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LATEST NEWS UPDATES | Keynes-Hayek dilemma by KP Prabhakaran Nair

Keynes-Hayek dilemma by KP Prabhakaran Nair

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published Published on Sep 22, 2010   modified Modified on Sep 22, 2010


With more than 400 million Indians going to bed hungry each day, food security has become a crucial issue. On June 4 last year, the president made an announcement: “My government proposes to enact a new law — the National Food Security Act — that will provide statutory basis for a framework which assures food security for all. Every family below the poverty line in rural as well as urban areas will be entitled to, by law, 25 kg of rice or wheat per month at `3 per kg. This legislation will also be used to bring about a broader systemic reform in the public distribution system.”

Does food security mean simply providing food for “all” who need it, or for the most vulnerable in society? Can India really achieve food “security” for all, in the right sense of the word? The fight for human rights must begin with the right to food. It is a fundamental right. In 1998 the BJP government under Atal Bihari Vajpayee declared agriculture as the “first priority”. Vajpayee said he would make India “hunger free” in ten years. 

The BJP has been replaced by a government primarily headed by the Congress. It is more than ten years since Vajpayee’s statement but India is not only not hunger-free, but hunger has got worse. Inflation was at 9.97 per cent in July. Agricultural prices remain high and the worst hit are food items. The official “food articles index” had risen to 11.4 per cent in the year to July 31.

The main contributors to the food inflation rate have been pulses — the poor man’s protein — up by 34.14 per cent over the last year and milk, which has risen by 21.12 per cent. So, does food mean only staples like rice and wheat? What about a poor household that can’t afford pulses and milk? Or is consuming adequate quantities of pulses and milk, as nutritious supplements, not a prerogative of poor Indians? What does the international background say? More importantly, we must examine what “Right to Food” means. In 1948, the Universal Declaration of Human Rights was passed and the right to food acknowledged. Article 25 of the declaration says, “Everyone has the right to a standard of living adequate for the health and well-being of himself and his family, including food and the right to security in the event of unemployment, sickness, disability and widowhood, old age and other lack of livelihood in circumstances beyond his control.”

In 1966, the UN General Assembly adopted the International Covenant on Economic, Social and Cultural Rights, which formalised the right to food as a basic human right. By 1989, 85 states, including India, had signed the covenant. Yet more than half a century after adopting the original declaration, after two world food summits, a so-called green revolution that is supposed to have filled our granaries, and a millennium development goal which proclaimed that world hunger should be reduced by half by 2015, our food security is worse than some of the worst-ruled countries in sub-Saharan Africa.

How do we ensure universal food security? We must realise that the proposed grain subsidy (universalised public distribution system) regime overlooks issues such as sustainability, externalities and institutional lacunae. The food ministry is sceptical primarily because it feels procurement levels might not consistently match the demand of the reassessed Antyodaya Anna Yojana (AAY), Below Poverty Line (BPL) and Above Poverty Line (APL) categories. The Planning Commission shares this apprehension and suggests rationalising APL retail food prices.

This, after the enhancement of BPL quota to 37.2 per cent, will be crucial in ensuring grain for AAY and BPL consumers. Yet, ensuring that the grain trade caters to the upper 40 per cent is crucial in streamlining the efficacy of subsidy. Increasing procurement to 50 per cent of net grain production and dissemination into a leaking and inefficient supply funnel such as the PDS might discourage farm production by denying higher values to the farmer that the open market will offer. Here is a classic case of the “Keynes versus Hayek” dilemma. Should we deny the farmer the fruits of higher productivity by administering prices, or allow the market to offer variable prices?

To commit a higher-than-required subsidy on account of errors of inclusion, especially on  the APL side, is to compromise future productivity for sustaining present consumption. In other words, procuring most of the grain, and then channeling it into an ill-managed system (where 40 per cent physical losses are reported, annually Rs 20,000 crore as per Planning Commission data) to individuals who can afford market prices, is to reduce farmers’ incentive, productivity goals and sustainability.

When we consider distribution within India, we must take note of two important differences between the public (Food Corporation of India) and private approach. FCI procures a lot and stores the grain inefficiently, leading to a lot of wastage. Private traders stock much smaller quantities and move grain very fast to the consumer. In the FCI system only a few agents handle the “farm-to-home” movement. The  subsidised issue prices make the process vulnerable to corruption. The market system is also corrupted through the leakage of cheaper grain, giving rise to a black market. Therefore, well-intentioned and aggressive “hyper-welfarism” might worsen the health of the distribution system. This clearly brings to the fore the need to design effective and sustainable institutions to implement the objectives of the Food Security Bill.  

While designing a foolproof food security system, various aspects have to considered: procurement projections over a specified time span, net grain balance studies, evaluation of export potential of premium categories of rice like basmati. These questions are best left to a statutory authority. Procurement, distribution and export-import are complex questions and cannot be tackled in isolation, as is being done now. It is high time a scientific and statutory approach was put in place, in the place of the ad hoc measures of the food ministry.

The institutional design should also include freedom to alter procurement and distribution patterns based on solid data, rather than in an ad hoc manner. The main drawback of current thinking in the ministries of agriculture and food is that while it is assumed that production must be increased steadily, poverty will be persistent. This mindset has to change. If programmes like the Mahatma Gandhi Rural Employment Generation Scheme are effective, more and more Indians will escape the poverty and hunger trap. Rigid laws combined with a populist posture must not compromise productivity targets, procurement potential and farmers profits. The need of the hour is to balance the “Keynesian” impulse with a strong dose of “Hayek” thinking

Express Buzz, 21 September, 2010, http://expressbuzz.com/opinion/op-ed/keynes-hayek-dilemma/208534.html


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