The Indian government has moved forward by executive order of the Prime Minister with a food security program that has been under debate since December 2011. The plan adds a right to food and provides subsidized grain to two-thirds of the country’s 1.2 billion people. Prime Minister Singh’s cabinet had approved the plan in April after making some changes suggested by Parliament. The executive order needs to be approved by the Indian President and passed by a majority in the Parliament which is expected to be back in session in late July or early August.
Benefits would be provided for 75 percent of the rural population (70 percent of the India’s population is rural) and 50 percent of the urban population. There is little doubt of a need for some type of additional food assistance. According to the World Bank, under India’s new definition of poverty about 410 million people, 37 percent of the population, lives in poverty, making India home to one-third of the world’s poorest people. The Indian government’s National Family Health Survey found that a third of women are underweight and half of children below five suffer from malnutrition. Over half of the recipients will be farmers, raising the issue of providing access to technology to increase production to feed themselves and sell the excess on the market rather than relying on a government food program.
Politics has much to do with the timing of the announcement. Parliamentary elections must be held by May of next year. Prime Minister Singh’s Congress Party is seen as favoring the rural areas. That helped them become the leading party in the 2004 elections and to win again five years later. The opposition would have done little to help move the bill in parliament, but cannot be seen as opposing the bill now that the Prime Minister is implementing it by executive order.
The program does not provide enough food to solve hunger problems. The monthly food grain entitlement for individuals is 11 pounds per person; higher amounts will be available to pregnant mothers and destitute children. Low prices for rice, wheat and coarse grains will be fixed for the first three year and then linked to the government Minimum Support Price paid to farmers for crops. According to the U.S. Agricultural Attaché in India, a separate program for 23.4 million of the ‘poorest of the poor’ households will guarantee 77 pounds of grain per month per household. The focus on food grains is criticized by some as misguided because consumers increasing want access to milk products and other proteins, fruits and vegetables and cooking oil. This will also encourage farmers to focus on growing traditional grain crops and ignore higher returns from other crops.
The responsibility of actually implementing the food security program will rest with state governments. The national government will provide assistance to the state governments towards intra-state transportation, handling of food grains and paying margins to the Fair Price Shop dealers. Some states may save money if the national program replaces some state programs.
According to the Agricultural Attaché, the government food grains off take for fiscal year (FY) 2011/12 (April/March) was 56.3 million metric tons (MMT). That is expected to increase 4.9 MMT under the new program to 61.2 MMT. Total production of rice, wheat and coarse grains in India in 2011/12 was 235 MMT. Food grain stocks are expected to be adequate through FY 2014/15, but may run short after that if domestic production does not increase. The original bill would have pushed government use to 76 MMT per year. Production for 2013/14 for India for rice, wheat and coarse grains is projected by the Foreign Agricultural Service of USDA at 240 MMT.
Existing food subsidies programs cost the national government about $15.7 billion for FY 2012/13. The new entitlement will add another $7.4 billion, pushing the total cost to $23.1 billion per year.
India is currently an exporter of food grains because of poor management of the domestic program. The government runs its programs for domestic political purposes and accumulates grain purchased at above market prices. When it no longer has storage space to hold additional stocks and has another large crop to harvest and store, an excess stocks sale is set at prices that will clear international markets. In FY 2012/13 it unloaded on the export market 9.0 MMT of rice (the world leader), 8.0 MMT of wheat and 5.2 MMT of coarse grains for a total of 22.2 MMT. This year India is expected to export about the same amount of rice and wheat, but less coarse grains. In 2009/10 exports totaled 5.0 MMT, mostly rice and coarse grains.
If India was replacing its current domestic food system with a market-based cash system that eliminated the unintended exports that would be progress. There is every indication that this new effort will be bolted onto the current inefficient system. That is putting more good money in a bad place.
Doing more of the same also ignores the need to make the shift over to more protein in consumers’ diets – both plant and animal protein. India imports about 15 percent of its lentil supply and is one of the largest importers of vegetable oil. Helping farmers produce for new domestic markets would be good for farmers and consumers.
India also has a need to increase yields of existing crops. It has increased the cotton yield per acre of by 65 percent in the last ten years, while its corn yield has increased half that for cotton and remains one of the lowest for countries with a modern agriculture. The government has a goal of increasing farm output by 4.0 percent per year and has averaged 3.6 percent annually over the last five years. Increasing irrigation and mechanization is part of the government’s longer-term effort to increase productivity.
The Indian government should be applauded for wanting to make sure that India’s lowest income citizens share in the increase agricultural output in recent years. Whether or not India continues to be a significant commodity and food exporter should be driven by market forces with minimum government influence. The government should use this current interest in food assistance policy to make market driven reforms of domestic food supply policies.
Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org). Follow us: @TruthAboutTrade on Twitter | Truth About Trade & Technology on Facebook.