No. 62, January 2016

No. 62
(January 2016):

Railways on Track for Privatization

bulletPart One

bulletPart Two

bulletPart Three


Constructing Theoretical Justifications to Suppress People’s Social Claims

bulletPart One

bulletPart Two

bulletPart Three

Constructing Theoretical Justifications to Suppress People’s Social Claims

Part II. Propagating the helplessness of society

An essential leg of Subramanian’s argument against subsidies is a standard neoliberal line: that when a good or service is distributed by the State, leakage and mismanagement are inevitable. It is curious that nowadays spokespersons of the State itself propagate the notion that the State is corrupt and incompetent, indeed inevitably corrupt and incompetent. Such a notion allows the State to wash its hands of social responsibilities (“don’t expect us to supply essential goods and services, we’ll make a mess of it”). It also allows it to create various opportunities for the private sector to make a profit. (That privatisation process has in fact multiplied scope for corruption manifold in recent years, as borne out by the CAG’s reports on the 2G, coal, KG-D6, airport privatisation, and other scandals.)

The broader message of the ‘inevitability of corruption’ is that it is impossible for society to allocate resources as part of a conscious social plan; it is best to let the market do its magic unhindered, though we may fling a few pennies to the stragglers left behind in the march of development. As Engels remarked, “Darwin did not know what a bitter satire he wrote on mankind, and especially on his countrymen, when he showed that free competition, the struggle for existence, which the economists celebrate as the highest historical achievement, is the normal state of the animal kingdom.”[1]

The notion that social distribution cannot be socially managed is nonsense. Societies such as once-socialist China eliminated corruption even while providing comprehensive social protection. Even the welfare systems of capitalist countries remain largely free of corruption. Why is corruption endemic in India? Specific social reasons must be sought.

In India, the scale of corruption is so large that it is impossible without the connivance of top officials and the political leadership. For example, according to Subramanian’s calculations, 41 per cent of PDS kerosene, 54 per cent of PDS wheat, and 48 per cent of PDS sugar are lost through “leakage”. Does all this take place at the level of the PDS outlet? In fact, computerisation, global positioning systems for trucks, doorstep delivery to PDS outlets, SMS alerts to consumers and other innovations can help reduce leakages if the political will exists to do so, and if consumers are alert and capable of asserting their rights – for which a universal PDS is the best environment. It is precisely these conditions that are in short supply. If corruption is endemic in India, the rulers themselves must be held accountable for it, rather than be allowed to advance it as an argument for doing away with people’s rights.

There is at any rate sufficient evidence to refute the ‘inevitability’ theory in contemporary India itself.

(i) The sharp rise in leakage in fact can be traced to neo-liberal reforms and the notion of ‘targeting’ the ‘poor’: specifically, the ending of the universal Public Distribution System and the introduction of the ‘Targeted’ Public Distribution System (TPDS) in 1997. The TPDS divided consumers into two categories, Below Poverty Line (BPL) and Above Poverty Line (APL), and raised prices sharply for the APL consumers, resulting the latter leaving the PDS. With the end of universal PDS, the scope for diversion grew. Analysis by the Planning Commission shows leakages from the PDS doubled after targeting. For rice and wheat together, leakage rose from 28 per cent in 1993-94 to 54 per cent in 2004-05. At the same time, two-thirds of even those officially classified ‘poor’ did not get a BPL card, and thus were denied access.[2]

(ii) After 2004-05, some reforms and some expansion of public distribution havebrought down the leakage of PDS grains by 12-19 percentage points.[3] Even now, the figure remains unacceptably high (35-42 per cent); but the fact that it was brought down significantly through various measures shows that it can be brought down further.

(iii) The extent of diversion varies very widely across states. According to Subramanian’s own figures, leakage of PDS rice is 11 per cent in Tamil Nadu, 2 per cent in Andhra Pradesh, near-zero per cent in Chhattisgarh, but 42 per cent in Uttar Pradesh.[4] It was states such as Tamil Nadu, Kerala, and Andhra Pradesh, which did not adopt the central targeting norms, and decided to retain a more or less universal PDS, that experienced low leakage. Chhattisgarh, which in the past decade reverted to a more or less universal PDS in order to woo the rural poor away from supporting left-wing insurgents, also reduced its leakage to near-nil. States that implemented targeting wound up with high leakage.[5] This shows that there is ample scope for reducing leakage without doing away with the PDS.

The above facts do not imply that corruption has been wiped out in Tamil Nadu or other similar states; we know that it is rampant in other sectors. (For example, in Tamil Nadu, estimates of the losses due to the illegal mining of beach minerals, river sand, bauxite, magnesite, granite, and so on are put at Rs 1.43 lakh crore.[6]) The data regarding low-leakage states simply show that there is nothing inevitable about corruption in India’s public sector services. It shows that mass movements in defence of historically established social claims such as PDS are viable and necessary.

If PDS were to be universalised once more, and monitoring systems were to be strengthened in states with high leakage, all-India leakage could be brought down dramatically. However, in the absence of a major mass struggle, this is not on the cards. For any such improvement would refute the arguments made by the Government in favour of shutting down public procurement and public distribution of foodgrains, leaving the foodgrain market to be controlled by private traders, including foreign agribusinesses. This was precisely the main aim of the NDA Government’s High Level Committee for Restructuring of the Food Corporation of India (also known as the Shanta Kumar committee), which recently submitted its report.


Winding up FCI: Effect on producers

This brings us to another fallacy in Subramanian’s argument against subsidies. What is true of the part is not necessarily true of the whole. If, while maintaining a system of public procurement and public distribution, one person is given a cash subsidy instead of PDS foodgrains, he/she may be able to purchase an equivalent amount of foodgrains on the open market to replace the PDS quota. However, the same will not hold if the system of public procurement and PDS are wound up, and a cash subsidy is given in their place. The reason is that the latter situation is entirely different from the former.

Firstly, once public procurement is wound up, peasants who hitherto obtained a guaranteed price for rice and wheat would now be thrown to the winds of market fluctuations. We can get an idea of the potential effect by looking at regions in which there is effectively no public procurement for these crops. In the 2014 kharif marketing season, peasants were unable to get the official Minimum Support Price (MSP) for paddy in Assam, Bihar, Chhattisgarh, Gujarat, Karnataka, U.P., and West Bengal.[7]

Similarly, take the example of peasants who grow crops such as potatoes and onions. It is well-known that there are very sharp fluctuations in the prices of these commodities: when peasants bring their crop to the market, prices at times collapse to very low levels, whereas once the crop is procured by traders, prices can rise steeply. This year we have witnessed suicides of potato growers. In the absence of Government intervention, a sharp drop in the procurement price of a particular crop can lead to a drop in subsequent planting of that crop; and a sharp rise in the price can lead to a subsequent rise in planting, resulting in oversupply and a crash in the procurement price. Such chaotic fluctuations are inevitable wherever the ‘free market’ (‘free’ for traders or corporations) governs procurement prices. In fact, State intervention in agriculture is widespread internationally, and the largest subsidies are given by highly developed countries such as the US, European Union, and Japan.

Sharp fluctuations not only make the incomes of peasants insecure, but they deter peasants from investing in improving production. Peasants, like working people in general, are not gamblers or speculators: given the option, they always prefer producing for an assured remunerative price. Production of crops for which there is effective and sustained public procurement, such as wheat and rice, has grown steadily over the last three decades. Whereas production of certain crops for which there is little or no procurement has stagnated, leading to a fall in per capita production, and hence consumption. For example, even after taking into account sizeable imports, the per capita availability of pulses has fallen from an average of 46 grams per day in the three-year period ending 1973 to 42 grams per day in the three-year period ending 2013. It is true there are other factors involved in this, such as technology, irrigation and the quality of land devoted to pulses. But the failure of peasants to devote more and better land to pulses, despite a sustained rise in retail prices of pulses, indicates that the lack of public procurement at remunerative MSPs was the main reason.

Winding up FCI: effect on consumers

For cash transfers to bridge the gap with the market rate requires first of all that the gap be correctly assessed. We can get an idea of how this will actually function by looking at the pilot cash transfer schemes tried out in select locations. According to news reports, the rate set for transfers in such pilot schemes is Rs 22/kg for rice and Rs 16/kg for wheat.[8] It appears these sums would not suffice to bridge the difference between the market price of these grains and the price at which they could earlier be purchased in the PDS (Rs 3 for rice, Rs 2 for wheat under the National Food Security Act). The retail prices of rice as on October 15, 2015, according to the Department of Consumer Affairs, ranged from Rs 18 to Rs 42/kg at different centres, the modal price being Rs 28. The retail price of wheat ranged between Rs 15 and Rs 35/kg at different centres, the modal price being Rs 18. (Retail prices in Puducherry, where the pilot scheme was being operated, were Rs 28/kg for rice and Rs 32 for wheat on October 15, 2015.)[9] Only those obtaining grain at or below the modal price would be sufficiently compensated; that would leave a very large number would be purchasing grains at much higher market prices. Clearly, cash transfers, even in a best case scenario, would effectively mean a fall in income for many people. It is worth noting that the Puducherry government had to withdraw the pilot scheme due to mass protests. Protests are also taking place in two other small pilot regions, Chandigarh and Dadra & Nagar Haveli.[10]

But the above example of Puducherry is, in a sense, beside the point. For even had these pilot schemes worked, they would have been only select cash transfers in the context of a nationwide system of physical procurement and distribution; it is the latter system which keeps overall price levels down. If the Government were to wind up public procurement and distribution, it would no longer be able to intervene in foodgrains markets. It should be kept in mind that the winding up of large-scale Government procurement was precisely the demand of multinational grain traders when they made their presentation to the Committee on Long Term Grain Policy: they wanted the removal of the “potential threat posed by high stock levels” (threat, that is, to their profiteering).[11]

Indeed, the prices of cereals are kept in check by the large stocks at the disposal of the Government, which can be released through the PDS. This can be seen by what happened when the PDS was restricted in 1997 (in the name of ‘targeting’). Before 1997, a drop in production could be moderated by PDS release of grains, ensuring that public availability did not drop as much as production. But after 1997, the variability of prices was much higher, mainly because public grain management was now much less effective in doing this job of moderation.[12]

The UPA government was brought into office in 2004 primarily as a result of rural discontent. Hence it took some limited measures to alleviate that discontent, among them being the resuscitation of the near-comatose PDS; hence the partial recovery in PDS consumption. But even such limited relief is now slated to be undone by the planned switch to cash transfers.

As a result of the partial recovery in PDS consumption, the PDS today once again plays a significant role in the consumption of the poor. According to the National Sample Survey, nearly 46 per cent of rural households and 23 per cent of urban households bought subsidised rice from the PDS in 2011-12. This is roughlydouble the percentages for 2004-05 (24 per cent of rural households and 13 per cent of urban households). In southern states, the percentage of rural households drawing rice from the PDS is particularly high – Tamil Nadu (89 per cent), Andhra Pradesh (87 per cent), Kerala (78 per cent) and Karnataka (75 per cent). For wheat/atta, the all-India percentage tripled between 2004-05 and 2011-12, from 11 per cent to 34 per cent in rural areas, and 6 per cent to 19 per cent in urban areas. [13]

The poorer the consumer, the bigger the share of consumption drawn from the PDS. Take rice: for all classes, 28 per cent of consumption in the rural areas and 20 per cent in the urban areas comes from the PDS. But for the bottom 5 per cent in the rural areas, 40 per cent of their rice consumption comes from the PDS, and for the bottom 5 per cent in the urban areas, the figure is 32 per cent. The story is similar for wheat/atta and sugar.[14] In other words, despite the fact that large numbers of the poor do not possess “Below Poverty Line” (BPL) or Antyodaya ration cards[15], despite the fact that many are denied their rightful share of rations for one reason or another, the PDS plays a major and growing part in their consumption. That means the elimination of the PDS will strike particularly hard at the lowest income groups.

Once procurement is wound up and the bulk of the Government’s own stocks are eliminated, much sharper price fluctuations can be expected, as are seen in crops for which there is not procurement. These fluctuations can devastate both peasants and consumers. In case of very sharp rises in retail prices, it would become prohibitively expensive to keep compensating the price difference in cash. For example, the retail price of toor (arhar) dal in Delhi rose from about Rs 113/kg on June 30, 2015 to Rs 172/kg on 1/11/2015, a rise of more than 50 per cent in four months (the difference between November 2014 and November 2015 is 100 per cent). If a similar rise were to take place in the price of rice or wheat, is it likely that cash transfers would be raised 50 per cent to compensate the difference? No.

To sum up, the situations before and after winding up public procurement and distribution would be basically different. The winding up of public procurement may lead to fluctuations in prices received by peasants, fluctuations in production of rice and wheat, widening margins between the price the peasant gets and the retail price, and sharp fluctuations in the retail price. If such growing margins and fluctuations were to be fully compensated by cash transfers, the amount to be paid may actually have to rise over the level of the existing food subsidy.

But of course there is no intention to fully compensate for such a rise in prices. Under-compensation will simply occur over and over until it becomes the established practice.

Insecure transfers

Petty transfers of cash are nothing new in India. They have been going on for a long time, in the form of widows’ pensions, scholarships, and similar cash payments. All that is new is the channel: direct transfer to the bank accounts of the beneficiaries. However, when such a transfer takes the place of an existing material right, such as rations, the actual cost to the beneficiary can be high. Bank branches are often inaccessible: there are 5.21 lakh fair price shops, but only 1.26 lakh bank branches, i.e., there are only one fourth as many bank branches as ration shops.[16] In the rural areas, the proportion is one-eighth. Collecting the benefit may require a trip by the beneficiary to the bank, sacrificing a day’s income; and the bank may subtract other sums it claims the beneficiary owes to it.

In order to surmount the problem of access to banks, the Government has plans to extend its use of ‘business correspondents’ (BCs) as a channel of direct benefit transfer (DBT, i.e., cash transfer). BCs are agents that carry out transactions for the banks, generally deposits and payments. This system has its own uncertainties. The Government claims there are over 2.2 lakh BCs in operation (a dramatic increase from 34,000 in 2010), but recent surveys of BCs found that only 53 per cent of them could be reached; the rest were presumably no longer operating. Of those who could be reached, 16 per cent had not carried out a single transaction to date. Annually, 25-34 per cent of BCs shut down operations.[17] Over 75 per cent of the accounts opened by BCs are dormant.[18] Most BCs do not have alternative arrangements in place when they are not available (due to exigencies), leaving the beneficiaries at sea. BCs also suffer from chronic ‘system downtime’ and frequently lack cash on hand to make disbursements.[19] One agency promoting the BC model has demanded that BCs be given a commission of 3 per cent on each transaction, in order to overcome the problem of ‘dormancy’.[20]

All these problems are most prevalent in rural areas, precisely the areas for which the Government plans to use BCs as a payment mechanism. Given the power equations at the village level, it is likely that many BCs will force recipients to part with part of the sum paid, especially if the BCs are also engaged in other businesses to which the recipients may owe money (e.g. provisions stores, moneylending, trade in inputs/agricultural produce).

The Government treats all these as teething problems, which will be sorted out in the course of time. For example, efforts are on to stabilise the BC system by making it more remunerative to the BCs. But all these ‘practical’ problems, which seem diverse and unrelated, in practice conspire to strip people of their rights. In Brecht’s words: “When crimes begin to pile up they become invisible. When sufferings become unendurable the cries are no longer heard.”



[1] F. Engels, Dialectics of Nature, Introduction.

[2] Himanshu, Abhijit Sen, “Why Not a Universal Food Security Legislation?”,EPW, 19/3/2011.

[3] Jean Dreze, Himanshu, Reetika Khera, Abhijit Sen, “Clarification on PDS leakages”, EPW, 26/9/2015.

[4] Economic Survey 2014-15, vol. I, p. 61.

[5] Himanshu, Abhijit Sen, op. cit. Universal entitlement does not mean that all entitled to draw rations actually do so. Even in a universal system, a top section of 10-25 per cent opt to buy from the market. Thus there is a large measure of ‘self-selection’ or automatic targeting of the poor and vulnerable.

[6] Ilangovan Rajasekaran, “The mother of all loot”, Frontline, 24/7/2015.

[7] Commission for Agricultural Crops and Prices, Price Policy for Kharif Crops, Marketing Season 2015-16.

[8] “Centre to begin cash transfers for 1.5 lakh entitled to PDS grains”, Times of India, 28/8/15.

[9] Department of Consumer Affairs, Price Monitoring Cell,

[10] Swati Narayan, “Why Cash Transfer’s First ‘Beneficiaries’ Want to Opt Out of the JAM”,

[11] Report of the Committee on Long Term Grain Policy, p. 31.

[12] Himanshu, Abhijit Sen, “Why Not a Universal Food Security Legislation?”,EPW, 19/3/2011, figure 1.

[13] National Sample Survey, Public Distribution System and Other Sources of Household Consumption, 2011-12, NSS 68th Round (July 2011-June 2012).

[14] Ibid.

[15] For example: 36 per cent of casual labour in agriculture had either no ration card or an APL card; in the case of rural casual labour in non-agriculture, the figure was 52 per cent. In urban areas, 63 per cent of casual labour had either no ration card or an APL card. Ibid.

[16] Department of Food and Public Distribution, Annual Report 2015RBI,Handbook of Statistics 2015.

[17] “RBI survey finds 47 per cent of banking agents untraceable,” Indian Express, 30/7/2014.

[18] RBI, Report of the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households (Nachiket Mor Committee), p. 66.

[19] Microsave Policy Brief no. 9, “Behind the Big Numbers: Improving the Reach and Quality of Agent Networks in India”, August 2013.







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