#India – Cash transfers are bad for food security


MADHAVI CHERIAN, The Hindu 

 
SILO TO BAG: The government’s decision to promote cash transfers in the National Food Security Bill<br />
ignores crucial lessons from India’s past at a time when it needs to intervene on both the demand and<br />
supply sides to ensure food security for every citizen. Photo: M. Govarthan
SILO TO BAG: The government’s decision to promote cash transfers in the National Food Security Bill ignores crucial lessons from India’s past at a time when it needs to intervene on both the demand and supply sides to ensure food security for every citizen. Photo: M. Govarthan

The stabilising effect of the Public Distribution System on prices will be lost as beneficiary households turn to the market for their needs

India’s hard won gains in achieving food security are in danger of being undermined by a clause in the National Food Security Bill that encourages States to adopt cash transfers in lieu of food entitlements under the Public Distribution System (PDS). Supporting this view, a recent report by the Commission for Agricultural Costs and Prices (CACP) concluded that the provision of food subsidies in the form of cash would save the government crores of rupees. Additionally, cash transfers will supposedly eliminate middlemen such as dealers and transporters, ensuring that the subsidy reaches intended beneficiaries.

Cash transfers are a solution only if we view the PDS in isolation, rather than as part of a larger food policy. India’s food policy begins with the procurement of rice and wheat and price support operations by the Food Corporation of India (FCI) and the CACP. Each State is entitled to purchase a certain amount of food grains from the FCI at subsidised prices for distribution through its Fair Price (Ration) Shops. It is this distribution end that constitutes the PDS, and what the cash transfers would replace.

Besides not taking into account the devaluing effect of inflation or the role of intrahousehold dynamics when it comes to cash transfers, its supporters do not specify what would happen to the agricultural commodities that are procured by the FCI. As the policy exists today, the government holds millions of tons of rice and wheat, well above the buffer norms required by law. To reduce its stocks, the government has preferred open market operations (to bulk consumers) and export to distribution through the PDS.

Experiments with decontrol

Using those actions as an indicator of the government’s policy orientation, cash transfers arguably are a gateway to greater deregulation of the food market. Relying on cash transfers alone would mean that the beneficiary households would have to turn to the market to meet all their food needs. More importantly, the stabilising effect that the PDS has on consumption and prices would be lost. Cash transfers thus are only a partial substitute to the PDS.

To understand the importance of a broad food policy, we only have to look at India’s brief experiments with decontrol. The government’s policy reaction to the Bengal famine of 1943, which led to the death of 1.5 million people, provides us with a primer of what not to do in a famine situation. At first, there was a complete laissez-faire policy towards food grain trade, which led to hoarding by traders, farmers and consumers. Subsequently, the provincial governments introduced a policy of procurement and distribution of food grains, which failed miserably as they did not have the requisite infrastructure to implement the policy. For example, grains were rotting in Calcutta, the centre of distribution in the eastern region, as the government had not made arrangements to handle incoming stocks. To avoid what was called a “tragedy in unpreparedness,” the government took steps towards setting up a comprehensive food administration, including procurement by the government, the building of buffer stocks and the introduction of rationing.

However, soon after Independence, India abandoned these policies on the insistence of Gandhiji, who by then had started chanting the following prayer, “Controls give rise to fraud, suppression of truth, intensification of the black market and to artificial scarcity. Above all, it (they) unmans the people and deprives them of initiative; it undoes the teaching of self help, they have been learning for generations, makes them spoon-fed.” Shortly thereafter, droughts and floods led to insufficient production, food shortages and price rise. Controls in the form of rationing, price control and distribution had to be reintroduced in March 1949 to deal with the adverse food situation.

The next phase of free markets in food was under the Food Minister, Rafi Ahmed Kidwai, beginning 1952. Improved food grains production in 1953 and 1954 led to declining prices and a temporary break from chronic shortages. Government procurement of food grains was stopped and restrictions on the movement of grains were removed. Paradoxically, even as farmers faced deflationary conditions, there were shortages and price rise in various parts of the country. The instability in prices, combined with adverse weather in the autumn of 1955, had a dampening effect on production.

In 1957, the Ashok Mehta-led Food Grains Enquiry Committee concluded that an expanded money supply, growing industrialisation and urbanisation and increased investment led to enhanced purchasing power. On the other hand, hoarding by traders, producers and consumers as well as speculative activities in anticipation of public investment by the government led to a rise in prices. Additionally, it found that prices were allowed to fall too low in 1955 and that there was no coordinated policy of combating inflation and shortages that began in 1956.

Back to controls

The government had to reintroduce controls and carry-out price support operations to curb the fall in prices. It opened an additional 10,000 ration shops between October 1956 and September 1957, and released its stocks to combat price rise. This episode underscored the need for the government to intervene in the market to influence prices and output. The Food Grains Enquiry Committee recommended the setting up of institutions like the FCI and the CACP for this purpose. The government’s decision to promote cash transfers in the National Food Security Bill presented in the recently concluded session of Parliament ignores these lessons from India’s past.

Since the 1950s, India has made major strides in agricultural production as evidenced by the large government-held stocks of wheat and rice. However, problems of inadequate nutrition, starvation and double digit food price inflation remain. Strengthening of the PDS, as seen in Chhattisgarh and Tamil Nadu, would serve the purpose of ensuring food security for the nation through stabilising prices, production and consumption. As seen in the past, government withdrawal from the food sector can lead to a decline in production and an increase in hoarding and speculative activity. Unlike the PDS, cash transfers cannot counter the resultant shortages and price rise. In a growing economy like India with constantly increasing demand, the government needs to intervene on both the demand and supply sides to ensure food security for all its citizens.

(Madhavi Cherian is a PhD scholar at the Department of Sociology, New York University.)

 

#India – Counting the costs of direct cash transfers


Madan Sabnavis  April 22, 2013  BS
The government urgently needs to consider 5 ‘Ss’ before it launches itself into this commitment
As a rule, the government likes creating new structures without fully understanding their implications and then disbanding them once criticism inundates the newspaper columns. A lot of time and money is invested in creating these structures and, often, these costs could be higher than the cost they are trying to lower to begin with. The direct cash transfer (DCT) scheme runs a similar risk, since our enthusiasm levels are currently high, and we could go off the track unless certain preconditions are addressed.
It is generally felt that DCTs are a more efficient system than, say, physical subsidies. This does hold when conditions are ideal and back-end structures are in place. Otherwise, there could be contradictions that will make the DCT scheme unsuccessful.
DCTs come into play for two kinds of transfers. The first is where a new structure is created for transferring cash-for-cash transactions. This holds for, say, salaries, pensions and scholarships and so on. The existing scheme has various departments sending cheques to the recipients, who, in turn, deposit them in their own accounts. The second pertains to cash-for-kind transfers. Here, instead of providing the good to the household, a cash transfer of an equivalent amount takes place and can be used to buy the product.
The concept of DCT is based on the much-publicised Aadhaar project where a unique identity (UID) has been provided to people. Since every UID has an account linked to the person, such a transaction would be automatic provided the disbursing authority is linked with the banking systems. Given the volumes involved, this would be a logistical challenge. The advantage for cash-for-cash transactions is efficiency and reduction of leakages provided the identification process is robust. Prima facie, there is nothing amiss here.
When it comes to cash-for-kind transactions, the situation is different because we have to give up the existing structures since substitution takes place. There are essentially five “Ss” that have to be tackled before bringing about any change in the transfer system.
The first is “structures”. We have an elaborate procurement system for food grain that is motivated by, one, procurement for distribution and, two, creation of a buffer. The procurement policy is an open-ended one where farmers can sell a fair average quality to the Food Corporation of India (FCI) at a predetermined price. The idea here is to protect the farmer’s income. Have we thought of what will happen to this policy or FCI (an institution set up for this purpose) when we provide cash transfers, and FCI will then have to address only the issue of buffer stocks?
Second, “systems” have been created for distribution – the public distribution system (PDS). If we have a “conditional cash transfer” in which money given has to be used to buy grain from fair price shops, then the status quo would be preserved – along with the current inefficiencies. However, if it is not a conditional transfer system, then new issues emerge. There are around 500,000 fair price shops across the country that on an average employ one million workers. By introducing cash transfers and disbanding PDS, there will be an issue of unemployment, since it will be hard for these people to reinvent their stores that are mostly located in rural areas. Today, when there is opposition to foreign direct investment in retail, we are talking of the local kirana shops. There will be a lot of noise when we think of displacing these one million workers. Do we have a solution here?
Third, “selection” is an important consideration for a successful DCT scheme. The problem with PDS, besides the ubiquitous leakages, is adverse selection. A lot of people who are not poor take in these entitlements. This becomes acute as we move to kerosene and liquefied petroleum gas. The new scheme on UID is no different from the existing policy of self-declaration; since no proof of income is asked for it runs the risk of adverse selection. In fact, there are a large number of people holding on to the coloured ration cards and not drawing rations. In the new dispensation of the scheme, this could mean free money for them. Do we have a way of screening households or else will we be back to also helping those who do not require assistance?
Fourth, the government is talking aggressively of food “security” with an ambitious target of covering two-thirds of the population. Clearly, there is a major contradiction here. If we are to provide cash transfers, then how do we reach the food grain to the needy, which requires PDS?
Fifth, there has been debate on the food “subsidy” burden. The subsidy is the difference between the economic cost and the issue price for wheat and rice. The economic cost varies between Rs 17 and Rs 24 a kg, and the issue price is around Rs 5 to Rs 8 a kg. This is when the food grain is sold at a fixed price. Now, once the people are paid cash, they have to buy food grain on their own from the market. Based on government data, the price of wheat and rice varies from Rs 15 to Rs 35 a kg in different parts of the country. Two practical problems arise here. The cash to be paid in lieu of subsidy will be substantially higher than the present subsidy amount. Second, with inflation being variable, fixing the prices and, hence, subsidy level across states will be difficult, and one can see a lot of politics coming in the way of arguing for higher levels of allocations.
To make the DCT scheme effective, we need to fix these five “Ss” first or else we would be running conflicting parallel systems. We also need to evaluate the exact benefits of the cash-for-cash transfers before embarking on the more onerous cash-for-kind transfers. Besides, the cash-for-cash transfers alter the mode of payments without addressing the issue of selection. It is, therefore, advisable that we move one step at a time and not get carried away.
The author is Chief Economist, CARE ratings. These views are personal

 

 

1,200 tonnes of wheat rot in scarcity-hit Gujarat #Narendramodi #Indiashining


A bag of wheat, often used as an adjunct

A bag of wheat, often used as an adjunct (Photo credit: Wikipedia)

TNN | Aug 13, 2012, 04.35AM IST

VADODARA: Wheat enough to feed more than 5,000 people for more than a year has been left to rot at the Vadodara railway station even as the current spell of monsoon showers hit the city. The foodgrain has been allowed to turn to waste less than a week after more than half of Gujarat was declared scarcity-hit.

Some 1,200 tonnes of wheat, packed in 24,000 bags, was lying in the open at the Vadodara railway yard when a TOI team reached there on Sunday afternoon. The foodgrain had poured out of the bags and had become a free lunch for stray cattle.

The wheat sent by Food Corporation of India was to be sent to Central Warehousing Corporation (CWC’s) godown in Vadodara within 36 hours. It was meant for both poor people to be given through the public distribution system as well as for sale in the open market. It was wasted only because the contractor didn’t pick up the bags in time apparently because he didn’t have enough labour to do the job.

“This is unfortunate,” said economist and former Union minister Y K Alalgh. “Such a waste can’t be allowed in our country simply because there is a lack of coordination between various agencies, including the railways and the FCI. The guilty should be brought to book.”

Vadodara collector Vinod Rao and BJP MP Balkrishna Shukla rushed to the spot as word on the issue spread.

CWC officials, however, downplayed the issue, saying that it was a minor hitch. “The contractor was expected to pick up the entire stock from the railway yard. However, he couldn’t do so as the stock was large. Usually, the stock is not offloaded when it is raining. But when the stock was offloaded three days ago, it wasn’t raining. The contractor had moved many bags from the yard to the godown,” said CWC regional manager V K Tyagi.

“Many foodgrain bags have become wet, but we can salvage them and use them again. The lack of infrastructure in the railways, too, led to the situation. We will take action against the contractor and penalize him for the damage,” Tyagi added.

FCI regional manager N Mohan said out of 54,000 bags, 30,000 had been shifted.

Centre Proposes Six Months Advance Allocation of PDS Grains #Goodnews


New Delhi: The central government on Thursday decided to allow states to lift and distribute six months’ quota of food grains under the Targeted Public Distribution System (TPDS) in one go.

The decision has been taken in view of its granaries overflowing and record food production for the third year in a row.

Minister of State for Consumer Affairs, Food and Public Distribution KV Thomas has written to the states, requesting them to make the most of the facility of advance lifting of food grains, according to an official statement.

“This will not only ease the problem of additional storage in view of increased procurement but also ensure uninterrupted supply of ration to the beneficiaries,” it said, reports IANS.

India‘s food grain stocks are 71.21 million tonnes as of May 1 with 38.19 million tonnes of wheat and 33 million tonnes of rice, according to the Food Corporation of India.

Thomas has also requested states to ensure lifting of additional allocation of 60 lakh tonnes grains for above poverty line (APL) families and 15.40 lakh tonnes for the poorest districts in 12 states made during 2011-12.

He regretted that states had lifted only 27 per cent of the additional grain allocation made during the current year.

Further the ministry has asked the states not to force the beneficiaries to lift the additional quota in one go and let them take the grains as per convenience.

In order to ensure transparency, the states have been advised that the bulk distribution may be made as far as possible in the presence of state government officials, representatives of Panchayati Raj institutions, members of vigilance committees in Gram Sabhas and NGOs concerned.

Centre Proposes Six Months Advance Allocation of PDS Grains

New Delhi: The central government on Thursday decided to allow states to lift and distribute six months’ quota of food grains under the Targeted Public Distribution System (TPDS) in one go.

The decision has been taken in view of its granaries overflowing and record food production for the third year in a row.

Minister of State for Consumer Affairs, Food and Public Distribution KV Thomas has written to the states, requesting them to make the most of the facility of advance lifting of food grains, according to an official statement.

“This will not only ease the problem of additional storage in view of increased procurement but also ensure uninterrupted supply of ration to the beneficiaries,” it said, reports IANS.

India’s food grain stocks are 71.21 million tonnes as of May 1 with 38.19 million tonnes of wheat and 33 million tonnes of rice, according to the Food Corporation of India.

Thomas has also requested states to ensure lifting of additional allocation of 60 lakh tonnes grains for above poverty line (APL) families and 15.40 lakh tonnes for the poorest districts in 12 states made during 2011-12.

He regretted that states had lifted only 27 per cent of the additional grain allocation made during the current year.

Further the ministry has asked the states not to force the beneficiaries to lift the additional quota in one go and let them take the grains as per convenience.

In order to ensure transparency, the states have been advised that the bulk distribution may be made as far as possible in the presence of state government officials, representatives of Panchayati Raj institutions, members of vigilance committees in Gram Sabhas and NGOs concerned.

In a communication sent to the Chief Ministers of all the States/UTs, Union Minister of Consumer Affairs, Food and Public Distribution, Prof K.V. Thomas has requested the states to avail the facility of advance lifting of food grains and its onward distribution to the TPDS beneficiaries to the maximum extent possible. This will not only ease the problem of additional storage in view of increased procurement but also ensure uninterrupted supply of ration to the beneficiaries.Prof Thomas has also requested the States to ensure lifting of additional allocation of 60 lakh tons for Above Poverty Line (APL) and 15.40 lakh tons for poorest districts in 12 States made during the current year under TPDS to the States/UTs. He has regretted that the states have lifted only 27 percent of the allocation made to these districts during 2011-12.

Regarding the six months advance allocation of ration to PDS beneficiaries in one go, the States have been advised to ensure that beneficiaries are not compelled to lift their entire allocation in one go and it should be purely voluntary. In order to ensure transparency, states have been advised that the bulk distribution may be made as far as possible in the presence of state government officials, representatives of Panchayati Raj Institutions, members of vigilance committees in Gram Sabhas and NGOs concerned.

More than 1000 farmers commit suicide every year in Bengal


KOLKATA, Jan 27 – Although the Chief Minister of Bengal has ruled out the recent farmer’s death in the state but according to the State Agriculture Minister, Rabindranath Bhattacharya, last year there were 1,200 farmer suicides, while in 2009 and 2010 there were 1,054 and 993 farmer suicides, respectively.

The CM‘s rejection came a day after Bengal Governor stated that farmer’s suicide is an ‘unfortunate’ incident. The CM claimed that there was only one farmer’s death since she came to power. There were reports of 26 such incident in last eight weeks alone.

Mr Bhattacharya, however, admitted that they were handicapped by severe fund crunch, adding that the poor condition of the state exchequer and failure to set up sale counters across the state delayed paddy procurement.

Although the government ruled out distress sale leading to farmers suicide at a mass scale, it has decided to take a special drive and conduct camps in the next one month to procure additional paddy.

The state food and supplies department plans to procure around 1000 metric ton of paddy through camps that would be held on 27 and 29 January. Similar camps would be held next month as well. Till now, the government has procured 3.67 lakh metric ton of paddy and is yet to procure 13 lakh metric ton. The Food Corporation of India targets a procurement of 4.5 lakh metric ton within September.

Ms Bannerjee also rejected the suggestion of CPI-M MLA that an all party team should visit the place. Congress and CPM, both, criticized this decision of Bannerjee.

By- Jitendra, Newzfirst at http://www.newzfirst.com/web/guest/

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