Monday, October 23, 2006

India: Starving on a Mountain of Grains

pThis is an extension of Dilip's post on How the Other Half Lives - and the ensuing discussions....

According to the Global Hunger Report, India is ranked 96th out of the 119 countries surveyed (GHR does not include the North American, Western European countries, and Australia, since it assumes that there is no hunger in these countries, and evething is hunky dory!)... More importantly, in terms of child malnutrition, India ranks 117/119 (we beat Nepal and Bangladesh on this count)

In 50s and 60s, India did not produce enough grains to feed its population, and we were dependent on foreign food aid (Lal Bahadur Shastry, India’s 2nd Prime Minister, even made an appeal to people to keep fast for one meal a week as a solution - and bizzaire though it may appear to people now, but a large number of Indians actually followed that appeal).

Here is a Govt Ad of that time
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And a news headline
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Then, during the 60s and 70s, we had the ‘green revolution’, growth in fertilizer industry, etc… In any case, by 80s, India had become a food surplus nation - and has remained so. We are world’s 2nd largest exporter of rice, 5th largest exporter of wheat, 2nd largest producer of vegetables and largest producer of milk, etc. etc.

The Global Hunger Report also shows that between 1981 and 1992, the India score fell down from 41 to 32, and then to 25 by 1997. Since then, there has been no change (a low score shows less hunger)… So actually, it is during the last decade or so, that India has stopped making any progress in feeding its poor.

One of the reasons for this paradox that - despite being a food surplus nation, India figures among the most hungry nation - is the change in Govt policy around ‘92 or so. At that time, Govt of India (GOI) decided to increase the price (or decrease the ’subsidy’)of grains and commodities in the Public Distribution System (PDS - the ‘ration shops’).

This resulted in two things - good and bad:
  • it made making the food out of reach of the poor, and
  • it increased country food surplus, since those who need it can no longer afford it.

    One easy intellectual trap in trying to understand this paradox is to reduce it to a discussion about the relative virtues of ’socialism’ or ‘capitalism’. This black/white - socialism vs. capitalism - kind of world-view, in any case, is too opaque to bring forth the nuances of an issue into focus (There are a wide variety of socialist and capitalist systems across the world - some are good for people and some are a disaster).

    The Global Hunger Report rankings essentially implies that inspite of having all the ‘feel good’ statistics about India (GDP, Exports, BIC Report, etc.)... they don't add up to the building up of a sustainable society.

    Perhaps, it is more meaningful to focus on the specific Govt. policies, and the implications they have on people and sustainability of socio-economic growth.

    For instance:
    Ealier this year, the Govt (in this case following Capitalist policies) opened up the grain-procurement market to private sector traders/MNCs (e.g.,Cargill, HLL, Reliance, Continental, etc.), and the buying prices shot up beyond the limits that FCI (Food Corporation of India, which procures grains for the PDS) has... FCI did not procure much grains from famers.

    Since the prices of grains shot up, the Govt (in this case following Socialist policies) imported wheat to keep the prices down in the 'subsidised' open market

    By conventional logic, the farmers would have benefitted by the high prices they got from the private player... And some - the bigger ones - did, it is true.

    But the policy ignores a fact that 65% of consumers of food-grains are also its producers. These are the small and marginal farmers with less than a hectare or 2-4 hectare of land... Given the tiny quantity of their produce, they are not a part of the supply-chain of the big MNCs, and since the govt brought down the prices in the open market/mandis, they can't sell their produce at a higher price.

    So, if you happen to be a small/marginal farmer:

  • when you go to the local mandi to sell your produce, you find the prices low, since the GOI has imported grains to keep the prices low (socialist subsidy)

  • when you go to buy grains to supplement your subsistance produce, you find the prices beyond your budget, because the GOI has opened the market to private players (competitive capitalism)

    Not that it would matter to the small/marginal farmer... but perhaps - for some of us (the 15mn Indians who read/write blogs) - it provides an intellectually satisfying explanation about why in a food-surplus land, we have starvation deaths and farmer suicides...!!!!

  • Thursday, October 19, 2006

    Access Denied!!!

    A few years back, an American Prof had visited the institute where I teach, and had given an interesting talk about the unmentioned issues in globalisation of business. Giving an example of "non-tarrif barriers", he narrated an interesting incident of a US company which had applied to set up business in South Korea.... It received a 60-page questionnaire from the South Korean government, with detailed questions in Korean language, to be answered - in Korean language - and returned in 7 days.

    It was an amusing anecdote...

    ...and, then one realises that such "denial of access" is pervasive across all boundaries - not just between countries, but also within segments of a society.

    Here is an example:

    State Bank of India offers "Crop Loan" (i.e., the much needed "Financial assistance to meet cultivation expenses for various crops"). The loan amount is upto Rs.100,000/- - and more, upto Rs.2,500,000/- for certain crops (tobacco, sugarcane, etc.). The interest rates and payment conditions are extremely reasonable (interest rates range from 8.5% to 12.75% depending on the amount and whether the farmer repays back within 3 years or more).

    Considering that 60% of Indian farmers are marginal (less than 2 Hectares) or Small (2-4 Hectare), this is an extremely supportive loan policy.

    The SBI website lists the documents requried to avail this loan:

  • 1. Land records to ascertain cultivation rights.
  • 2. Acreage under different crops
  • 3. Sources of other borrowings eg. Co-operative Societies and Banks.

    This may look simple and innocuous, but, in practice, this is what the farmer will have to submit:

    1. Land records to ascertain cultivation rights.
    certificates for
    - land record (i.e., ownership of the land)
    - record of all revenue paid
    - no dues from the government
    - land valuation certificate (specially if the loan is for more than 50k, since in that case the land is mortgaged to SBI)

    2. Acreage under different crops
    I am not sure how this would be certified, but surely, it will not be based on farmer's own statement. Some government official or maybe the bank officer him/herself will need to testify this.

    3. Sources of other borrowings eg. Credit Co-operative Societies and Banks.
    If the farmer has borrowed and paid to others, well and good, but suppose he has never borrowed from them. How can he prove that?... well, he will have to get No-objection/ No-dues certificates from all the banks and credit co-ops in the area.

    Till we have farmers carrying briefcase/plastic-folios, it is difficult to imagine such loans reaching where they are needed.

    Perhaps this also explains:

  • why we have a little suicide in our food, and
  • why farmland in India is becoming the "Sur-Real" Estate Market

  • Sunday, October 15, 2006

    Power of an Idea

    30 years back, a young professor of economics went for a walk in a village adjoing his university in Chittagong (Bangladesh). While there, he met a poor widow, Sufiya Begum, who tried to make a living by constructing and selling bamboo stools. She worked hard the whole day, and yet her daily net earning was just $0.02 (2 cents).

    Why?... because she had to take a daily loan for buying bamboos from the local moneylender, who charged exhorbitant interest, and whose lending condition was that she sells her produce to him at a price decided by him!!!

    She was poor - not because she lacked skills, or because she was lazy - but becasue she did not have access to her own working capital. All she needed was $0.27 (27cents) to get out of this vicious cycle of:

    Low income => No working capital => High interest loan => Low income

    The professor gave her 27 cents... but then, also went on to find out how many others in the village lived on an income of less than $1/day. To his amazement - and dismay - he found that there were 42 such able-bodied skilled working people, whose cumulative requirement to end their poverty was just $27!

    He gave them that sum as loan, which they could use to break out of the cycle of poverty... and they returned the loan in due course.

    It was such a simple solution to end the poverty. Poverty, the professor realised, is not caused by people; it is caused by the system. Much later, he described his first insight through an analogy:

    "You take the best seed of the tallest tree from the most fertile forest, and plant it in a small flower-pot. The seed does not grow into the tall tree..." not because the seed was bad, but because it got planted in the wrong place.

    Academically, this simple insight had a simple solution. Get the banks to give loans to the poors.

    But the banks refused: how can you give loans to people who have no collaterals to offer? what if they default? and since they own nothing, you can't take back anything from them, can you?

    Failing to convince the regular commercial banks to lend money, the professor decided to become the "guaranteer" for their loans with the bank. If they default, he would pay the banks - but they did not default!

    But this experience led to the second insight:

    The commercial banking system works on a premise that the more you have (i.e., as collaterals), the more you get; the less you have, the less you get... and of course, if you don't happen to own anything, that you are forever condemned out of the banking/credit system.

    ...Like the local moneylender, the commercial banking system imposes its own conditionalities in which the rich become richer - and the poor become poorer.

    And thus the the third insight: Create a bank for the poors!

    This simple idea led to the establishment of Grameen Bank - the "barefoot bank" - in 1983. The professor of economics, you guessed, was Professor Muhammad Yunus, who was awarded the Nobel Peace Prize 2006 this week... The rest, as they say, is history...

    Today, the Grameen Bank:

  • has 6.6mn borrowers ("poorest of the poor" - including beggars), of which 97% are women

  • has 2,226 branches operating in more than 71,000 villages of Bangladesh, supported by a staff of around 18,000.

  • is owned 94% by the borrowers (the rest 6% is with the government)

  • offers loan without any collaterals, legal instrument, group-guarantee or joint liability

  • has provided loans of about $5.7bn since its inception

  • provides loans for micro enterprises, housing, education, scholorships, life insurance and pension funds for the borrowers, disaster loan funds, etc.

  • has remained profitable all through its existance, except for 3 years (1983, 1991 and 1992)

  • does not rely on external funding or donations since 1995 (has paid back its loans since then)

  • has helped about 58% of its borrowers to cross the poverty line

  • and has a loan recovery rate of 98.85% (the other 1.15% constitute the defaulters on deadlines of payment - not on payment itself)

    Perhaps more importantly, the contribution of Prof Yunus was The Power of the Idea:

  • that the poor are "credit-worthy" (or the reverse: the commercial banking establishment is not "people worthy")

  • that poverty eradication does happen by handing out "doles" through the top-down subsidies, donations, grants or investments (by govt/IMF/WB, etc.)... In an article in WSJ (Oct 14,'06), he noted:
    " of our most successful tools for rebuilding businesses is not government handouts, but rather, small loans packaged with practical business and social advice.... very little of the cash so generously given ever gets all the way down to the very poor. There are too many "professionals" ahead of them in line, highly skilled at diverting funds into their own pockets. This is particularly regrettable because very poor people need only a little money to set up a business that can make a dramatic difference in the quality of their lives."

    Instead, eradicating poverty requires innovating systems for economic empowerment... By giving the poor that elusive access to the "first dollar that gets you the next dollar."

  • that there is another "bottom-up" model of development that is far superior to the "trickle-down" economic model... That perhaps "the rising tide will lift all the boats" is a merely a myth in the minds of the owners of those few boats who have "access rights" to the tide!

    It was this power of idea, that has mobilised a global movement for providing "access to credit" to the poor during last 30 years. There are now:

  • about 3,100 MFIs worldwide

  • who service 92mn clients and

  • about 330mn people from the "poorest of the poor" families

  • across more than 100 nations

    ... and are growing in numbers, and innovating new solutions.

    Cross-posted at:

  • Thursday, October 12, 2006

    The Price of a Cauliflower interesting example of the difference between the "physical" and "economic opportunity" distance.

    - From where I stay, if I drive a couple of Kms towards the local private airport in the evenings, just before the airport, I find people - mostly farmers from nearby areas - sitting on the roadside. They are the small farmers who come from the other side of Swarnarekha river, sit on the roadside and sell vegetables that they have produced. I can buy a cauliflower from them for around Rs.2/- or less (if I negotiate, I can even get 4 for Rs.3/-)

    - Past the airport, I take the right turning, and after about 0.5Km, is the Gudari Bazaar, which in the evenings, becomes a sort of large vegetable mandi. The price of the cauliflower there ranges between Rs.5/- to 7/-.

    - The place from where I buy vegetables is Dhatkidih, which is slightly tangential to the above, but within a range of a couple of Kms. I, and others, buy vegetable from the shops, and pay Rs.12-15/- for a cauliflower.

    The guy sitting on the roadside before the airport does not have 'access' to mandi - or to customers who will pay Rs.5/- (or Rs.12-15/-) for the cauliflowers without a second thought...

    even though
    ...he is within a range of a couple of Km from both the mandi and Dhatkidih shops, and

    ...he is the person, who used his land, time and toil to produce the cauliflower in the first place!!!

    (cross-posted at Inspired-Pragmatism)