There is no greater scam in India at this time than the so-called “food subsidy”. Under a fig leaf of “food security”, the government is keeping millions of tonnes of food out of the reach of the poor.

Even at the best of times, undernutrition in India is extraordinary. According to the second National Family Health Survey (1998–9), about half of all Indian children are chronically undernourished. The latest Human Development Report places India at the bottom of the international scale in this respect, with only Bangladesh doing worse. This year, with drought affecting large parts of the country for the second or third time in a row, undernourishment and starvation could increase.

Against this background, unsuspecting observers may welcome the Indian government’s decision to spend about Rs 10,000 crores on the “food subsidy” – the common assumption being that it will help bring food within the reach of poor families. Far from it. The food subsidy is essentially the deficit of the Food Corporation of India (FCI), whose operations are now chiefly geared to keeping food prices up rather than down. This has been achieved, temporarily at least, by accumulating massive amounts of food in FCI godowns. Today, foodgrain stocks are approaching 50 million tonnes.

The Indian public is so used to large numbers that it is easy to lose sight of the staggering scale of this hoard. It may help to think of it as the equivalent of one tonne of food for each household under the poverty line. If all the sacks of grain lying in the FCI godowns were lined up in a row, they would stretch for a million kilometres – more than twice the distance from the earth to the moon.

When millions of people are undernourished, if not starving, hoarding food on this scale – at an enormous cost – seems tantamount to mass murder.

There are two major reasons why the food subsidy is so large at this time. One is the FCI’s high operating costs, including the costs incurred on storage. According to one estimate, these costs accounted for nearly half the total food subsidy in the mid 1990s. The second reason is that the FCI is currently buying far more food than it is selling. The difference is a net addition to the stocks, which are growing by leaps and bounds.

Ordinary households benefit very little from this “subsidy”. In fact, what they gain on the one hand from subsidised food obtained from the PDS pales in comparison with what they lose on the other by paying higher food prices in the market. This is all the more true if we keep in mind the low quality of PDS foodgrains.

In some areas, it is reported that even poor households see little point in purchasing food from ration shops rather than from the open market because the lower price in the ration shops is more than offset by the poor quality of their grain. These households, in other words, gain nothing from subsidised PDS sales; on the contrary, they bear the burden of high food prices as a result of the FCI’s hoarding operations.

Meanwhile, unintended constituents are feeding at the “food security” trough: rats and worms have a full stomach, even as PDS dealers and other intermediaries siphon off large quantities of grain to sell it on the black market – or rather, the open market. According to the Planning Commission, over the country as a whole 36 per cent of PDS wheat and 31 per cent of PDS rice is appropriated by private parties. All this boosts the “food subsidy” while doing substantially nothing for the hungry.

The obvious question arises: What prevents the government from using this mountain of grain to fund a constructive expansion of the public distribution system, food-for-work schemes, and other anti-poverty programmes? Possible reasons include political inertia, organisational gaps, and reluctance to bear the financial costs (eg, the non-wage component of food-for-work schemes). Removing these hurdles is an urgent political task at this time of widespread hardship.

It would be a mistake, however, to assume that income-generation programmes will by themselves succeed in absorbing the existing foodstock. Several recent studies show that it is only at very low levels of income that foodgrain consumption rises with additional income; beyond that, income increases lead to a higher consumption of pulses, vegetables, milk, fat, and related items, but foodgrain consumption remains more or less unchanged.

This suggests that, beyond a point, income-generation programmes will not help to resolve the fundamental imbalance between foodgrain demand and supply at the prevailing price.

Resolving that imbalance ultimately calls for a decline in the relative price of foodgrains. That, however, conflicts with a paramount objective of food policy at this time, namely the continuation of relatively high foodgrain prices.

The conviction that food prices have to be “supported” (ie, kept high) is so strong and so widespread that it has clouded any reasoned analysis of the ensuing social consequences. Many people, especially the poor, would gain from a decline in food prices. For agricultural labourers, migrant workers, slum dwellers – in short, all those among the poor who buy most of their food in the market – cheaper food would be a blessing. People in drought-stricken areas that are ill served by the PDS would also get substantial relief from being able to buy cheap food in the market instead of being at the mercy of the PDS mafia.

What about farmers? As it is, they have not been doing too well in recent years, with the slowdown of agricultural growth in the 1990s followed by widespread drought. Their livelihood is further threatened, in some cases, by the imminent lifting of quantitative restrictions on agricultural imports in compliance with WTO regulations. Against this background, is it not imperative to sustain high foodgrain prices?

There are two answers to this question. One is that the poorer sections of the farming community benefit very little, if at all, from price-support measures. Consider for instance small farmers in, say, Orissa or Jharkhand or Chhattisgarh. These typically sell little grain, if any, in the market; instead, they tend to combine subsistence farming with labour migration and other income-earning activities that allow them to buy non-food commodities. So, higher food prices would not help them.

What would help them is an improvement in productivity, via, for instance, technological innovation and crop diversification. There is an enormous potential for productivity improvement in large parts of the eastern region, which has been grossly neglected. Instead, massive resources have been spent on promoting unsustainable farming patterns in Punjab, Haryana, and other privileged areas.

The second answer is that, whatever the pros and cons of lower food prices, it is in any case not possible to sustain artificially high prices, short of destroying or exporting the surplus food.

Storing surplus food only postpones the problem. Worse, it aggravates it, by giving farmers misleading signals to the effect that they should continue growing more foodgrains instead of diversifying their crops. Sooner or later, this is bound to lead to a glut in the foodgrain market and a collapse of market prices, defeating the price-support policy.

In fact, a decline in market prices has already happened this year in some parts of the country. The glut is likely to intensify after the rabi (winter) harvest, especially as private traders are unlikely to risk buying large quantities of food. It is reported that plans are afoot to deal with this impending “crisis” through the official procurement of up to another 20 million tonnes of wheat. But this – to use a paradoxical metaphor for enlarging the size of a mountain – only amounts to digging the hole deeper and deeper.

Temporarily keeping prices up by storing food at massive public expense is not an effective way of helping needy farmers. Insofar as supporting food prices is a sensible objective, the only sustainable and equitable way of going about it is to generate income among the poor. At this time of widespread drought, all parties involved have a strong interest in food stocks being used without delay for massive income-generation programmes.

Excerpted with permission from Sense and Solidarity: Jholawala Economics For Everyone, Jean Drèze, Permanent Black.