Cash-for-Food will strike at the very foundation of the Economy

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While addressing a joint session of Parliament, President Pranab Mukherjee said “in due course the direct benefits transfer system will also cover wages and subsidies on food.” The enthusiasm for routing the food subsidy in the form of cash transfers has great political advantages but at the same time has serious fallouts in the fight against hunger and malnutrition. The political advantage was spelt out by Rahul Gandhi the other day when he made it abundantly clear that cash transfers could win them not only 2014 but also the 2019 general elections. The entire academic euphoria over the proposed aggressive rollout of Aadharbased cash (electronically generated unique identification number UID) therefore needs to be seen in the light of political exploitation.

In fact, the visible trend in the ongoing national debate is more towards being seen as politically correct. A World Bank working paper, entitled: “Conditional Cash Transfers, Political Participation and Voting Behaviour,” studied the voting behaviour for a conditional cash transfer programme launched in Colombia just before the 2010 elections. Subsequently, a 2011 study of an unconditional cash transfer programme in Uruguay clearly established that cash transfers did help the ruling party get a large share of the votes, and thereby helped the party to romp home on the back of cash transfers. In India, the political urgency and the aggressiveness with which the massive cash transfers are expected to cover the entire country by April 2014 is therefore quite obviously aimed at bringing electoral benefit to the ruling party.

Cash-for-food could mean end of the farm economy The Problem of fool-proof delivery The unconditional direct cash transfer programme that was proposed to be launched from Jan 1 in three phases started with 43 districts involving a cash provision of Rs 20,000-crore*. Eventually, all forms of subsidies to the poor, including food and fertiliser, will be in the form of cash flow, and would add up to Rs 3,00,000 crore annually. I fail to understand how and why such a massive cash outflow will reach thebeneficiaries without first putting a fool-proof delivery system in place.

The Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) too was envisioned with a lot of expectations but has miserably failed to deliver. Several studies have pointed to nearly 70-80 per cent leakages, and yet somehow the impression is that MNREGA has transformed the rural economics.

With only 40 per cent of the population having access to banks, and with the over ambitious target of reaching the remaining population through banking correspondents – who will be operating like the village postmen except they will now be equipped with portable handheld machines acting like micro-ATMs – we are perhaps expecting too much from the most important human link between the technology and the money delivery. Increase Corruption or Deal with it? It is well known that the entire rural and agricultural banking operations are rooted in corruption. If 60 per cent of the beneficiaries have to be reached through an army of 7 lakh banking correspondents, who will be handling over Rs 150,000 crore by any conservative estimate, the delivery mechanism is certainly fraught with over-confidence stemming from political urgency. This is where I think the policy makers and bureaucrats have failed to rise above assumptions. The aadhar-based cash-for-vote will end up being no different than the hype generated at the time of launching MNREGA.

Nevertheless, what worries me more is when cash transfers move to the next phase, and that means meeting food entitlements directly with cash. Thanks to the concerns raised by the civil society, the government has deferred cash-for-food for the time being. It was more because of the fear that the cash-for-food programme could go completely out of control, and therefore could negate the political advantage that the ruling party is hoping to garner, that it has been kept in abeyance. At a time when the proposed National Food Security bill is pending introduction before the 2014 elections, any tampering without a proper evaluation could backfire. But still the hawks are keen to push it through as early as possible. It is true that more than 60 per cent of the food that is channelized through the public distribution system is either wasted or siphoned off in transit and the entire system is mired in corruption.

 What reaches the poor beneficiaries is often not even fit for consumption. The answer however does not lie in dismantling the Public Distribution System (PDS), but reforming the world’s largest food delivery system to rid it of corruption, and make it more effective. This is certainly possible, but it has never been attempted in right earnest, given the extent of political meddling in the allotment of ration shops to transportation of grains. WTO pressures to dismantle the PDS For several decades now, the international emphasis has been to force India to dismantle the PDS.

The first attempt was made at the time of the infamous Arthur Dunkel draft during the primitive years of world trade negotiations. WTO aimed at curtailing the PDS role, and wanted markets to ensure food security. Strong opposition from India, cutting across political lines, forced the WTO to eventually withdraw that clause. Subsequently, in the name of decentralisation of food procurement and storage systems, an attempt was made during the tenure of former Prime Minister Atal Bihari Vajpayee to divest the Centre of its onerous responsibility of procuring foods for the central pool, and leave it to the States to manage grain procurement, storage and distribution. Several chief ministers had opposed the decentralisation move thereby forcing the government to retreat.

At present, FCI is under an obligation to purchase the surplus grains flowing in to the mandis (market yards) at the Minimum Support Price. For several years now, the emphasis has been on discarding food procurement and Allowing Food Corporation of India (FCI) to increasingly take on a commercial role by shifting focus from its sovereign role of ensuring domestic food security.

Once this role is withdrawn, farmers would be left at the mercy of trade. and farmers would be deprived of getting benefit of the assured price of wheat and rice. Direct cash transfers will phase out the PDS Providing cash in the hands of poor beneficiaries means less emphasis on the PDS ration shops. The idea is to provide coupons or provide food entitlements in the form of cash, and leave it to the people to buy their quota from the market. Whether the money provided would be used primarily to buy liquor, junk foods or other consumer goods is an important issue, but what is more important is to understand how it is aimed at dismantling the food procurement system. This subtle way, very cleverly designed, would undo the gains of food self-sufficiency so assiduously achieved after the advent of Green Revolution. 

The underlying objective is very clear. Once the direct cash transfers begin, the ration shops would be gradually phased out. Once the PDS shops are removed, the cap in food procurement that is being suggested for FCI will come into play. With food procurement limited to meet the buffer requirements, which is somewhere between 14 to 22 million tonnes a year (against 82.3 million tonnes stocked with the FCI in June 2012), wheat and rice farmers would no longer get the benefit of the minimum support price. Farmers would be left to face vagaries of the trade and distress sales will become the norm, especially when a robust system of mandis to provide farmers with assured prices is not there.

  World Bank / IMF efforts to support large scale agri-business Withdrawal of the food procurement system will have an impact on food production. This would make farmers abandon farming, and migrate to the urban centres. This is exactly what the World Bank has been proposing for several years now. The 2008 World Development Report had called for land rentals and providing farmers with training opportunities so that they can be absorbed in the industry. The government, as directed, made budgetary provisions for setting up 1000 industrial training institutes across the country. It is therefore obvious that the government had wanted to withdraw from food procurement and distribution for quite long now, following the dictates of the World Bank/IMF. Cash-for-food will acilitate the process and make it easy. Food requirement will then have to be met from imports, and there is already a dominant thinking within the government which advocates importing subsidised food off-the-shelf from the western countries rather than spending more on growing food within the country.

FDI in retail comes at a time when contract farming is receiving greater attention. The idea is to link the farmers growing cash crops with the supermarkets. This will help the government to do way with the system of announcing the minimum support price and thereby reduce the subsidy outgo. This is exactly what the World Trade Organisation (WTO) had wanted several decades ago. The process to dismantle food procurement, a highly emotive issue in India, actually began in mid 1990s. It is now receiving the final touches. Prime Minister Manmohan Singh had repeatedly said that the country has 70 per cent more people engaged in agriculture than required. Cash-for-food will provide the smokescreen needed to accomplish what the WTO/ World Bank/IMF have been telling India for long: to move the farming population out of the villages so that agribusiness can find a stronghold in India.