Economist’s Column LIBERALIZATION POLICY AND RURAL POOR - I

Economist Column Liberialisation and Rural Poor

SUDIPTA BHATTACHARYYA DEPT. OF ECONOMICS VIDYASAGAR UNIVERSITY

Since 1991, the policy of economic liberalization [New Economic Policy (NEP)] was introduced in Indian agriculture. The direct and immediate impact of this policy was to cut in food and fertiliser subsidies and therefore a rise in fertiliser price. The fertiliser price was increased by 40 per cent in August 1991 and subsequently the rise was reduced to 30 per cent. The reduction in food and fertiliser subsidies came as a direct consequence of the recommendation of the Fund/Bank as a main conditionality of structural adjustment programme to cut down the non-plan budgetary expenditure in order to reduce fiscal deficits. Since the fertilizer was used on more than 85 per cent of irrigated land and about 50 per cent of unirrigated land by 1988-89 [Rao and Gulati, 1994], such a unilateral withdrawal of fertiliser subsidies is bound to have a detrimental impact on the economy.

It is well known that the general price is determined dominantly by the food price in India which again is determined by the performance of the agricultural sector. It may be presumed therefore the rate of inflation would have been even higher in the absence of some good monsoons and the bumper harvest in 1992-1993. The withdrawal of the fertilizer subsidy led to the political pressure of the rich farmer’s lobby inside and outside the parliament and consequently led to an increase in the procurement price. Consequently, the procurement prices of common paddy and wheat were both raised by more than 50 per cent between 1990-91 and 1993-94. At the same time, the issue prices in the public distribution system were raised even more by 86 per cent for the common rice and by 72 per cent for wheat in the same time period [Nayyar, 1996]. The increase in the price of food grain is indeed accompanied by the stagnation and decline in the per capita availability of food grain. The public distribution system could not support the poor at the phase of decline in the per capita food availability as the difference between ration shop price and market prices narrowed to a small margin. The sales through the public distribution system as a result declined steadily. Ironically, there was a steady accumulation in the stock of food grains during the period. This is due to the fact that the government could easily raise its stock of food, but for the higher issue price the poor people can’t purchase them. Therefore it does essentially mean an increase in the inventories which could not be utilized owing to the underconsumption of the poor, since food in ration shops is too high for them. It is revealed from the Economic Survey, between 1990 - 1995 the prices of food grain increased by 90 per cent, the prices of primary food article rose by 77 per cent and prices of manufactured product rose by 62 per cent. At the same time the purchasing power of the people measured in terms of per capita national income and per capita final consumer expenditure in the domestic market experienced a stagnation or decline even as an arithmetic average. The only outcome is that the poverty registers an increase.