CHAPTER FIVE POLICY ISSUES. The growing concern o f national and international organizations over

Size: px
Start display at page:

Download "CHAPTER FIVE POLICY ISSUES. The growing concern o f national and international organizations over"

Transcription

1 CHAPTER FIVE POLICY ISSUES 5.1. Introductioii The growing concern o f national and international organizations over eradication o f the hunger and malnutrition prevalent among low-income consumers in many developing countries has generated a sense of urgency about analyzing the scope and effectiveness of specific policy measures available for increasing the consumption levels o f the poor. There are several ways in which food security can be achieved. The alternative strategies consist o f several policies. India s strategy in this regard consists of economic growth, direct anti-poverty programs, which include wage employed and self employed targeted programs, public distribution system, nutrition based programs, provision o f free or subsidized health facilities etc. Given the wide variety o f policies presently the need for more efficient implementation o f the poverty alleviation programs is more urgent now because o f the likely adverse impact of the new economic policies on the poor at least in the short run. For framing the policies on poverty and food security, knowledge about the composition and location of the poor is important. In India target oriented public distribution systems for food grains 239

2 are very popular policy measures used to supply food grains to target groups at a subsidized price level Since the operation o f these public distribution systems involve procurement from local and international markets, movement restrictions, and distribution through fair price shops at subsidized price levels, public distribution has a major impact on a number of elements o f the national economy. Public distribution can be both a step towards economic growth and a step towards achieving some level of equity in food consumption. The effectiveness o f the public distribution system will depend on both supply and distribution arrangements. On the supply side local procurement is the most important source and when the procurement price is close to the open market price, the farmers may not resist procurement. In the surplus states, such as Punjab and Haryana, Where the difference between the open market price and the procurement price is small, the farmers income loss is negligible. The large size o f the country, the Government control on transport facilities and the unwillingness of the private trade to make massive investments on marketing infrastructure will come in the way o f operations o f free trade. On the distribution side, the effectiveness depends on a number of factors such as proximity o f the fair price shops, gap between the open market price and ration price, interval and regularity o f supplies, commodity composition, social awareness and existence of public distribution arrangements. 240

3 We know that in India many poor households are suffering from hunger and malnutrition. Recently we have seen that in Amlasole, a rural area in the district o f Midnapore, West Bengal, many people died due to distress hunger and malnutrition. This does not imply that in India food grains production is low. In India food problem in the sense of shortage of food grains production no longer exists. The accumulated stock with the Government also appears to be more than adequate. But food problem in the normative sense still continues to exist as millions of poor suffer from persistent hunger and malnutrition. This problem is created mainly due to improper distribution o f food grains. So it is quite obvious that the poor households will draw their frill quota of ration food grains, as they have no other alternatives. But in our study we see that many poor households in the district of Burdwan of West Bengal are not willing to draw their frill quota of ration food grains for various reasons like irregular supply of ration food grains, lower quality o f ration commodities, lack of public awareness, increase of issue prices o f ration commodities, existence of other sources of acquiring food grains, substantial amount of leakages and corruption etc. In our study we see that many genuinely poor households are not getting ration food grains whereas relatively richer sections of the people enjoy this facility due to wrong identification of the BPL families. From this survey we see that corruption level is very high in the distribution of coupons in case of Antyodaya Anna Yojana. Many entitled families are left out of this program. If we consider total family income of the ration drawers then many of these families will not belong to the BPL category. Due to their relatively higher purchasing power they are not willing to draw their frill quota of ration food grains. As a result o f that the effectiveness o f public distribution system 241

4 becomes limited as a food security measure. So some recommendations should be made to improve this situation. This chapter is organized as follows. In section 5.2 we analyze the basic findings of the study. This will help us framing the policies. In section 5.3 some policy prescriptions are made to improve the performance of public distribution system as a food security measure Basic Findings of the Study Before starting to discuss the policy implementations and strategy issues for the Government authorities, let us recapitulate the findings of the study once again. (1 ) The quality o f the food grains provided through the fair price shops in the district of Burdwan is very low. The quality differences imply inefficiency in the public distribution of grains, as it exists in India today. We believe that the lower quality of PDS food grains is evidence of inefficiencies in the operation of the public sector. As far as we are aware, there is no deliberate policy on the part of the government to procure inferior grains. In the case of wheat, Government purchases take place at market prices, which means that private traders acquire comparable quality grains at the same prices as the Government. At the point of sale, however, consumers do not regard the grains from the 242

5 two sources as identical Even when the issue price is much below the market price, some consumers (with access to the PDS) prefer to buy from the market. The number of such consumers increases as the issue price increases. Relative to the grains in the open market, consumers demand a discount on their purchases from the PDS, which represents their valuation o f the cost of transacting in the PDS. The appearance of quality differentials at the retail outlets must then be due to inefficiencies in the marketing chain, such as bad purchase decisions, lack of care in storage and handling, and indifferent service at the ration shops. Whatever the reason, compared to private trade, the state apparatus produces a lower value of output for comparable input levels. In the case of rice, the Government purchases the grains at below market prices by a levy imposed on rice mills. It would be surprising if the rice mills did not try to sell their lower quality stocks to the Government, saving the better quality rice for the open market. This leads us to conjecture that the quality differences between open market and PDS rice may be even more severe than in the case of wheat. Thus, we see that the lower quality of ration food grains is produced by inefficiency of the state marketing system. This means that the loss in quality must be reckoned as a dead-weight loss, which further limits the gain of redistribution due to self-selection. In sum, while a PDS that provides for self-selection is desirable, 243

6 inefficiency in distribution seems a poor way of attaining it. Here, the implication of the inefficiency is represented by quality differentials. Due to the lower quality of ration food grains some poor households are not willing to draw their foil quota o f ration food grains. Since these poor households supplement their ration quota by purchases from open market, their welfare depends on the open market price too and hence on the quality difference. (2 ) The leakages in public distribution system take place in the district o f Burdwan of West Bengal at various levels and in various forms. The extent and form of leakages depends upon the coverage and the manner in which food grains are distributed. As the income o f fair price shop dealers is very low, they try to increase their income by resorting to malpractices. It can take various forms. The dealer may possess bogus cards and the quota obtained on such cards may be diverted to the open market. The state Government is aware o f this problem and has taken half-hearted measures to weed them out. In the process some of the deserving households have lost their entitlement to subsidized food grains. In rice surplus districts like Burdwan some deserving persons have their own home godown stock and hence they are not willing to buy food grains from ration shops due to their lower quality. Such quota may also be diverted to the open market. So it is seen 244

7 that the fair price shop dealers in collusion with the higher officials may divert the quota to the open market. Sometimes it is also seen that the non-poor households draw ration food grains to feed their cattle stock. So the substantial amount of leakage of ration food grains is one of the main reasons for rising food subsidy b ill (3 ) The process o f identification of the BPL (Below Poverty Line) families in the district of Burdwan is defective. In this case two types of errors arise: (i) error of wrong exclusion (Type - 1 error) and (ii) error of wrong inclusion (Type - 11 error). In the case o f error^^vrong exclusion the genuinely poor or deserving households are excluded from the program. On the other hand, in the case of error of wrong inclusion non-eligible persons or households are included in the program. Here, we generally use income criterion as a basis of targeting. But, as the poor households generally works in the informal sector and receives earnings on an irregular basis, income criterion is not the appropriate basis o f targeting. For households that earn income from casual labour or from self-employment, incomes fluctuate over time, and even from day to day, a classification based on incomes reported on the day of a survey may be a very inaccurate basis for calculating incomes over the year. Moreover, there is large scope for misidentifying 245

8 households and for mistargeting when an income poverty line is used. (4 ) Public distribution system is highly subsidized in India and this puts a severe fiscal burden on the Government. Subsidy on PDS arises from the difference between the issue price and the economic cost of the FCI (Food Corporation of India), Food subsidy to FCI consists o f two parts, namely, (i) consumer subsidy and (ii) buffer stock subsidy. The need for the former arises because of the difference between the procurement prices paid by the FCI to the farmers and the issue prices at which the food grains are supplied through the PDS by the Government. Because of the need to supply food grains at low prices to the masses, the issue prices have for long been kept at a very low level so that they are insufficient to cover even the partial costs of procurement, transport, storage and distribution. On the other hand, buffer stock subsidy refers to the reimbursement of the carrying costs on buffer stocks held by the FCI on behalf of the Government. While the economic cost of FCI is going up considerably due to the regular hikes in the procurement prices, rising costs of storage and distribution etc., the issue prices are deliberately kept low by the Government in order to supply food grains to the masses at low prices. In 1997, when the Government adopted the Targeted Public Distribution System (TPDS), issue prices for BPL families 246

9 were fixed at fifty percent o f the economic cost of FCI while the issue prices for APL (Above Poverty Line) families were fixed equal to the economic cost. The drastic reduction in the issue prices for BPL families raised the subsidy burden considerably. On the other hand, fixation of issue prices at a level equal to the economic cost for APL families created a situation where APL price under PDS rose higher than the market price reducing the incentive for APL families to purchase food grains from the PDS. As a result, the stocks of food grains with the FCI have swelled. To tackle this situation, the Government recently reduced the issue prices for APL families by thirty percent. A more important program to liquidate excessive stocks of food grains is the Antyodaya Anna Yojana launched in December, 2000, The estimated annual allocation of food grains for Antyodaya families would be thirty lakh involving a subsidy of Rs.2315 crores. FCFs unit cost of operations (procurement incidentals, distribution incidentals and carrying costs) have all been increasing at a rate higher than that o f the wholesale price index for all commodities, wholesale price index for food grains and procurement price index. (5 ) In many rural areas in the district of Burdwan the fair price shops are superfluous in a good crop year because of the easy availability at a reasonable price and they are 247

10 ineffective in supplying required quantities in a bad year. So consumption level of the rural households fluctuates. ( 6) Sometimes it is seen that PDS commodities arrive late and irregularly at the fair price shops in many rural areas in the district o f Burdwan. The poor households are poorly informed o f this. This means that when food grains arrive in the fair price shops, the poorest among the poor may not have sufficient cash to purchase their full quota of ration food grains. So if ration food grains are supplied regularly through the fair price shops then the demand for ration food grains may increase. (7 ) It has been observed that the issue prices of ration food grains increases continuously in the recent years. The positive relationship between the issue price and the open market price means that changes in the issue price matter not only to the consumers who purchase their food grains from the PDS but also to those consumers who buy food grains from the open market and their welfare is therefore worsened by sharp increases in issue price. As a result of increase in issue prices the demand for ration food grains decreases. It is one of the main reasons for lower off take of ration food grains in the district of Burdwan of West Bengal. 248

11 (8 ) It has been noticed that in the process of targeting the poor people, income o f the head of the family is considered. If this income level is below Rs per annum {i.e. R s.l200 per month) we say that the family under consideration belongs to the BPL category. But, if we consider total family income then it is generally seen that most of these families do not actually belong to the BPL category. Due to their relatively high purchasing power they are able to purchase their required amount of food grains from the open markets where prices of food grains are also high. So the off take o f ration food grains decreases considerably. So the basis o f targeting should be changed so that the actual poor can enjoy the benefit of this scheme. (9 ) In the district of Burdwan the agricultural production is usually very high. But, the amount of procurement is much lower than the production level One of the main reasons for low procurement o f food grains is that the Government is afraid o f alienating the big farmers due to their political motive. So the Government does not enforce procurement with vigour and determination. But, in order to increase the allocation of ration food grains the amount of procurement o f food grains has to increase. In this case the poor people will get higher amount of ration food grains at the subsidized price level. 249

12 (1 0 ) The list of BPL families in the district of Burdwan in West Bengal is doubtful and faulty. Many deserving households are left out of this program. Corruption level becomes high in the distribution of coupons among the poor families under Antyodaya Anna Yojana. As a result of this fact, proper targeting of the genuinely poor households becomes impossible. (11) The public distribution of food grains has resulted in some redistribution of income. Since the small farmers are left out from the levy obligations, whatever be the marketed surplus from this category, they could get the benefit of a higher open market price. Because of the subsidy element, the food deficit areas receive an indirect income transfer from the central Government Policy Recommendation Public distribution system performs as a food security measure in all the states o f India. In different states there are different types of problems of public distribution system. So it is very difficult to make policy recommendation for the country as a whole. But, generally in order to improve the performance of public distribution system as a food security measure some policy recommendations may be made. These are mentioned as follows. 250

13 (1 ) Apart from higher economic growth, a mix of policies like effective implementation of anti-poverty programs, stabilization of prices, improving health facilities is needed for raising food security at the household level. (2 ) Besides this, a whole set of measures is required to reduce the incidence o f leakages and corruption in the system. We know that there is a large-scale diversion o f food grains to free market at both the wholesale and retail levels. Some o f the FCI officials indicate that doorstep delivery (which is in practice only in some states) of food grains to ration shops might reduce the leakages particularly in villages. (3 ) PDS should assign greater priority to the distribution of coarse grains, which many o f the poor people in the district of Burdwan consume. In West Bengal PDS is urban biased and this bias is very severe in case of rice. It is generally assumed that coarse cereals are consumed mainly by the poor. Therefore, if PDS is targeted to these cereals, the people belonging to relatively higher income group will automatically opt out of the program. So, PDS structure should be reoriented in favour of coarse cereals. Moreover, sugar and kerosene oil should not be supplied to the APL population. We know that many middle and richer income groups in the urban areas keep ration cards only to buy sugar and kerosene oil. If sugar and kerosene oil are not supplied to the APL population, they won t buy any ration at all. 251

14 (4 ) The process o f identification of the BPL families is faulty in the district of Burdwan, West Bengal We generally use income criterion as a basis of targeting. But, as the poor households generally work in the informal sector and receive earnings on an irregular basis, the income criterion is not the appropriate basis of targeting. In this case we can recommend for the geographical targeting. Geographical targeting that uses the place of residence as the main criterion for eligibility can provide an effective way of reaching the poor when there are substantial disparities in living conditions across geographical areas. Targeting selected regions with a high concentration of poverty can be an effective mechanism for transferring a greater share of benefits to the poor while keeping the total number of beneficiaries unchanged. The administrative cost of geographically targeted programs is expected to be relatively low since their implementation can be facilitated by the existing local administration. However, targeting at the level of large administrative areas can entail considerable leakage to the non-poor in these areas, while the poor in other areas remains uncovered. If smaller administrative areas, such as villages or blocks are taken as target units the likelihood of identifying regions with greater concentrations of the poor increases. This would help in increasing the coverage of the poor while reducing that of the non-poor. Geographical targeting holds substantial promise to bring the PDS effectively within the reach of a large number o f the poor. (5 ) In the district of Burdwan of West Bengal some poor households are not willing to draw their full quota of ration food grains due to the low quality of food grains supplied through the fair price shops. Since, these 252

15 poor households supplement their ration quota by purchases from the open market, their welfare depends on the open market price too and hence on the quality difference. So in order to increase the consumption level of the poor, quality of the ration food grains should be upgraded. It is one of the most important factors in promoting the ration off take. If quality of the ration food grains improve then the demand for ration commodities may increase. ( 6) To help the effective transfer of income to the poor, the gap between the issue prices o f essential commodities and their market prices should be sufficient to attract the poor to buy the PDS commodities. (7 ) PDS should be partly implemented through employment generation programs like Jawahar Rozgar Yojana (JRY) or Employment Assurance Scheme (EAS) because in such programs the poor derive double benefit. (1 ) The error o f wrong inclusion of the non-poor households is minimized, since it has been found that the non-poor households generally do not undertake employment under JRY/EAS. (\\) Besides transferring purchasing power in the hands of the poor through poverty alleviation employment generation programs, additional income transfer will take place through PDS supplies to the participants. 253

16 ( 8) It is generally argued that many inefficiencies and weaknesses of the PDS arise from its highly centralized nature. So PDS system should be decentralized. The basic level organization in the proposed system would be Panchayats and other local level participatory organizations. They would identify the poor, monitor their conditions and implement programs to meet their employment and food needs. The second tier in the food security system would be located at the state level forming a part of the state s development planning and policies. This tier would implement the price policy formulated at the national level and hold operational stocks of food grains in dispersed locations to ensure intra-year stability of prices and to reach food grains to areas where the normal trade channels are weak and/or inoperative. (9 ) It is seen that FCI is not the most appropriate institution for providing food security to the poor. The role of FCI should be limited to stabilization of food prices. Apart from storage activity, private agents can also operate in the marketing of food grains. Moreover, the task of allocation o f food grains should be allotted to the Panchayati Raj Institutions (PRIs). To check deviations from the intended purpose by PRIs, it would be beneficial if NGOs with proven record of helping the poor^are also involved in supervising the PRIs working. The state Governments should issue food stamps/vouchers to the Panchayati Raj Institutions so that they can distribute them to the poor. Similarly, food stamps/vouchers can be provided to the operators of JRY/EAS. 254

17 (1 0 ) Public distribution system imposes a heavy fiscal burden on the Government After the introduction of Antyodaya Anna Yojana and Annapurna the amount o f subsidy increases to a large extent. Due to the alarming increase of subsidy burden the coverage of Targeted Public Distribution System (TPDS) and food subsidy should be restricted only to the population living below the poverty line. There is no need for food subsidy to the APL population. Introduction of geographical targeting certainly reduces this burden of subsidy to some extent. (1 1 ) One of the important problems o f public distribution system is that ration food grains are not supplied regularly through the fair price shops mainly in the rural areas. It is not possible for the poor consumers to buy their entire amount o f quota at a single time due to lack of their purchasing power. So ration food grains should be supplied regularly through the fair price shops. In this case the demand for ration food grains may increase (1 2 ) Public awareness is also an important factor regarding the decision for ration off take. If public is aware of the objectives of the public distribution system then the demand for ration food grains may increase. In this case public distribution system may be effective as a food security measure. So some measures should be taken to increase public awareness. (1 3 ) Now-a-days the corruption level increases in the distribution of food grains under Antyodaya Anna Yojana and Mid-day meal schemes. The ration dealers sell a major portion of ration food grains in the open market to 255

18 maximize tlieir profit. So in order to reduce the burden of food subsidy bill this type of leakages and corruption should be abolished at any cost. Proper targeting of the BPL families is very much essential to reduce the substantial amount of leakages. (1 4 ) It is seen that the quota of ration food grains allotted for the poor people is much lower than the required amount. So the poor people have to buy their remaining amount of food grains from the open market. As the open market price is much higher than the ration price, the consumption level of the poor people may fall due to their low purchasing power. So the amount of quota of ration food grains for the BPL families should be increased. There is no need for providing ration food grains to the APL families. If the non-poor people are left out from this scheme then the amount of ration quota can increase for the actual poor families. In this case higher proportion of the minimum consumption level of the poor families can be achieved. (1 5 ) The public distribution o f food grains in India involved shortterm policy measures based on a number of factors such as local production, consumption requirements and international market conditions. When the local production is quite unstable, as in many past years, it is important to take adequate measures to stabilize availability and equitable distribution of available supplies. (1 6 ) In many rural areas, the fair price shops are superfluous in a good crop year because of the easy availability at a reasonable price and they are 256

19 ineffective in supplying required quantities in a bad year. Therefore, to make the system effective, it is necessary to formulate appropriate strategies to enable the system to survive in both good and bad years. The viability of retail outlets could be established through a stable minimum volume or by establishing a tie up with distribution of other commodities. While in a major deficit area (for example, Kerala) retail outlets for food grains alone is viable, in many other rural areas it will be necessary to link up food grains distribution with other essential commodities. (1 7 ) To achieve household level food security, efforts should be directed to the following fronts. (i) Development strategies and macro economic policies that would create conditions for growth with equity. (ii) Accelerating growth in food and agricultural sectors, which provide direct sources for food and income with which to buy food. (iii) Promoting rural development that focuses on the poor. (iv ) (v) (vi) Improving access to land and other natural resources. Providing cheap credit for poor households. Inctneo.Si'ir^ employment opportunities. (vii) Int:^oclu.cjbf\i^ income transfer scheme, including provision o f public distribution system of subsidized cheap food. (viii) Stabilizing food supplies and food prices. 257

20 (ix) Improving emergency preparedness planning for providing food aid during natural disasters like drought, flood, earthquake etc. (1 8 ) In situations o f scarcity, marginal shortages in supply lead to a relatively large increase in food prices, and it is often the low-income consumers who suffer the most. Public distribution of food grains in the major cities and in some food deficit states introduces a dual price system. In the absence of a regular mechanism for food distribution in most cities and chronically deficit areas, the consumers belonging to the low-income groups might have experienced major difficulties in maintaining their minimum consumption level So ration commodities should be supplied regularly to the low-income consumers to achieve their minimum consumption level even when food grains prices increase to some extent. (1 9 ) In order to increase in the allocation of ration food grains the amount o f procurement has to increase. In this case the actual poor households will get higher amount of ration food grains at the subsidized price level So their consumption level may increase to some extent Conclusion Generally, it is believed that a lasting solution for poverty is to provide increased employment and income opportunities for the poor. While 258

21 this is the long-term solution, in the short run a consumer oriented food subsidy system could be a viable approach for increasing the nutritional status of the poor. Even within this framework, effective management of purchases, sales, imports and stocks could reduce the Government subsidy. But from our analysis we see that public distribution system is suffering from some problems, which are largely due to general pattern of Government inefficiency. The reasons for failure may be economic stagnation, underdevelopment and the changing political landscape. Specificities of a particular state should have to be taken into account. Here, we argue that the cost effectiveness of the system appears to be low partly due to the fact that several indirect benefits of the system go unaccounted. The increased demand for food grains resulting from food subsidies would also lead to multiplier effects, raising the overall growth of the economy. Effective functioning of the PDS would lead to adequate increase in demand and reduce the need for price support to farmers. It would also avoid the paradoxical situation of wide spread hunger alongside mounting stocks of food grains. Finally, it may be noted that PDS is not the only answer for improving food security of the poor because it can help only those who have purchasing power. Other anti-poverty programs have to be strengthened as part of the economic reforms for creating income generation among the poor and vulnerable sections o f the people. 259