A note of dissent to the Food Security Bill

We should be aiming not for mere “food security” but rather for “food opulence”

The UPA government tabled the so-called Food Security Bill in December 2011. The bill guarantees food for all needy Indians. One wonders, if passing a law could remove hunger, then why did India wait for all these years? Arguably, hunger in India is a consequence of government intervention and the antidote is more economic freedom in production and distribution of food, not another piece of legislation. Many, including M K Gandhi, had opposed government control over food.

The bill specifies norms for procurement, storage and distribution of food grains under the Public Distribution system and setting up of a National Food Commission and a State Food Commission in each state. Our contention is not that it will add to the debt burden (which it undoubtedly will) and spark a crisis (which we already have), nor even that the bill includes or excludes too many. Such arguments have been made by others.  The fundamental question is why do so many Indians suffer from hunger and malnutrition? And does the bill address this root cause? Saying that poverty is the cause of hunger is merely begging the question.

In our view, we should be aiming not for mere “food security” but rather for “food opulence”. We must ask two questions: (a) how can Indians reach high nutritional levels with (b) plenty of choice on what food to consume. We think that the answer lies in a free market for food; and for this to happen laws governing production and distribution must change.

On the production side, laws restricting for-profit corporate investments in agriculture (like those forbidding corporate ownership of agricultural land) starve the rural economy of capital investment and technology transfers. Such laws have two effects. First, they impoverish farmers by reducing demand for their primary asset – agricultural land. Second, corporations bring efficiency gains through large-scale knowledge-intensive farming. This is equally damaging but more difficult to detect. In addition they furnish a steady wage income to workers; this is desirable for low-income households. In the absence of corporations (and markets for insurance) farmers have no way of transferring the risk of production, i.e. they borrow money on fixed rates but face an uncertain return on investment. A crop failure then has the potential to begin a debt-cycle.

Corporate farming cannot be profitable without scale and mechanisation, which means lesser labour per unit output. Is it then a myth to say corporate farming will help workers? No, because higher productivity means higher wages. But what happens to the people who can’t be employed on farms anymore? The economic history of contemporary industrial countries tells us that people get employed elsewhere. Through much of the 19th century nearly three-fourth of the US population was employed in agriculture, today it stands at 2-3 percent. The solution to the sorry state of affairs in agriculture is not to perpetuate low-productivity and poverty but to create a dynamic market economy, which will absorb labour as agricultural productivity grows.

On the distribution side, government regulations have dampened private investments in cold storage, packaging, quality control and overall development of supply chain. The shocking but unavoidable result is that nearly 40 percent of fruits and vegetables rot between the farm gate and the store shelves.

Add to this the monumental wastage of food grains in the Public Distribution System (PDS). The PDS is a failure by design: government employees working for the Food Corporation of India have neither the knowledge nor the incentive to make the system work. And the fellows running the local ration shops are under the influence of perverse incentives. Reports of ration shop dealers selling good quality grains in the black market and replacing them with fodder grains should not surprise us; the failure is systemic and predictable. All this is the tragic consequence policies which assume that the Indian state and its functionaries are superior – in intent and abilities – to the people of India. A fatal conceit.

MK Gandhi thought government controls over food “give rise to fraud, suppression of truth, intensification of the black market and to artificial scarcity. Above all it unmans the people and deprives them of initiative; it undoes the teachings of self-help, they have been learning for generations, makes them spoon-fed”. In the 70 years of PDS much of Gandhi’s fears have come true. All this can change if roadblocks to private initiatives are done away with; FDI in retail is a welcome step.

Some say that the PDS works in Chattisgarh and in Tamil Nadu. Such statements must be looked upon with caution. What they really mean is that wastage in these states is less than that in other parts of India; failure becomes a benchmark for success. The real judge – and indeed the only economic judge – is how the PDS fares compared to alternate methods of delivering food, namely the market mechanism. History has it that no other mechanism of employing scarce resources holds a candle to market mechanism when it comes to the question of efficiency. The inevitable conclusion is that even in Chattisgarh and Tamil Nadu people would be made better off if the PDS were shut down and citizens provided with food coupons instead.

Three months after the UPA government, tabled the Food Security Bill in the parliament a group of thirty-six Indian economists (from MIT, Harvard, Delhi School of Economics, JNU, et al.) wrote an open letter to the Prime Minister (The Hindu, 12 March 2012) greeting the bill as an “important step towards the elimination of hunger and under-nutrition in India” and asking for a few modifications. One is reminded of the years of Nehruvian planning when the great debates were about “how government ought to plan” not “whether government ought to plan”; and nearly all Indian economists toed the government line. Back then B R Shenoy penned the only note of dissent to the Nehru-Mahalanobis second five year plan. India needs the likes of Dr Shenoy today.

Photo: Frankie Roberto