The return of an intermediate regime

The return of an intermediate regime
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First Published: Thu, Dec 22 2011. 10 38 PM IST

File photo Mint
File photo Mint
Updated: Thu, Dec 22 2011. 10 38 PM IST
Much ink has been spilled on the danger to the Indian economy from the effects of the National Food Security Bill (NFSB), which was introduced in Parliament on Thursday. The foodgrain subsidy is estimated to range from a low of Rs 70,000 crore to as high as Rs 100,000 crore, while the incremental cost for ensuring food security will be “only” between Rs 25,000 crore and Rs 40,000 crore. Those who champion the Bill have, understandably, a lower estimate of these costs.
This is a season of hope, and in that spirit this cost should be ignored. After all, as Jean Dreze, a moral force behind the law, says India is growing at a rate that would make most countries envious. And, certainly, feeding hungry and destitute citizens should not be counted as a “cost”. One cannot but agree with this. Other costs such as the ecological costs associated with using high-yielding varieties—due to enhanced use of chemical fertilizers, pesticides and large amount of water required—too can be ignored. The opportunity cost of spending large sums of money on food security amounts to a “mean calculation”, and is in the nature of a phantom imagined by neoclassical economists.
File photo Mint
So where is the problem in this Panglossian world? Optimists argue that an additional 10 million tonnes of foodgrain will be required to meet the objectives of the Bill. Others (for example, the expert committee on the food security Bill led by C. Rangarajan) point to higher estimates. It would be safe to assume that as the food security programme is rolled out, demand for grains will rise. Once the requirements of other welfare schemes are added, the additional amount may range anywhere from 17 to 22 million tonnes in the years ahead. This is assuming that there are no supply shocks due to bad harvests, etc. Here, it is important to add a caveat that these numbers are hotly contested.
The question is where will the government get these additional foodgrains from? If one ignores the extreme solutions in case of shortfall—imports and the government nationalizing the grain trade—the only option that remains is higher price incentives for farmers. This would be in the nature of ever-rising minimum support prices (MSP). In theory, public investment in agriculture (something the draft NFSB hints at in its Section 31 and an appendix on revitalizing agriculture) can raise output. In practice, that road does not exist. For one, in Green Revolution states, the cropped area is close to the total cultivable area. At another level, the “biotic frontier”— hybridization of crops and the maximum fertilizer that can be applied to boost yields—is approaching. That only leaves states where public procurement does not occur. Again, in theory, it may be possible to step up official purchases in these states by creating infrastructure for purchases by the Food Corp. of India (FCI). This is unlikely to yield much: the mismatch between spending on the set up required when compared with the surplus that can be mopped up is quite evident. It is not that expanding FCI’s network will not lead to more grains in the central pool; the cost of doing that will be high and not commensurate with the returns.
So why spend money on a futile chase for grains? And what will be the effects of such spending? The “why” was answered a long time ago by Polish economist Michal Kalecki, who described a situation in many developing countries where a combination of middle class and rich peasantry constitute—to borrow a phrase from Marxist vocabulary—the “ruling class”. Rich rural interests have been weakened to an extent since liberalization in 1991, but have not lost power in Green Revolution states. The “what” was answered by Marxian economist Ashok Mitra in his book Terms of Trade and Class Relations (1977). Mitra pointed out the politically motivated nature of increases in administered prices of foodgrains and the subsidies showered on rich farmers. In his analysis, this tilted the terms of trade (relative prices) between agricultural commodities and industrial goods in favour of the former. The resulting skewed distribution of income and splurging of money on subsidies while chasing higher food output was responsible for the stagnation in the Indian economy in the 1970s.
Correlating income distribution with Marxian class analysis has never succeeded; empirical reality is far too complicated to permit a tight fit between the two categories. But what can undoubtedly be said is that if NFSB is implemented in its spirit, it will only be a matter of time before ever-rising MSPs will lead to a regressive income distribution towards rich farmers. There have been previous occasions, when for years on end, rich farmers have managed to raise MSPs to their liking. During the rule of the National Democratic Alliance, it was usual to see the chief ministers of Punjab, Haryana and Andhra Pradesh trooping in to New Delhi just before the meetings of the cabinet committee on economic affairs to lobby for higher prices for foodgrains. But these cycles ended when the mountain of wheat and rice became difficult to manage. With NFSB, this process is likely to turn into an open-ended affair. Income inequalities, already pronounced in rural India, are likely to be accentuated.
The interesting part of the story is that it is the Left—the non-Marxist individuals of national advisory council and the official, parliamentary, Left—that is championing NFSB. There is danger that efforts at redistribution are likely to end up hurting the poor. As Mitra lucidly pointed out, changing the terms of trade is one mechanism (apart from extra-economic appropriation of “surplus value” and “primitive accumulation” of property) by which the rural rich can pauperize the poor. The maligned mainstream economists call this immiserizing growth.
Siddharth Singh is Editor (Views) at Mint
Comment at views@livemint.com
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First Published: Thu, Dec 22 2011. 10 38 PM IST