April 06, 2014

The Food Economy

Prabhat Patnaik

AN impression is sought to be created by government spokesmen that Indian agriculture, especially the foodgrain sector, has left behind the stagnation that afflicted it in the immediate aftermath of the “economic reforms”. It has now “turned around”, and those who are still highlighting the deleterious effect of the neo-liberal regime upon food security are simply raking up a past that no longer exists. NO TURN AROUND Let us look at production figures first. Per capita foodgrain output in the country which had declined during the decade of the nineties and had continued to decline thereafter, right until 2007-08 (which had been a peak agricultural year at that time), did increase subsequently. But if we take 2011-12, the latest year of peak production, and compare it with an earlier peak 2001-02, we find that per capita foodgrain output remains roughly unchanged between these two dates. Since per capita foodgrain output had actually declined during the decade of the nineties, it follows that even today its magnitude is still lower than at the beginning of the nineties, i.e., just before “economic reforms” began. So, there is no “turn around” in the sense of recapturing a secular upward trend in per capita foodgrain output. An impression of a “turn around” is illicitly created by comparing a bad year with a good year, i.e., some intermediate year between 2001-02 and 2011-12 with 2011-12. A proper comparison, say of the latest peak year, 2011-12, with the pre-“reform” peak, suggests a fall in per capita foodgrain output. But that is as far as production is concerned. When we look at “availability”, things are even worse. “Net availability” refers to output net of seed input, minus net addition to foodgrain stocks, plus net foodgrain imports. Little is known however about the net changes in private stock holding. So, the actual official figures simply take net output, subtract from it net addition to government stocks alone, and add net imports, to arrive at net foodgrain availability. If we take per capita net foodgrain availability in India, then for the triennium ending 2011-12, the latest year for which we have official data, the annual average figure comes to 163 kilogrammes. This figure should be located in a historical context. At the beginning of the twentieth century (over the quinquennium 1897-1902), the average annual net foodgrain availability in “British India” was 199 kilogrammes. It declined to an average of 148.5 kilogrammes during the quinquennium 1939-44, and further to 136.8 in 1945-46. That was the shocking legacy left by colonial rule at the time of independence. With much strenuous effort, starting with the “Grow More Food” campaign of the early fifties, the now much-reviled dirigiste regime pushed it up to an annual average of 177 kilogrammes for the country as a whole for the triennium ending 1991-92. After the introduction of neo-liberal “reforms” however there has been a fall, gentle at first but sharp thereafter: to 174.3 kilogrammes for the triennium ending 1994-95, to 174.2 kilogrammes for the triennium ending 1997-8, and to 155.7 kilogrammes for the triennium ending 2002-03, which was lower than the figure (159.3) for the quinquennium 1933-38 . The figure for the triennium ending 2006-07 was in fact 159.88, almost the same as for 1933-38, and for the triennium ending 2011-12, 163 kilogrammes. The conclusion is inescapable therefore that the net per capita foodgrain availability in the first quinquennium of this century has been lower than in “British India” on the eve of the second world war, and not much higher thereafter. What is remarkable however is the following. While compared to the eve of “reforms” both per capita foodgrain output and per capita foodgrain availability have declined, the decline in the latter is far sharper than in the former. In fact, there has been an increase in foodgrain output in the recent period, which, though it does not amount to a “turnaround” for reasons discussed earlier, is at least noticeable. There has however been no such increase in availability. Between say the triennium ending 2006-07 and the triennium ending 2011-12, the average annual foodgrain output in the country increased by 17.4 percent. But the average annual foodgrain availability over exactly the same period increased from 159.88 kg to 163 kg which hardly represents any increase at all. In other words, the squeeze on people’s absorption of foodgrains has been even sharper than the output trend would warrant. The fact that under a neo-liberal regime the State withdraws the support, protection and promotion measures vis-à-vis peasant agriculture is well-known, as is the fact that this has an adverse impact on output from such agriculture, including on foodgrain output. But neo-liberalism is even worse than that. It does not just cause a fall in per capita foodgrain output; it causes an even greater fall in the absorption of such output by the people; and this is reflected in the large and growing foodgrain stocks with the government. These stocks either rot, or are consumed by rodents, or are exported. Growing hunger among the mass of the people is thus an inevitable accompaniment of a neo-liberal regime. To understand why this happens, let us ask ourselves the question: why doesn’t the government distribute the burgeoning foodgrain stocks at its command to the people, instead of accumulating them? Distribution can be through two possible channels: in the open market or through the public distribution system (PDS). In a situation of inflation such as what the Indian economy has been experiencing for several years now, open market sales of foodgrains by the government simply lead to speculators buying up whatever the government sells; it leads in other words merely to government stocks passing into private hands and not into the mouths of the hungry, who in any case lack the purchasing power to buy more food at open market prices. Hence even though the government has indeed on several occasions sold accumulated stocks in the open market, it has led neither to an abatement of inflation nor to an abatement of hunger. The alternative way of getting rid of excessive stocks by the government is of course to enhance distribution through the public distribution system. But if the Food Corporation of India which has purchased paddy at say Rs 18 per kilogramme, and added storage, transportation and other costs of say Rs 2 per kilogramme, sells its stocks at Rs 5 per kilogramme, then it is making a loss of Rs 15 per kilogramme. Since food subsidy in India is nothing else but the amount contributed from the central budget to cover the losses made by the FCI, this means a food subsidy of Rs 15 per kg. If 10 million tones are so distributed through the PDS then the food subsidy increases by Rs 15,000 crores, which makes it difficult to meet the fiscal deficit target, leads to a downgrading of India’s “credit rating”, and frightens off globalised finance. Hence a neo-liberal regime that is open to unrestrained movements of speculative capital, lets foodgrains rot in godowns, or exports foodgrains, even as millions of people go hungry. Alleviating their hunger is simply incompatible with keeping finance capital happy! HUMBUG OF FINANCE This however is not just a matter of class antagonism, the fact that keeping finance happy entails keeping people hungry. It is a matter of stupid economics as well. Finance capital’s insistence that the fiscal deficit be restrained, in this case by not increasing the food subsidy, is stupid economics, which Joan Robinson had called the “humbug of finance”. Why is this so? An increase in the fiscal deficit is supposed to exacerbate inflation (or, alternatively, worsen the trade balance, which however is not pertinent in the present case). Inflation gets exacerbated through an increase in the level of expenditure, i.e., when people demand more without there being a corresponding increase in supply. Now, in the present case the government (FCI) has already borrowed from the banks to purchase the foodgrains which it is holding as stocks. The money with which it has purchased the foodgrains from the landlords and the peasants has already accrued to them as income and has already entered the expenditure stream. The government’s selling stocks does not add to the expenditure stream. On the contrary it adds to the supply of commodities (foodgrains) on the market. Hence it is anti-inflationary rather than inflationary. Consider an example. A worker, let us say, was buying 10 kgs of foodgrains every month from the PDS at Rs 5 per kg and another 10 kgs in the open market at Rs 20 per kg, his total expenditure on foodgrains being Rs 250 per month. His family was hungry because it actually needed 30 kgs of foodgrains but was getting only 20 kgs. Now, suppose the government provides him with an additional 10 kgs of foodgrains through the PDS at Rs 5 per kg. Then, given the size of his foodgrain budget which is Rs 250, he would reduce his open market purchase to 7.5 kgs: he would spend Rs 100 on PDS foodgrains buying 20 kgs which the government now supplies him, and Rs 150 on open market purchase which would fetch him 7.5 kgs. The total foodgrain consumption of his family has improved from 20 kgs earlier to 27.5 kgs now, though it still falls short of his requirement of 30 kgs. And with his open market demand falling from 10 kgs to 7.5 kgs (and that of others like him), open market prices would fall. The government measure would have been anti-inflationary, even though formally the fiscal deficit has gone up for reasons we discussed earlier. The government’s distributing foodgrains through the PDS instead of holding stocks thus results in an abatement of both hunger and inflation. To keep holding stocks of foodgrains in the midst of widespread hunger because distributing it through the PDS would enlarge the fiscal deficit and hence be inflationary is, in Joan Robinson’s words, sheer “humbug of finance”. But a neo-liberal regime is constrained to accept this “humbug” as gospel-truth. This “humbug” has now been carried to absurd lengths. In the last two years, according to the chairman of the Commission on Agricultural Costs and Prices (CACP), India has exported 40 million tonnes of foodgrains. No doubt it would be argued that exporting foodgrains is better than just holding them as stocks; but in a “Republic of Hunger” (as Utsa Patnaik has called India), distributing them to the people through the PDS is the obvious and by far the most desirable option. The “humbug of finance” however dictates otherwise, which is why we have this absurd spectacle of a country with worse than sub-Saharan standards of nutrition being a major exporter of foodgrains in the world.