A Critique of the Shanta Kumar Committee Report
Deepankar Basu and Debarshi Das, Guest Bloggers
Deepankar Basu is assistant professor in the Department of Economics, University of Massachusetts Amherst, U.S., and Debarshi Das is associate professor in the Department of Humanities & Social Sciences, Indian Institute of Technology, Guwahati. A shorter version of this article was carried in The Hindu on Tuesday, February 17, 2015.
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 the short run, the committee recommends that the National Food Security Act (NFSA) 2013 be curtailed. The NFSA entails providing subsidized food to about 67% of the population; the committee recommends that the coverage be brought down to 40%. 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.
While there are other important details whose implications need to be studied seriously (e.g., encouragement of contract labour), 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 completely dismantle it in the medium run. The HLC has advanced two broad set of arguments as justifications for its recommendations. Critical scrutiny shows that both these sets of arguments are fallacious.
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, it has ignored the fact that India continues to be plagued by large scale hunger and malnutrition. Data from the National Sample Survey (NSS) shows that in 2009-10 the vast majority of the population was consuming less than the 2010 Indian Council of Medical Research calorie norms. If we look at trends over time, the same NSS data also show that average calorie and protein intake have declined over the past few decades. Evidence on more direct measures of under-nutrition—like the proportion of underweight and stunted children—are equally grim.
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 dismantling 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 important role, rather than less.
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, failure to meet the objective of providing price support is shown by the fact that in 2012-13 only 6% of agricultural households sold any food grains to procurement agencies. Failure on the PDS front is attested by massive leakages from the system. The rotting of food grains in FCI warehouses highlights the failure of the system of public stockholding.
Let us scrutinize each of these three claims in turn.
The fact that only 6% of agricultural households sold paddy or rice to any procurement agency in 2012-13 is really striking. But why did such a small proportion of farmers sell to procurement agencies? The Situation Assessment Survey of Agricultural Households conducted by the National Sample Survey Organization during the 70th Round (2013) of the NSS—the data source that allowed the HLC to compute the figure of 6% —provides information for answering the question.
According to data available in published reports of the 70th Round (2013) of the NSS, the vast majority of agricultural households were not aware of the existence of minimum support price (MSP), and an even larger proportion were not aware of procurement agencies (about 80% for paddy and 70% for wheat). Of the households that were aware of MSP but did not sell to procurement agencies, a large proportion did so for lack of procurement infrastructure at the local level. Moreover, if we go back 10 years and look at data from the previous (and first) Situation Assessment Survey of Farmers in 2003, we see a large variation across states in awareness of MSP, with the states of Haryana, Kerala, Punjab, and Tamil Nadu showing high 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. States which have managed to put such infrastructure in place and disseminate information about procurement saw relatively large participation. Thus, the HLC’s conclusion that the procurement system is not working is misleading. It is working in some states (with lot of room for improvement) and we know some of the reasons why it is not working in the others. Hence, the conclusion that would seem to emerge from the evidence is not that the procurement system needs to be dismantled, as the HLC recommends, but that the State can improve its functioning by building infrastructure at the local level and enhancing information dissemination in regions where they are scant.
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 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 but that strategies adopted by successful states be replicated in the not-so-successful ones.
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.
To sum up, neither the changed situation with respect to domestic food production nor the functioning of the FCI with respect to meeting its key objectives lends credence to the argument that the FCI, and with it the whole food management system, needs to be curtailed. The recommendations of the HLC are problematic because they are based, on the one hand, on ignoring well known facts about the prevalence of hunger and malnutrition in the country and, on the other, on incorrect reading of evidence.
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