Austerity Triumphs Food Security: A Critique of the Shanta Kumar Committee Report

February 27, 2015

By Deepankar Basu and Debarshi Das

Summary

Neither the changed situation with respect to domestic food production nor the functioning of the FCI supports the argument that it, and with it the whole food management system, needs to be curtailed. An impartial reading of the existing literature and data would suggest exactly the opposite: the food management system, including the FCI, needs to be strengthened and expanded. Therefore, one cannot escape the conclusion that the recommendations of the HLC rely, on the one hand, on ignoring well known facts about the prevalence of hunger and malnutrition in the country, and on the other, are based on an incorrect reading of evidence. The whole exercise appears as one more instance of austerity triumphing over food security.

Introduction

Within months of assuming office, the BJP-led National Democratic Alliance government set up a High Level Committee (HLC) in August 2014 to restructure, re-orient and reform the Food Corporation of India (FCI). The eight-member HLC was chaired by senior BJP leader, Shanta Kumar, and included prominent economist Ashok Gulati. On January 22, 2015, the HLC submitted its report to the government and made its recommendations public.

In its report, the HLC has made recommendations to address the three major objectives that underlay the foundation of the FCI through the Food Corporation Act of 1964: (i) providing price support to farmers, (ii) distributing food to consumers through the public distribution system (PDS) and (iii) maintaining sufficient buffer stock to ensure food security and reduce price volatility.

Why did the Food Corporation Act of 1964 emphasize three objectives? Faced with a serious crisis of food production in the mid-1960s, the government of India created the FCI as a key public institution to manage the food system in the country. Since the vast majority of the population was extremely poor and malnourished, providing food at subsidized rates to vulnerable sections through the PDS became one of its important goals. On the production side, Indian agriculture was (and still is) dominated by small and marginal farmers, whose income levels were abysmally low. Some minimum income levels could be ensured to this huge population of small and marginal farmers if their products were bought by the State at a minimum support price (MSP). “Procurement” of agricultural products at MSP, thus, became the second goal of the FCI. Both consumers and producers are impacted negatively if food prices fluctuate too much. The FCI could reduce volatility of food prices if it held a large enough stock of food grains. If prices rose too much, the FCI could release food grains to reduce prices; and if prices fell, it could buy to put upward pressure on prices. This, then, became FCI’s third important role: holding adequate stocks of food grains to reduce food price volatility and ensure food security.

On evaluating the record of the FCI in meeting each of these three objectives, the HLC found that changes were required. So, it recommended a host of changes to the structure and functioning of the FCI. Some of the important recommendations relating to the first and last objectives (price support for farmers and maintenance of buffer stocks) include: handing over procurement of food grain to the states where procurement operation has been historically strong and supporting infrastructure is in place (e.g., Punjab, Haryana, Chhattisgarh etc.); increasing involvement of private sector in different spheres of food management (e.g., grain procurement, building grain storage on state land, running FCI depots); reducing dependence on the ‘departmental labour’ of the FCI, because it is economical to engage casual workers. It has also been suggested that states give support to farmers on the basis of hectares of land they own, rather than providing minimum support price (MSP) to the output. In the opinion of the HLC, MSP distorts the market and “crowds out” private traders.

Each of these recommendations requires detailed examination. In this article we have a rather more limited aim; we shall only focus on some of the key recommendation of the HLC relating to the second area, namely, distribution of food through PDS. But it is worth noting that issues in each of these three areas are interrelated. One set of issues cannot be seen in isolation from the others. Hence, even though our focus is on the second area – PDS – our comments will have implications on the other two areas as well.

One can divide the recommendations of the HLC relating to the PDS into two groups, those that have an immediate impact (the short run) and those that will impact the PDS only over a relatively longer time horizon (the medium run). In the short run, the committee recommends that the National Food Security Act (NFSA) 2013 be curtailed. In particular, the NFSA entails providing subsidized food to about 67 percent of the population, and the committee recommends that the coverage be brought down to 40 percent. In the medium run, the committee recommends that the current public distribution system (PDS) be replaced by a cash transfer system. This will mean that the State will no longer have to be responsible for distributing food to vulnerable sections of the population. Hence, the State will no longer need to procure food from farmers, and store it. Since the current system of procurement, storage and transportation is primarily managed by the FCI, the medium term vision of the HLC implies that the FCI can, in due course, be folded up.

It seems safe to suggest that the overall thrust of the HLC’s recommendations, if implemented, would whittle down operation of the FCI in the short run and dismantle it in the medium run. On what basis has the HLC arrived at recommendations with such far-reaching implications? To our mind, the HLC has advanced two broad sets of arguments as justifications for its recommendations.

The first set of arguments relates to the fact that the situation in the country as regards food production and consumption has changed drastically compared to the mid-1960s, when the FCI was formed. The second set of arguments relates to the claim that the FCI is not able to fulfill the objectives that it was created to serve. Both these sets of arguments do not stand up to critical scrutiny.

 

Changed Situation?

The first set of arguments of the HLC relates to changes in the situation in the country as regards food production and consumption since the crisis period of the mid-1960s. Today India produces more food grains that it consumes, even exporting substantial amounts to the world market. It has a large public stockholding of food grains and is comfortably placed as regards foreign exchange reserves. All this is in stark contrast to the situation in the mid-1960s, when domestic production fell far short of consumption requirements, public stocks were small and the foreign exchange reserves extremely limited. Moreover, consumption patterns of households have displayed a shift away from cereals. This changed situation, in the opinion of the HLC, calls for a change in the role of the FCI.

While the HLC has correctly noted the change in the situation as regards production of food grains and consumption patterns, it has ignored an important aspect of the situation. This relates to the fact that India continues to be plagued by large scale hunger and malnutrition. According to National Sample Survey data, average calorie and protein intake has been steadily declining over the past few decades. In rural areas, average calorie intake per person per day declined from 2221 kcal in 1983 to 2020 kcal in 2009-10. Over the same period, average protein intake per person per day declined from 62 g to 55 g. Urban India has displayed a similar pattern: average calorie and protein intake declined from 2089 kcal and 57 g in 1983 to 1946 kcal and 53.5 g in 2009-10 (see Table 1). Even though there has been some increase in average calorie and protein intake since 2009-10, the vast majority of the population remains seriously under-nourished.

Basu_Das_T1

If we look at more direct measures of malnutrition, the picture is perhaps even grimmer. According to the latest National Family Health Survey (NFHS, 2005-06), about 40%of children under the age of 3 years were underweight, and about 45% were stunted. Close to 80% of children aged 6-35 months and 58% of pregnant women aged 15-49 years were anemic. About 33% of women and 28% of men aged 15-49 years had below-normal body mass index. India fares worse than many sub-Saharan African countries in terms of malnutrition.

Given these well-known facts and trends on hunger and malnutrition, it seems foolhardy to use the fact of a changed production situation in the domestic economy to argue for the weakening the FCI. The alternative, and to our mind, more sensible route would be to use increased domestic production to directly address the problems of hunger and malnutrition. In this strategy, the FCI is bound to play a more rather than less important role.

 

Fulfilling its Objectives?

The second set of arguments given by the HLC as justification for its recommendations relate to the claim that the FCI has not been fulfilling its three key objectives in recent years: providing price support to farmers, delivering food through the PDS, and reducing volatility of food prices (and addressing food security) through public stockholding.

According to the HLC, in recent years the FCI has failed to meet all three objectives. Failure to meet the objective of providing price support is shown by the fact that in 2012-13 only 6 percent of agricultural households sold any food grains to procurement agencies. Failure on the PDS front is attested by massive leakages from the system. Excessive stock of food grains held by the FCI, which is above the norm and is costly to the exchequer, highlights the failure of the system of public stockholding.

Let us scrutinize each of these three claims in turn.

 

Why is Procurement so Low?

The fact that only 6 percent of agricultural households sold paddy or wheat to any procurement agency in 2012-13 is really striking, and shows that only a miniscule proportion of agricultural households benefitted directly from procurement.

The natural question to ask is: why did such a small proportion of farmers sell to procurement agencies? To answer this question, we can turn to data collected as part of the Situation Assessment Survey of Agricultural Households in 70th round of the NSS. Information about the reasons will, as we argue below, lead to policy recommendations that are very different from those advanced by the HLC.

Data related to procurement of two key food grains, paddy and wheat, has been made available to the public in the Key Indicators of Situation of Agricultural Households in India – a report published by the NSSO on the basis of the information collected as part of the Situation Assessment Survey in the 70th Round (2013) of the NSS. Table 2 summarizes information on three important aspects of the procurement process: (a) the proportion of households that were aware of MSP, (b) the proportion of households who were aware of MSP and procurement agencies, and (c) reasons given by households for not selling to procurement agencies even when they were aware of them.

 

 

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The data in Table 2 tells an interesting story. Between July and December 2012, only 32.2 percent of agricultural households were aware of MSP, and only 25.1 percent were aware of MSP and a procurement agency. Of these only about half actually sold their products to the procurement agency. Thus, 13.5 percent households sold to procurement agencies and the remaining 18.7 percent did not. We see a similar picture for both paddy and wheat over the period January-June 2013, with wheat showing a slightly higher proportion of awareness and sale to procurement agencies.

The first fact that emerges from this data is the following: the vast majority of agricultural households were not aware of the existence of MSP, and an even larger proportion were not aware of procurement agencies (about 80 percent for paddy and 70 percent for wheat). The question then arises: if farmers are not even aware of MSP and procurement agencies, how can they be expected to sell their products to the State?

Now let us turn to the next aspect: why did households not sell their agricultural output to procurement agencies even when they knew about them? The bottom panel of Table 2 summarizes information about the reasons offered by households for not selling to procurement agencies, even when they knew of their existence. Continuing with paddy for the period July-December 2012, we see that of the 18.7 percent households that were aware of procurement agencies but did not sell to procurement agencies, about a third did so because of lack of local infrastructure (procurement agency not available, no local purchase). Another 6 percent of such household did not do so because they got higher price in the open market. But strangely, the largest section of such households did not sell to the procurement agencies for “other reasons”, something that is not possible to further analyze (because of lack of data).

Thus, the second fact that emerges from data made available in Key Indicators of Situation of Agricultural Households in India is the following: a significant section of households that did not sell their agricultural output to procurement agencies despite knowing of their existence did so for lack of local infrastructure.

We can find information about another aspect of procurement by going back 10 years and looking at data from the previous (and first) Situation Assessment Survey of Farmers in 2003: how do different states perform in terms of ensuring awareness of MSP for its farmers? Table 3 summarizes the relevant information for 2003 (unfortunately, we still do not have similar data for 2013).

 

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From Table 3, we see a large variation across states in awareness of MSP and procurement agencies. Some states have relatively high awareness levels: Haryana, Kerala, and Punjab had more than 60 percent of agricultural households being aware of MSP; in Tamil Nadu about 50 percent of households were aware of MSP. Andhra Pradesh, Chhattisgarh, Karnataka, Madhya Pradesh, Maharashtra, Uttar Pradesh, Uttarakhand and West Bengal had medium levels of MSP awareness. The other states had very low MSP and procurement awareness.

Bringing this evidence together, one can see that the first, and perhaps most important, reason for low use of procurement is lack of information. The second important reason is lack of enabling infrastructure at the local level. The wide variation in performance across states suggests that states that have managed to put such infrastructure in place and disseminate information about procurement have seen relatively large participation.

Thus, the HLC’s conclusion that the procurement system is not working is misleading. In fact we know that it is working in some states (no doubt with lot of room for improvement) and we also know some of the reasons why it is not working in the others: information and infrastructure. Hence, the conclusion that would emerge from the evidence is that the FCI can improve its functioning by building infrastructure at the local level and enhancing information disseminations in regions where it is scant. The HLC’s recommendation that procurement operations concentrate on the dysfunctional Eastern Indian states is welcome. However, it should not stop playing an active role in the traditional strong states.

 

Is the PDS a Leaky Basket?

The second claim of the HLC is that the PDS is a failure because of massive leakage. One cannot deny that leakage is a serious problem besetting the PDS. After all, if a large proportion of food grains that is meant for vulnerable sections is instead diverted into the open market, that is hardly a desirable situation. But, what do we know about the extent of leakage, its spatial and temporal patterns?

There is a large literature that has studied the PDS in India. This literature has highlighted three important patterns. First, there is a secular decline in leakage over the past decade. Second, there is a large variation in the extent of leakage across states with some states like Andhra Pradesh, Himachal Pradesh, Karnataka, Kerala and Tamil Nadu consistently reporting low leakage. Third, and more interestingly, many states like Bihar, Assam, Chhattisgarh, Jharkhand and Uttarakhand, have improved considerably over time with respect to leakage from the PDS. The conclusion that would be consistent with the findings of this literature is not that the system needs to be dismantled and replaced with a cash transfer system because the leakage is high, but that strategies adopted by successful states be replicated in the not-so-successful ones.

 

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Table 4 shows per capita consumption of PDS food grains (rice and wheat) in different states. At the all-India level consumption of PDS grain has more than doubled in the roughly twenty-year period between 1993-94 and 2011-12. The rapid rise in PDS consumption is an indication that leakage from PDS has been declining over time. The fall in leakage has been ascertained by different researches. For example, economists Himanshu and Abhijit Sen have estimated that in 2004-05 about 54% of PDS grains that were lifted from FCI warehouses did not reach consumers. This figure had fallen to 35% in 2011-12 (Himanshu and Sen, 2013).

How did the HLC reach the conclusion about leakage from the PDS? The HLC has relied on a questionable study, co-authored by a member of the HLC, to argue that leakage was high in 2011-12.The study in question showed that there is a sudden rise in leakage to 47% in 2011-12 (contrast this with the 35% figure quoted above). This is extremely surprising, and should have given pause to the authors, because other independent researchers have found that leakage has been declining over the past decade. In fact, the study’s results derive from the use of a flawed methodology that has been roundly criticized (see also Drèze and Khera, 2015).

 

What to do with excess stocks of food grains?

The third claim of the HLC is that the FCI has ended up with excess stocks of food grains. Since storage of food grains is costly, it represents a waste of resources that could have been used elsewhere and in more productive ways. We could not agree more with this claim. We would go further and argue that excessive stocks of food grains on the one hand, and prevalence of widespread hunger and malnutrition on the other immediately call for expansion of the PDS operations. Research shows that PDS operations have had significant impact on poverty reduction. This is because with the availability of inexpensive food, poor families can use their meagre income to buy other goods and services. As a result, the bundle of goods they can consume expands.

Aside from the PDS, mid-day meal (MDM) scheme has also been successful in reducing food insecurity and poverty. Other food security related programmes, such as those providing meals to pregnant and lactating women, and the destitute (who do not have ration cards) have also been taken up by many state governments. Only an overarching, comprehensive structure addressing all these minute, vital concerns can go toward ensuring meaningful food security.

 

Myopic Vision of Food Security

It is worth recalling that the National Food Security Act (NFSA) passed by the Indian parliament in 2013 had touched on these issues. The NFSA was not a comprehensive act. For example, it left a large segment of the population with zero food entitlement. Even such an eminently limited NFSA is now in danger of getting diluted further. Although the BJP supported the Act in the parliament, there were customary murmurs that the Act was not doing enough for the poor. The BJP chief minister of Chhattisgarh had criticized the NFSA for being stingy: “The Central act covers 67 percent of population whereas we in Chhattisgarh cover 90 percent”. The present prime minister, Narendra Modi, who was the chief minister of Gujarat then, had a similar leftist view on the matter: “I am further saddened to note that as per the proposed pricing structure for the grain, the BPL family will now have to incur Rs 85 more net expenditure per month for availing 35 kg [of grain].” Sushma Swaraj, a senior cabinet minister of the present government, proposed amendments to the NFSA against cash transfers and food coupons. Now that BJP is in power, it is their turn to disembowel the NFSA from the right.

It is not surprising therefore that the HLC has a myopic vision on the main mandate of FCI, namely food security. It recommends cash transfers to beneficiaries instead of providing food in-kind. The move will save Rs. 30,000 crores per year according to the HLC. It does not consider many pertinent questions. Is a cash transfer scheme feasible in a primarily rural country with scant infrastructure? Is the impact of a cash transfer system on poverty as much as the existing in-kind food distribution system? Sen and Himanshu (2013) argue that the impact of a cash transfer system on poverty reduction is lower, even under ideal conditions, than an equivalent in-kind transfer system. Motivated by the urge to cut cost, it has recommended that issue price that PDS beneficiaries pay be raised from 2-3 rupees per kilogram to 50% of the MSP. This will mean a three to four times increase in the price and is bound to raise food deprivation.

Similarly, citing food grain wastes in FCI godowns the HLC arrives at the conclusion that in-kind food distribution should be curtailed. It does not contextualize the prevailing mass food insecurity at a time when the FCI godowns are over-flowing with rotting grain. The answer to this puzzle lies in the government’s reluctance to distribute the grain through food security schemes even in the face of the Supreme Court orders, for that would raise the subsidy bill. The move from universal to targeted PDS in the late 1990s was motivated by the same fiscal conservatism. In 2013 the National Food Security Act recommended an expansion of the coverage of targeted PDS. This mightily upset the guardians of public finance. After a more business-friendly government assumed office last year, the HLC report could not have been far behind.

It is also interesting to connect the HLC’s recommendations with much-discussed issue of India’s stand at the WTO. This is because the HLC’s recommendations have the implication that the government would not have to maintain a large stock of food grain. This appears to be at odds with India’s stand at the World Trade Organisation (WTO) recently where the country strongly opposed developed countries’ pressure to curtail domestic public stockholding of food grains. That fight risked the country being reduced to an international pariah and it was a courageous act on behalf of the food insecure of every country of the planet. Through the HLC, it appears, the same WTO argument of cutting down public stockholding is being pushed surreptitiously. Is this yet another example of reform by stealth?

To sum up, neither the changed situation with respect to domestic food production nor the functioning of the FCI supports the argument that it, and with it the whole food management system, needs to be curtailed. An impartial reading of the existing literature and data would suggest exactly the opposite: the food management system, including the FCI, needs to be strengthened and expanded. Therefore, one cannot escape the conclusion that the recommendations of the HLC rely, on the one hand, on ignoring well known facts about the prevalence of hunger and malnutrition in the country, and on the other, are basedon an incorrect reading of evidence. The whole exercise appears as one more instance of austerity triumphing over food security.

 

References

Drèze, J., and Khera, R. 2015. “Understanding Leakages in the Public Distribution System,” Economic and Political Weekly, 50(7): 39-42.

Himanshu, and Sen, A. 2013. “In-King Food Transfers – I: Impact on Poverty,” Economic and Political Weekly, 48(45 & 46): 46-54.

Mishra, S. and Hari, L. 2009. “Calorie Deprivation in Maharashtra: An Analysis of NSS Data.” In, Sardeshpande, N, Shukla, A, and Sctott, K. (eds.), Nutritional Crisis in Maharashtra. Pune: SATHI (Support for Advocacy and Training in Health Initiatives) and Action Center of Anusandhan Trust Evolved from CEHAT.

NSSO. 2005. Situation Assessment Survey of Farmers: Some Aspects of Farming. NSS 59th Round, January 2003 – December 2003. Report 496, National Sample Survey Organization, Ministry of Statistics and Programme Implementation, Government of India.

NSSO. 2012. Nutritional Intake in India. NSS 66th Round, July 2009 – June 2010.Report 540, National Sample Survey Organization, Ministry of Statistics and Programme Implementation, Government of India.

NSSO. 2014. Key Indicators of Situation of Agricultural Households in India, NSS 70th Round, January 2013 – December 2013.National Sample Survey Organization, Ministry of Statistics and Programme Implementation, Government of India.

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Comments :-

“A very timely piece, which will be of use in countering the official propaganda.” – RUPE

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