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The Indian government stockpiles grain to prop up prices and prevent a food crisis. The trouble is the crisis is already here — and has been for years.
Since 1991, when, as finance minister, Manmohan Singh initiated the dismantling of India's planned economy, India has dramatically reduced public investments in agriculture and rural areas. Meanwhile, the WTO-related removal of trade restrictions forced Indian farmers to compete with “highly subsidized large producers in the developed countries, whose average level of subsidy amounted to many times the total domestic cost of production for many crops,” Ghosh wrote in a 2005 background paper for the United Nations' Human Development Report. The result was a “very pronounced” reduction in food grain consumption.
India's economic liberalization also resulted in deep cuts to the public distribution system. On the insistence of the World Bank (which had backed the loans that bailed India out of a financial crisis in 1991), the government scrapped its near universal food grain subsidy in favor of a system that targeted only below poverty line families in 1997.
Since then, millions of people have slipped through the cracks, unable to secure ration cards testifying to their poverty. The effort to separate the absolutely destitute from the very poor has added new complexity to a system already plagued by bureaucratic inefficiency, and, presumably, offered new opportunities for graft.
But the biggest embarrassment has been the government's effort to reduce costs by charging more for grain sold to above-poverty-line families. That effort has backfired miserably.
Between 1997 and 2000, FCI increased grain prices by 80 percent for below-poverty-line families, while the rates that above-poverty-line families had to pay doubled. But the prices were too high for the poor to afford, so the only result was that people bought less grain — and ate less. Instead of selling grain at a loss, the government wasn't selling it at all. The stocks mounted, increasing from some 18 million tons in 1998 to more than 50 million tons in 2003.
Over the past decade, the amount of grain purchased by below-poverty-line families has increased — mostly because states like Andhra Pradesh and Tamil Nadu have expanded coverage and offered additional subsidies over and above the FCI discount. But offtake at the above poverty line rate has remained low, even as market rates soared and states clamored for more, simply because the central government refused to sell, said Ghosh.
As a result, at last count the government had 82 million tons of grain in hand, hoarded for the emergency it never acknowledges has already arrived.
A cynic might well suggest that no real change is likely anytime soon. The proposed national food security bill aims to make the food distribution system work better by adding new enforcement mechanisms, as well as setting up soup kitchens, school meal programs and direct cash transfers to complement the existing subsidies.
But despite all the furor about its cost, the new and improved targeted system still relies on the broken method of trying to identify the poor – whose numbers rise and fall much more rapidly than the government can conduct economic surveys. It ignores evidence from the states that suggests universal subsidies work best.
And even after the expansion it will still cover a lot fewer people than the near universal food program India had until the 1990s.
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