The Indian economy is no longer a gamble in the monsoons

Written by YK Alagh | Y K Alagh | Updated: Aug 31 2009, 03:01am hrs
The magnitude of the 2009 drought, its impact in terms of agricultural output loss, misery for those hit by it, economy level impacts and the inevitable questions of policy are nested in the complex world of agriculture and the rest of the economy. The situation is not very different from our assessment in the group newspapers in end July. The highest shortfall of 63% is in Haryana, followed by Maharashtra, Uttar Pradesh and Jharkhand all above 40%. States with shortages above 25% are Madhya Pradesh, Punjab, Andhra Pradesh, Chhattisgarh, Bihar, Assam and West Bengal. The fate of the Kharif crop is now largely sealed. Haryana is 85% irrigated and so is the adjoining area in West UP. Punjab is 95% irrigated. The misery is in the Vidharba, Marathwada regions, and the plateaux regions of Andhra Pradesh, Madhya Pradesh, Chhattisgarh, Jharkhand and in the rainfed East. While the law and policy requires that available sources of water are sealed for drinking purposes, it was pathetic to see a Jharkhand Collector giving blatant excuses on the screen. Cattle will be sold or will die. In the poorest parts of India, many tribal areas, misery in terms of drinking water, crop and cattle loss will be severe. There will be output, income and employment loss, the latter hopefully made up by NREGA.

Larger consequences will be bad but not severe. Rainfall between now and the second week of September will have a yield effect. With a 25% deficiency in Kharif rainfall agricultural output can go down by 15%. But the severest effects this time are in the irrigated areas and sowing is down by less than 5%. Ground water levels will go down but that only means more expenditure on energy, which the government has already decided to compensate and will probably do more as the effects become clearer. The Gangetic plain is not the hard rock areas of the deccan plateau or the Malwa, where ground water is hundreds of feet below. Assured irrigation at a certain level will come and the kisan will use ground water. In the north-west when ground water falls to 50 feet it is a drought. Commission for Agricultural Costs and Prices (CACP) will work out the additional cost of pumped water and the Finance Ministry will only sanction part of the kisans burden but thats all old hat. In many parts of India temple bells ring in joy if water is found at 50 feet. With some luck the loss of Kharif output maybe less than 10%. This cannot be a bumper Rabi because in a large part of India there are no winter rains and retained moisture levels will be bad. But if it rains in those critical days in the winter in the north, the north-east monsoon in the south is normal, the reservoirs not critical even now, may fill up until the third week of September, the agricultural year may end up with a loss of less than 2%. We have had years in which the Kharif crop was bad but Rabi crop made up the agricultural output loss, including as recently as 2005. GDP growth will depend on the recovery in exports, FDI and whether the projected Budget stimulus stems the tide in falling government investment last year. Our forecast of a 7% growth rate last year and a 5.5%, now 6% growth, this year may well, turn out right. The Chief Statistician has stated that the increase in the extraction of hydrocarbons will provide a once and for all increase in GDP to compensate the drought and therefore it is too early to revise downwards. If the reservoirs dont fill by the middle of September and the Rabi is bad particularly in North India, we may get an unlikely horror scenario of GDP loss of upto 2%. Once upon a time growth was plus 4% in five years and minus in the remaining five with an average of 3%. During the last 30 years we have had hardly any year of GDP decline but many droughts. In 1996 I had argued that we are growing faster and our growth is more stable. The Indian economy is no longer a gamble in the monsoons, in spite of the misery the drought creates.

Farm gate prices for the farmer are closer to wholesale prices, but the consumer may pay more and in this period food inflation for the industrial worker as a consumer was 50% higher than in wholesale prices and that is high. Statisticians have to tell us why and policy makers look at the distribution failures. End March 08 to end March 09, wholesale prices rose by 8.4% but food prices by 6.8%. Food articles contributed 13% of the total inflation in the year and manufactured goods four times as much at 53%, but we didnt talk of industrial inflation. There is food and there is food. The increase has been in grains and edible oils and now also in cereals, sugar and fruits. Cereal and sugar prices are influenced by official policies. Edible oil inflation is almost entirely import determined since more than 90% is now imported. Tariff reductions help but when you reach near low rates or zero as in edible oils that cushion is gone. Apart from the seasonal factors, quality of imported fruits, may in fact factor in as food inflation. At the moment it is not quite clear as to which part of the food inflation is on account of the drought, on seasonal factors and on account of underlying policies. In any case the government will be walking the razors edge. The question of ensuring food security in terms of aggregate supply is a no brainer, although removing hunger is a wider issue we have enough grains, the farmer has shown great ability to respond to price incentives and with the exchange reserves the availability of oil and sugar can always be ensured, even if we have another drought. In fact the need is to work with a flexible variable tariff rather than only keeping prices down. Any steps in encouraging the functioning of better markets at home and in trade will help, but the farmer will have to be ensured incentives to do better in the rabi in crops like oil seeds.

We could have planned policies from the onset of the bad news. Releasing grain in a drought is anti-inflationary in the macro sense. Even the present numbers on hesitant additional grain releases amount to around Rs 1,100 crore of money coming back to the exchequer. It will be higher. This could be added to the substantial sums allocated for water projects and a programme of drought proofing with consequences this year and beyond announced as a plan. Desilting, repairing and modernising canals, deepening of tanks, farm ponds now eligible for assistance for all farmers, repairing drinking water structures, water harvesting, investing in the fodder and seedling part of the drought proofing programmes are all doable and giving some free money to panchayats to fight drought with the many large central schemes would have been a good idea, for then they can put it all together. The programme would create assets and mobilise people instead of leaving them with the sense of helplessness and dj vu the drought creates. The Centre lays down many conditions on its schemes in the plans. It should take responsibility, because there is moral hazard in not doing so. Literally droughts being agro-climatic cut across states and must be attacked so. In the past we have gone to the extent of saying that the money we give should be spent to take water to each field as shown on an agreed map. Between 1987 and 1989 net irrigated area went up by 3.81 million hectares and gross irrigated area by 5.81 million hectares. The drought pushed us to achieve newer heights but hasnt happened since. Its too late for the Kharif but it is still dry and good to keep the powder so.

The writer is former Chairman of Indian Institute of Rural Management

Public Deficiency System

Alok Sinha

Whenever there is a perception of lower agricultural output (which is bad for a wheat/rice self-sufficient country like ours) or bulging, surplus food stocks (which too is worrying for a country that does not export any wheat at all and only small quantities of rice), the talk always veers around to the food situation. Such talk is usually inconclusive, most times open-ended because we are neither clear nor articulate about the many impacts of the food situation does it help the poor Should we suspect traders of hoarding Should we suspect them of forming cartels to manipulate availability, and hence prices What place does it have in a liberalised economy, which is increasingly transparent when the food trade has traditionally been run by liquid cash, which is thus prone to be influenced by unaccounted money And most of all, how does it affect the people, both as producers as well as consumers.

If an army marches on its stomach, surely a countrys people live by the food it produces, and the food it eats. The Green Revolution of the Sixties, by a combination of chemical fertilisers, improved seeds and mechanised irrigation water, backed up by some subsidies too, was able to steadily hike our annual food output from much less than 100 million tonnes in 1947 to touching 300 million tonnes today. We are now self-sufficient in wheat and rice, inspite of a 2% population growth each year. That inspite of a steady rise in food prices since two years, with daal breaking all records to rise by 30%, milk by 20%, ghee by 18%, and sugar by a massive 55%, common rice has risen by only 10% and wheat atta (of the common variety) has actually declined by 5%!

But rising prices are putting the common mans protein daal and milk quite out of his reach. More than a quarter of our people live below the official poverty line, and another one quarter are still poor by any politically correct standard. So, half our fellow citizens are undeniably under-nourished by our minimal standards, and only the top one quarter could be called well-fed by international standards. One easy reckoner of our state of malnourishment is our low standing in international sports if your belly is not full, and if you do not have access to energy nutrients, how do you compete with the world The Commonwealth Games of next year would polish up Delhi which is both necessary and laudable but will not much improve our sporting standards, because we are largely under-nourished.

To make better food accessible to the poor we need to have a Second Green Revolution, as Prime Minister also has said more than once. Now, only 40% of our cropped area is fed by mechanised agriculture. As 60% of our agriculture is rain-based, see what a scare just one year of drought is causing. 60% of our agriculture that is rain-based is not only co-terminus with our tribal areas but, worryingly, is also the same area where tribal alienation and Naxalite activities are rising together at a rapid pace.

Three long years have passed since the Union Agriculture Ministry zealously overcame bureaucratic sloth to create a powerful National Rainfed Areas Authority, tasked with a mission to remove all institutional hurdles in ushering in a Second Green Revolution in the non-irrigated 60% of our cropped areas. Large parts of this massive area being arid would naturally have led to a rise in daal output a boon for the poor and under-nourished. Alas, the NRAA has remained a paper-creature no vision, no initiative, no leadership to goad the states into delivering the often-touted and much-needed Second Green Revolution. It is as if neither the polity nor the bureaucracy (nor even the intelligentsia) has heard of the NRRA, leave alone its missionary objectives.

Nonetheless, despite the still-born NRAA not making its presence anywhere, the first Green Revolution supplemented by the regime of Minimum Support Prices and the Food Corporation of Indias massive procurement efforts of the marketable surplus we are more than comfortable in wheat and rice. For the Public Distribution System and welfare schemes such as NREGA and Mid-Day Meals, the annual requirement is 28 million tonnes of rice and 23 million tonnes of wheat while the FCI currently holds 19 million tones of rice and 32 million tones of wheat, and inspite of the present drought scare, further ongoing procurement would more than meet the annual requirement. And the fact that atta prices have in fact declined while common rice prices have risen by just 10 % shows easy availability in the open market.

But the PDS system needs to be improved urgently if we are to make optimum use of the staggering annual food subsidy, which will soon cross Rs 60,000 crore. Repeated studies of the PDS system confirms the age-old fear of ghost cards. As the Justice Wadhwa Committee has factually shown, this is true right under our noses in the national capital! Except in states with a functioning Zila Parishad (which hence becomes an efficient peoples watchdog at the grassroots level) like the four southern states, Maharashtra, Gujarat, Madhya Pradesh, West Bengal and Tripura, elsewhere up to a gigantic one-third of the PDS stocks are illegally diverted into the black market. This is a problem, which needs to be acknowledged and addressed.

There is also an urgent need to improve, indeed do a soul-searching revamp of the PDS why should we tolerate the black marketing of massive food stocks that have been heavily subsidised for the poor We need to do it to achieve the commendable objective of Right to Food. However, the intrinsic and sympathetic homework needed to implement the Food Security Act does not appear to have agitated the minds of the bureaucracy.

And the NRAA needs to be looked into and shaken up equally and urgently if we are to leap out of our stagnating food output, if we are to provide more daal and milk to our poorer brethren, if we are to soothe our alienated tribal a long and ambitious list, but which alone will mean a substantial improvement of the food situation as it obtains in India today.

The writer is former Chairman and Managing Director of the Food Corporation of India

Fishing for the food safety net

Biraj Patnaik

The declaration of 246 districts in the country as drought-hit couldnt have come at a worse time for the poor in India. Both the rural and urban poor have been badly hit by the food crisis and the financial crisis. Foodgrains and pulses have reached record prices in the retail markets and despite high stocks with FCI, government has not been able to stabilise food prices.

The Congress manifesto promised to usher in a National Food Security Act (NFSA) if the UPA was elected back to power and all indications are that the government is likely to come good on its promise. However, there are also murmurs from within government that the introduction of the Food Security Bill maybe delayed now because of the drought since the government will be caught up in drought relief work. Some sections of government also want to take a minimalist interpretation that the NFSA should restrict itself to the provisioning of 25 kgs of food grains at Rs 3 per kg for the people living below the poverty line.

However, this reasoning will defeat the very purpose of the NFSA. Firstly, Supreme Court orders in the Right to Food Case mandate the government to provide 35 kgs of food grains. Any reduction in the quantity of food grains will mean effectively a cut-back on the rights that have been granted by the Supreme Court. Secondly, a large number of states including Tamil Nadu, Chhattisgarh, Andhra Pradesh and Orissa, already provide foodgrians at Rs 2 per kg. Surely a legislation that guarantees the Right to Food should not cut down on existing entitlements. Lastly, the nutritional norms of the Indian Council of Medical Research would require the consumption of at least 70 kgs of food grains for a family of five in addition to proteins (through pulses) and other essential nutrients. This calls for an expansion of the Public Distribution System for the provisioning of at least pulses and oil at subsidised rates (as many states already do), rather than further reducing the entitlements of people.

The notion of providing these subsidised rations only to people living below the poverty line also defies logic. The Arjun Sengupta Committee had argued for the extension of social security benefits to all individuals who subsist below an expenditure level of less than Rs 20 per capita per day. Just 23% of families in India have a consumption expenditure of more than Rs 3,000 per month. It stands to reason therefore that at the very least the benefits of the NFSA should be extended to 77% of the families. The current poverty line, worked out by the Planning Commission, which classifies only 28 out of every 100 Indians as poor effectively a starvation line and much less of a poverty line. There can also be an argument that if the government is going to expand the programme, it should consider a universalised Public Distribution System that would allow every single resident of India to have access to the subsidised food grains because the costs of targeting and the errors in identifying the right set of beneficiaries will outweigh any benefits that a targeted Public Distribution System will have. States such as Tamil Nadu have operated a universal Public Distribution System for years while other states such as Andhra Pradesh, Chhattisgarh and Orissa provide subsidised foodgrains to more than 70% of their population using state finances.

The NFSA also affords an opportunity to government to strengthen all the existing food programmes such as the Integrated Child Development Services, Mid-Day Meal Scheme and Pension Schemes for old people, widows and disabled and bring them under a single legislation. Existing gaps in these programmes could get plugged through design changes, additional components added to supplement them and better implementation startegies could be put in place.

The NFSA could also be used to create a new set of food entitlements for very marginalised people who have so far not figured on the radar of the policy makers. These include single women, urban homeless, street children, people with debilitating illnesses, de-notified tribal communities and artisans. Despite the fact that they are the poorest of the poor in the country, there is not a single food scheme that specifically ensures their Right to Food. Their needs should be centrestage in a legislation on the Right to Food.

Similarly, the government still does not have any comprehensive policy for people affected by disasters and emergencies to help them cope and emerge out of the crises. The drought of 2009 is another cruel reminder of the vulnerabilities faced by small and marginal farmers and agricultural labour. While addressing the specific threats to this section of the population (80% of farmers in India are small and marginal farmers), will require a much longer-term intervention, provisioning of gratuitous relief under the NFSA will enable them to cope with the crisis better.

The drought therefore should be seen less as an impediment in the way of the enactment of the National Food Security Act. On the contrary it should infuse a sense of much greater urgency in the political class for the passage of what could potentially be a historic piece of legislation.

The writer is the Principal Advisor to the Commissioners of the Supreme Court in the Right to Food Case