suggest that the government should change its approach, and look at two options extensively tried out abroad. One is food stamps, extensively used in the United States of America to help the poor, who can exchange them for food. The other is conditional cash transfers, meaning cash subsidies to qualifying poor families. They do not, however, recognize that India is now surplus in food grains, and that if the government stopped pushing up agricultural prices, they would fall enough to enable the poorest people to feed themselves without its help.