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P. R. Brahmananda

ECONOMIC policies are subject to a number of lags. Between the event and the authorities' awareness, there is the information lag. Between the awareness and the appropriate decisions there is the decision lag. Between the decisions and actual actions, there is the implementation lag. Between the implementations and effects of policies there is the monitoring lag. And after monitoring, there has to be the appraisal of the effects of policies and actions. This is the evaluation lag.

There are, thus, five lags between the events and the final appraisal of the effects. In India, the authorities generally wake up only after news of events reaches them. Thereafter attempts are made to moderate or alleviate the adverse consequences of these events on the people. If the events occur with some frequency, clearly policies and actions must be forethought of and readied.

There is, of course, the question of forecasting these adverse events. For changes in weather and rainfall, the ability to forecast droughts and floods well in advance has not been perfected. The problem is one of imperfections in our scientific instruments. Satellites can give us information only a bit in advance. But full forecasting, with reasonable probability of occurrence, is a long way off. However, considering that adverse climatic patterns do occur now and then, there must be a set of policies to deal with the situations.

Unfortunately, this is not happening in India. All that has been done is that buffer stocks have been created and the Government is ready to dispose of these stocks at some price along with subsidies if droughts occur.

Earlier, the stocks were not adequate and the required quantities of grain had to be imported. The policy objective when there are buffer stocks is to prevent the drought from leading to starvation deaths. But, here, the problem arises because the stocks can only be sold to those with purchasing power.

Second, there has to be a delivery system countrywide to sell these stocks. However, the stocks are meant primarily for non-producers of grains and other crops. In the latter case, as there is inadequate, or no, revenue from agriculture, the problem is one of incomes. If incomes do not accrue because of production deficiencies, millions of farmers could be affected, particularly when a `macro'-drought occurs. The only way farmers, as producers, get their incomes is through the purchase of their products. But this does not happen in the event of a drought.

The public distribution system run by the Food Corporation of India and State agencies purchases crops at minimum prices. These are sold, according to policy, to purchasers below the poverty line. Those below the poverty line are mostly agricultural labourers, peasants and a non-agricultural urban population. The majority of farmers can only be reached by trade and procurement agencies. The former form a larger component as purchasers of farm products.

It is true that where there is crop insurance, some financial remedies may be found. Loans due can also be postponed. Taxes can be remitted. However, land revenue is not important now in India.

In the late 19th century, the British authorities evolved famine relief schemes for populations in rural areas where droughts occurred. The idea was to prevent the droughts from worsening into famines. At that time, their famine relief schemes were the largest in the world. Even with the present PDS, they were far more efficient and widespread. There was a continuous system in readiness.

In the first half of the 20th century, there were two major climatic upsets. The first was in 1918, when 40 per cent of the crops dried up and this situation coincided with an influenza epidemic. The second case was in Bengal in 1943 during the Second World War. By the time the production shortfall occurred, a full rationing system had not yet been created in Bengal. It also coincided also with heavy inflation and there was also a deficiency of imports from Burma, which had become a separate country in 1937.

Transportation problems also came in the way. Further, the population of Bengal was accustomed to consuming rice, and not wheat, of which there was surplus for disposal. The famine in Bengal affected all the classes. The current situation is also similar to that in Bengal in 1943. Large sections of population are affected by the drought, but the relieving feature is that there is a large stock with the PDS system. However, poor labourers and farm producers have to be reached and there is no full system in readiness.

Every time there is a serious drought or flood, the State Government runs to the Centre for loans and grants. Natural calamities are common in India, but this subject does not directly fall in the Central List. There is a calamity relief fund, but the amounts are small, and cannot deal with a big macro-drought situation.

The idea of planning was that every State and region should be self-sufficient in minimum foodgrains production. But these goals have changed gradually. The idea was to make different States produce and specialise in crops they were suited to — which is why many States are not self-sufficient in foodgrains production.

When there is a drought, the Central authorities have to come to the rescue. But, the Centre's responsibility is not clear and only finance and money can be distributed. However, droughts create real shortfalls in production and affect labour and producers. What is required is a delivery system for grains and a scheme of income security.

The current macro-drought makes us aware that the country is vulnerable to serious production shortfalls. It is a matter of chance that there are large stocks now. But if the trade was instrumental for holding stocks, there would have been a serious crisis, especially in terms of prices and deliveries to the poor and low-income groups. There is also a problem of substitution of wheat by rice. There are rigid consumption preferences and this problem has to be reckoned with.

Prices have been referred to earlier. They are important because the authorities can provide money and the State deficits induced by the droughts will naturally become larger as also the Central deficit. Further, there is so much monetary liquidity in the system, thanks to previous policies, that only trade can hold on to stocks and limit the losses sustainable by the PDS. In such a situation, there could be an explosive rise in the prices of grains and, consequently, a severe inflationary burst could occur.

This has to be guarded against. It would be hazardous to pump in more liquidity and persist with lower rates in a situation where there is a huge shortfall in grains' production. There is already so much excess liquidity and the interest rates, except during the Second World War, are historically at their lowest.

Therefore, the problem is not only for the Agricultural Minister (we now have no Food Minister! We think we have overcome macro-droughts).

The Finance Minister and the Reserve Bank of India are equally concerned. If they can generate more liquidity and reduce interest rates, there may be a sharp upturn in prices. This happened during the Bengal famine and we must guard against this outcome.

It would also be suicidal to disband the PDS and the FCI and trade the stocks. True, we are luckier because of large stocks and exchange reserves. But these are chance factors and the basic problem of food and income insecurities dogs the country five decades after Independence.

According to the latest information, surplus producing States, such as Uttar Pradesh, and deficit States, such as Tamil Nadu, Karnataka and Rajasthan, are being affected by the current macro-drought.

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