Why Growth Matters (26 page)

Indeed, the subsidy structure in the bill makes it unviable at the implementation level.
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Recognizing that the absolute subsidy per kilogram is the largest in rice, the eligible households would stand to maximize the implicit transfer to them by buying rice and no other grain from the
public distribution system. By reselling this rice on the private market, they would be able to convert this maximized in-kind subsidy into cash. They would then be free to spend the proceeds as they wish. Of course, with all eligible households buying rice for their entire permitted quotas, the government distribution system will simply fail to procure enough rice. Thus, there is a clear mismatch in the bill between the objective of pushing calorie consumption and the instrument chosen.

When we add to these considerations the high delivery costs of the public distribution system, the right-to-food bill makes even less sense. Waste, leakage, and theft in the public distribution system have been widely documented. The system lacks adequate warehouse facilities, with vast volumes of grain stored in the open. Rains frequently wash off large proportions of these stocks. Parts of stock go unused for sufficiently long to rot. Pests and rats take their share as well. Finally, there are significant leakages as grain moves from procurement by the center to distribution to the states, districts, villages, and eventually the actual beneficiaries.

A recent study by Jha and Ramaswami (2011) estimates that in 2004–2005, 70 percent of the poor received no grain through the public distribution system (exclusion error) while 70 percent of those who did receive it were non-poor (inclusion error). They also estimate that as much as 55 percent of the grain supplied through the public distribution system leaked out along the distribution chain, with only 45 percent actually sold to beneficiaries through fair-price shops. The share of food subsidy received by the poor turned out to be an astonishingly low 10.5 percent.

Many proponents of the right-to-food bill offer ensuring inclusion of all poor as the key justification for universal or nearly universal coverage (Drèze and Khera 2010; Himanshu and Sen 2011). They base this argument on the evidence of large exclusions of the poor from the current targeted rather than universal public distribution system. But even this justification for yet further expansion of an already broken system fails to stand up to close scrutiny. In his excellent analysis, Svedberg (2012) makes this point forcefully and it is worthwhile to quote him at some length:

The evidence in support of universality as an efficient method for eliminating, or even notably reducing, exclusion errors, is not altogether convincing. Before 1997, the PDS [Public Distribution System] was in principle universal, but large proportions of poor households were either effectively excluded, or purchased very small amounts of subsidized grains. On the basis of 1993–94 NSS data, Dutta and Ramaswami (2001) found that the poorest household quintile, on average, managed to purchase about 10% and 20% of the PDS grains allowed in Maharashtra and Andhra Pradesh, respectively. Other evaluations of the pre-1997 PDS also report blunt de facto targeting of poor households (Jha 1992; Ahluwalia 1993; Howes and Jha 1992, 1994; Dev and Suryanarayana 1991; Parikh 1994).

One may also gauge the extent to which universality reduces exclusion errors by consulting more recent estimates from Tamil Nadu, the only state that opted for a universal PDS after 1997. In 2004–2005, about 80 percent of the households in the three lowest Monthly Per-capita Expenditure deciles in Tamil Nadu reported consumption of PDS rice, but practically no wheat. This share is more than twice as high as the all-India figure (National Sample Survey Organization 2007c), but it still reflects substantial exclusion of poor households. To have a right to purchase subsidized grains is obviously not sufficient for eliminating exclusion; the system has to be known, attractive, and accessible as well, and ensuring this costs money.

So, the right-to-food bill can be expected to neither boost grain consumption nor target the poor significantly better than the current system. It may result in some transfer of purchasing power to some of the poor but only at a huge cost in relation to the benefit accrued. Add to this the fact that for the vast proportion of the population, calorie consumption may not even be the main factor in poor nutrition. Instead, the key deficiency is most likely a lack of proper balance in diet: for example, the malnourished families should be shifting their diet to more milk and fruits rather than consuming additional quantities of grain, on which the right-to-food bill has focused.

Significant gains in efficiency can be achieved by replacing the public distribution system by cash transfers. The argument against such transfers that the beneficiaries might spend the money on something other than grains is spurious. As argued above, such an outcome is also readily achievable under in-kind transfers by selling the grain in the open market. The advantage of cash transfers is that they would greatly minimize the leakage along the distribution chain and also eliminate the huge waste that characterizes the public distribution system.

Once the issues of transfer of purchasing power and the right basket of consumption are separated, the focus of policy can shift to ensuring that consumers make the right consumption choices. This would require two sets of measures. One set of measures would inform and then “nudge” the public in several ways toward a more nourishing diet. The second set of measures, which is more likely to produce results, would aim at getting wholesalers and retailers to fortify various foods with necessary nutrients. The Food Safety and Standards Authority of India can play an important role in implementing this set of measures.

Of course, even though demand can be shifted toward dairy products, fruits, vegetables, fish, and meat, policy must also be directed to ensure increased availability of these items. Here Track I and Track II reforms come squarely together. The availability of products needed to promote good nutrition depends on both domestic production and imports. It is surprising, however, that discussions on food security, which focus on enhancing the availability of various food items over time, rarely mention imports.
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This omission has often resulted in India's failure to fully exploit the benefits of imports. For example, the key component of “food inflation” from 2008–2009 to 2010–2011 has been milk. Clearly, easing the imports through a reduced tariff on powdered milk could have greatly alleviated the shortage of this critical item. But the government did not take advantage of this channel.

As for domestic production, there is in fact critical need for raising productivity on the farm as well as along the supply chain, for nearly every agricultural commodity. Per hectare yields in India are lower than
in most of the comparable countries in most crops. Likewise, vast volumes of fruits and vegetables perish in transit as the produce makes its way from the farm to the final consumer. The agricultural economist Ashok Gulati reminds us that water tables in the original Green Revolution states of Punjab, Haryana and western Uttar Pradesh have been falling at rates of almost a foot per year.
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Therefore, the effort to enhance yields has to move to the eastern part of the country, which has an abundant water supply. Gulati cites the successful Chinese experience with hybrid rice varieties, noting that it produces almost 200 million tons of paddy from 29 million hectares, compared with India's 150 million tons from 44 million hectares.

A key element in improving productivity is to reform the laws on sales and rental of agricultural land. Over the years, land holdings have shrunk in size with the result that today more than 80 percent of the land holdings are less than two hectares and more than 60 percent are less than one hectare. Only 6.5 percent of the holdings are four hectares or larger. Ease of sales and rental will help consolidate holdings. Flexible rental laws that allow the owner and the tiller to negotiate and sign formal agreements will provide better security to the tiller and provide the necessary incentive for making productivity-enhancing investments in land.

Improvements in the supply chain also require the development of contract farming, infrastructure, and organized retail. Contract farming can establish a direct link between the farmer and the processor of the produce, thereby cutting all intermediaries and minimizing waste. It can also ensure a good price to the farmer. Infrastructure development includes the provision of uninterrupted supply of electricity at reasonable prices and road and railway transport. The former allows the development of cold storage while the latter permits rapid movement of produce from the producer to the consumer. Moreover, organized retail has the capacity to develop efficient supply chains.

Finally, agricultural productivity increases today depend additionally on a new Green Revolution. The old Green Revolution was based on the new seeds invented under the leadership of Dr. Norman Borlaug and spread in India under the scientific leadership of Dr. Swaminathan.
Today they depend on the adoption and absorption of the genetically modified and BT (
Bacillus thuringiensis
or natural insecticide) seeds and agricultural crops, such as cotton and brinjal (eggplant). Some NGOs have objected to these as Frankenstein foods, though scientific evidence does not support such fears. The Environment Ministry has handled this issue ineptly, going back on the genetically modified and BT innovations after meeting the NGOs in public without scientists who could respond to these fears. India cannot afford to forgo the new Second Green Revolution in this way. Otherwise, it will have also replaced the highly improbable Frankenstein by the certain Grim Reaper as scarcity overtakes plenitude in the production of food grains and crops.

W
e argued in
Part II
that, contrary to common assertions, India has made definite, if inadequate, progress in areas such as life expectancy, infant mortality, and maternal mortality when compared with countries with similar levels of income. The common impression of India's failure in this area results from the low levels with which India started. But as far as improvements are concerned, steady progress has been made. Moreover, when health indicators such as those relating to child nutrition show below-average progress, their scientific foundation turns out to be shaky.

Of course, being still a poor country, India has hardly won the battle against ill health. There remains vast scope for improvement along all dimensions of health. Reforms are necessary in five key areas: public health, routine health care, care involving hospitalization or outpatient surgeries, human resources, and oversight of the health system.

Public health services, which constitute a classic case of a public good, fall into two categories:
population-wide
environmental services that reduce exposure to and spread of disease, and
clinical
services, such as screening and vaccination that prevent the spread of diseases from one individual to another.
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Because the benefits of public health services are spread over a wide population and once provided, the services become available to all at no additional cost, the market typically fails to supply them in adequate volume.

For example, the cost of disinfecting a swamp to prevent the spread of vector-borne disease such as malaria or dengue fever may be minuscule in relation to the combined benefit to households living around the swamp, but no single household will find it attractive to undertake this cost. This is because each household will count on other households to take action and on “free riding” its benefits. If the group involved is small, its members may be able to solve the “collective action” problem by coming together and making small contributions to cover the cost. But typically this is not the case.

Intervention is also likely to be required when the benefits of an action to an individual are large but still fall short of the total benefits to the society as a whole, as is the case with vaccination. Because vaccination of one individual lowers the chances of others around him or her contracting the same disease, fewer people will take vaccines on their own than are socially desirable. For example, a school-age child who has not been vaccinated against tuberculosis is at risk of contracting the disease. And yet, since the vaccine itself is not costless in view of possible reaction, many students (or their parents) may opt out of it, thereby placing other students at the school at risk.

Nonetheless, the central, state, and local governments in India have done a regretfully poor job of supplying public health services. Drainage systems, the supply of drinking water, and general standards of hygiene in public places remain extremely poor. A bout of monsoon rains is often enough to create conditions conducive to the quick spread of communicable diseases. While the governments have run some effective campaigns against specific communicable diseases, such as smallpox, polio, and Guinea worm disease, their record in providing day-to-day public health services has been disappointing.

In part, the undersupply of public health services may reflect inadequate public expenditures on health in general. But the problem has been exacerbated by political-economy factors, which have biased the allocation of health expenditures in favor of medical services rather than public health.

Thus DasGupta et al. (2009) have carefully analyzed this problem and note that Sri Lanka has been able to provide public health services
at a satisfactory level by spending only 0.2 percent of the GDP. They attribute the neglect of public health services in India to an organizational change immediately following independence. Following the recommendation of the 1946 Bhore Committee report, the central government and all states except Tamil Nadu merged the medical and public health services into a single department. Later, as per the Jungalwalla Committee report of 1967, they also combined the medical and public health cadres into a single cadre. The combined effect of these changes was the neglect of public health services in favor of medical services whose proponents, the well-organized doctors' lobby, have more prestige with the public and carry much greater clout.