Why the poor in India need free foodgrains

There seems to be no end to the poor people's woes. Just after the Supreme Court of India directed the government to distribute foodgrains free of cost to the poor, Prime Minister Manmohan Singh asked the Apex Court on Monday not to get into the 'realm of policy formulation'.

Even as millions of poor Indians barely manage to procure two square meals a day and thousands of tonnes of foodgrains rots due to lack of storage space in Food Corporation of India godowns, Food and Agriculture Minister Sharad Pawar -- who has made a proposal to Prime Minister Manmohan Singh to decontrol the sugar sector -- will be in Brazil soon to study how the idea was successfully implemented in there.

It is a dismal situation and no one seems to know a solution to the problem.

Here is an attempt to understand the real causes of food crisis in India, its implications and probable solution. . . .

Hunger: India leads the world

Despite its economic successes, India leads the world in hunger. According to the 2008 Global Hunger Index, which is calculated by the International Food Policy Research Institute, India has close to 350 million people who are 'food insecure' -- in other words, who are not sure where their next meal will come from.

To put that into context, that is the same as the entire populations of Germany, France and the United Kingdom, all put together.

The United Nation's Food and Agriculture Organisation believes that over 1 billion people will go hungry in 2010.

Almost 100 million (10 per cent) of those have been made newly hungry by the financial crisis. By that grim calculus, India's hungry have grown to at least 300 million, with the country accounting for 30 per cent of the world count.

India is the second most populated country in the world. With a population of 1.173 billion, the hungry make up for over 25 per cent people.

The percentage is probably better than it was fifty years ago, but the absolute number is growing. Compare this to China, which has a larger population (1.334 billion) and which 50 years ago was arguably poorer.

China has managed to bring over 500 people out of poverty, its hungry count is today less than 100 million, and that number is shrinking every year.

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Is India's prosperity one of the causes?

In an article in EconomyWatch.com, Dwayne Ramakrishnan wrote, 'Endemic problems such as corruption, poor infrastructure and a lack of access to funds continue to be a problem in India.'

Prosperity in countries like India is good but it triggers increased demand for better nutrition, which in turn leads to higher food prices, former US President George W Bush said in 2008, causing a major hue and cry.

Prior to this, then US secretary of state Condoleezza Rice too had stated that 'apparent improvement' in the diets of people in India and China and consequent food export caps were among the causes for the global food crisis.

Bush argued that there are many factors for the present crisis,  only one of which was investment on biofuels like ethanol.

"Worldwide, there is increasing demand. There turns out to be prosperity in developing world, which is good. It's going to be good for you because you'll be selling products in the countries, you know, big countries perhaps, and it's hard to sell products into countries that aren't prosperous.

"In other words, the more prosperous the world is, the more opportunity there is," Bush had said.

"It also, however, increases demand. So, for example, just as an interesting thought for you, there are 350 million people in India who are classified as middle class. That's bigger than America. Their middle class is larger than our entire population."

"And when you start getting wealthy, you start demanding better nutrition and better food --- so demand is high and that causes the price to go up," he said.

Bush also listed change in weather patterns and increase in basic costs like that of energy as factors contributing to higher food prices.

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Supreme Court directive

Taking exception to Agriculture Minister Sharad Pawar's statement, the Supreme Court had last week asserted that it had ordered free distribution of foodgrains to the poor instead of allowing them to rot in godowns and it was not a suggestion as made to him.

"It was not a suggestion. It is there in our order. You tell the minister," the court told the government counsel.

A bench of Justices Dalveer Bhandari and Dipak Verma referring to newspaper reports that the Union Minister had claimed there was no such order, clarified that it did pass such an order.

Pawar had said, "The Supreme Court's suggestion (for free grain) is not possible to implement."

The Apex Court in an order directed the Union government to conduct a fresh survey of the Below Poverty Line/Above the Poverty Line/Antyodaya Anna Yojana beneficiaries on the basis of the figures available for 2010 and said the authorities cannot rely on a decade-old data to extend the benefits.

The bench further said that the government must take urgent steps to prevent further rotting of food grains while maintaining that it must procure only that much quantity which it can preserve.

The bench reiterated its earlier order that persons above poverty line shall not be entitled to subsidised foodgrains but if the government was determined to extend the benefit, the same shall be given to those families whose annual income is below Rs 300,000.

The Supreme Court on August 12 asked the Centre to consider free distribution of food grains to the hungry poor of the country instead of allowing it to rot in Food Corporation of India godowns.

The bench had passed the direction while dealing with a PIL filed by civil rights group PUCL on rampant corruption in public distribution system besides rotting of food grains in FCI godowns.

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Prime Minister's stand

Prime Minister Manmohan Singh, however, on September 6, gently told the Supreme Court, which recently directed the government to distribute foodgrains free to the poor, not  to get into the 'realm of policy formulation'.

"How can foodgrains be distributed free to an estimated 37 per cent of the population which lives below the poverty line," Singh asked during an interaction with editors at his residence in New Delhi.

It was not not possible to give free foodgrains to all the poor, he said while answering a question on the order of the Apex Court which had directed Agriculture Minister Sharad Pawar to distribute foodgrains to the poor instead of allowing them to rot.

The prime minister said he had not not seen the final judgement of the court but he respected the 'sentiments' behind the decision that a way should be found to ensure that at a time when when foodgrains are rotting the needs of the people are adequately met.

"I do recognise that food should be available to the people below poverty line at concessional prices. We have not allowed any increase in the issue price of foodgrains to people below poverty line since 2004," he said.

To the extent possible, the government had taken adequate steps in this direction while noting the Apex Court's concern that food should be available to the poor at affordable prices, he said.

At the same time making food available free would destroy incentives to farmers to produce more. If there was no food available there would be nothing to distribute, he argued.

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What the Left has to say

A recent Business Standard report said that faced with increasing number of farmer suicides in West Bengal, the Communist Party of India Marxist-led Left Front urged the Centre to distribute surplus foodgrain free of cost among the hungry poor in the country to relieve them of the additional burden of the rising prices of food.

The Left Front committee claimed the central stock of foodgrain stood at 47.5 mt, more than double the required buffer stock of 20 mt.

To press for their demands, the Left parties would soon submit a memorandum to Prime Minister Manmohan Singh, Front chairman Biman Bose had said.

The Left leaders also took strong exception to the recent comments by Union Agriculture Minister Sharad Pawar that it was not possible to distribute foodgrain for free to the poorest instead of allowing it to rot due to lack of storage facility. Pawar was responding to a recent recommendation made by the Supreme Court on this issue.

Revolutionary Socialist Party leader and member of the Left Front pane;, Khsiti Goswami, said Pawar and other policy makers of the government should realise that "we are sitting on a powder keg. The situation is alarming. We must act fast." RSP is a constituent of the Left Front government in West Bengal.

Meanwhile, the Left leaders also decided to take necessary steps in tackling the ongoing drought situation in West Bengal, where 11 of the 18 districts are currently facing the crisis.

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Are foodgrains rotting?

Chairman and managing director of Food Corporation of India Siraj Hussain in an interview with Business Standard, talked about the grain needed for distribution under the new food security law.

He said FCI has a huge stock of wheat, but inflexibility in pricing open market sale means the stocks are not lifted.

At present, open market prices are lower than FCI prices. But, the prices are determined by the government keeping in mind various things. For example, we offered to sell wheat at Rs 1,350 a quintal in Mumbai, though we could not sell much, hussain said.

Once market prices change, 'we may be able to sell at this price. We cannot bring the price much lower as in that case (if the sale price falls too low), private trade will not buy wheat from farmers and government agencies will have to make all the procurement, which is not advisable'.

He told BS that three-four years ago, FCI's high-level committee used to decide prices, but this was discontinued. Now, the government decides the selling price.

However, to increase sales, 'FCI decided that in all revenue districts, a trader can just go to our godowns, pay and lift nine tonnes wheat by just showing his Permanent Account Number.

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Sharad Pawar's prescription

To make agriculture remunerative on a sustainable basis, a substantial increase in minimum support price of major cereals, ranging from 39 per cent to 78 per cent, was effected during the last five years, said Shard Pawar in an interview to Business Standard recently.

MSPs of pulses and oilseeds were increased up to 104 per cent during the period. There is no doubt that this has encouraged farmers to produce more. Total foodgrain production has increased from 198.4 million tonnes in 2004-05 to 234.5 mt in 2008-09.

Last year's estimated production of 218.20 mt is to be seen in the backdrop of an unprecedented drought. However, the various mitigation measures helped reduce the loss to the minimum.

An empowered group of ministers has been constituted to examine the issues related to FSA. The EGoM has held five meetings.

While the broad contours of the proposed Bill have been worked out, some important issues, such as determining the number of below poverty line beneficiaries, the scale of issue of foodgrain, coverage of above poverty line families and grievance redressal mechanism have been discussed by the EGoM in detail.

The EGoM has asked  the Planning Commission to estimate the number of BPL beneficiaries and to make specific recommendations regarding the proposed legislation, after carefully considering all the issues involved in consultation with the ministries.

Once the directions of the EGoM are received, the draft Bill will be prepared by the Department of Food and Public Distribution and put on its website for public scrutiny and comments.

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Analysts' views

Rising prices are like a fire feeding on itself. As they erode the incomes of wage-earners, they give rise to labour unrest.

That, in turn, brings down productivity leading to further inflation. Thus a vicious circle is established.

It's a tough time for the common people in India. Indians are gasping for breath as prices of essential commodities are spiralling out of control.

With the United Progressive Alliance government deregulating the prices of petro products, things have got even worse.

Interestingly, in any discussion of food price rise, one is bound to hear the word drought, a factor which is singularly being taken into account as the reason for food price hike.

Facts, however, say otherwise.

The possibility of a drought became apparent from July 2009 and its effects -- a below average crop of paddy, pulses, potatoes (kharif crop) and sugar -- could only begin to be felt with lower arrivals in the market from October 2009.

Adam Smith, one of the founding fathers of economics, spoke of the 'invisible hand of the price mechanism'. He described how the invisible or hidden hand of the market operated in a competitive market through the pursuit of self-interest to allocate resources in society's best interest.

This remains the central view of all free-market economists. The price mechanism is a term used to describe the means by which millions of decisions are taken each day by consumers and businesses.

India, at the moment, is reeling under an acute inflation mainly because of the rise in prices of agricultural products as well as a recent hike in petro prices.

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An economist's suggestion

Eminent economist Abhirup Sarkar has a few suggestions, which, he thinks if taken, can curb price rise and ensure food security to a great extent. These are:

• The government needs to put more stress on agriculture. Globalisation is welcome but not at the cost of farming.
• There has to be a proper, balanced long-term investment plan in agriculture. Unless the supply is increased, prices of food materials will never come down.
• The government should try and put a brake on mindless hoarding, reckless speculation and unbridled profiteering.
• The government can release foodgrain stocks available with the Food Corporation of India.  Why should wheat and rice prices rise when India has near record stocks of foodgrain.
• The government can import potatoes, onions and pulses. There is no dearth of forex reserves in India at the moment.
• Streamlining and strengthening the public distribution system
• Last but not least, it has to be remembered that all these measures can be successful only to the extent we can control population growth.