Food notes

Indian news headlines about inflation, particularly in food prices, suggests major cause for concern. Inflation rose above 11% last week, higher than anytime in the past 13 years. The BBC raises a particularly dire story from the Ministry of Consumer Affairs, whose statistics say wheat and onion prices rose by about 50% in many small cities since January 2008. Additionally, the cost of rice has risen more than 40%. According to Indian Finance Minister Palaniappan Chidambaram, there are more "difficult times" ahead for the economy.

Both politicians and a recent Oxfam report claim inflation is a grave challenge in the fight against poverty. But rising food prices aren't all bad. Economist Esther Duflo notes that although net consumers such as the urban poor are hurt by higher prices, net food producers gain. Nationally, India is a net exporter of agricultural products such as rice, wheat, and sugarcane, which should temper concern about rising food prices. (EU MAP)

Individual-level effects are more complex. Angus Deaton's 1989 study of rural Thailand found that on average rural households benefited from rising rice prices. However, there was significant variation in whether individual households benefited: households that were neither too poor nor too wealthy benefited the most from price increases. UNICEF underlines the negative impact of food prices amongst the very poor in India, predicting that rising food prices will push 1.5-1.8 million children into poverty. Even now, 50 million Indian children under age 5 are malnurished. Projecting the costs of food prices on future development, UNICEF officials call inflation a “silent tsunami”. (ibid)

Clearly, the very poorest in India are vulnerable to inflation that increases the cost of basic commodities. What is to be done? Devesh Kapur, Partha Mukhopadhyay, and Arvind Subramanian argue that the government should simplify its vast array of centralized poverty eradication programs (currently numbering 151) and provide direct cash transfers to raise the poor above the poverty line. If current trends continue, the government could soon transfer Rs. 10,000,000 ($230,000) a year to each panchayat (local elected government) in the country. This would mean giving each poor person Rs. 2,140 per person annually (about $50, more than the rural poverty line and over 75% of the urban poverty line).

Unfortunately, cash transfers aren't a silver bullet. Cash transfers such as Mexico's PROGRESA have a strong record in poverty reduction. (See Santiago Levy (2006): Progress against Poverty: Sustaining Mexico’s Progresa-Oportunidades Programme, Brookings Institution Press) However, India's centralized transfers to the poor have a shoddy record thus far. At present, monitoring of outcomes is nearly non-existent and leakages are rampant in distribution. Kapur et al. note the Indian government's recent (2008) first plan for a centralized monitoring mechanism to track transfer scheme expenditures. Additionally, Kapur et al. cite the Planning Commission (2005) estimates that the Indian government spends Rs 3.65 to transfer Rs. 1 worth of food, suggesting leakage of about 70 per cent. While direct cash transfers cut down on administrative costs, their distribution may still be subject to local manipulation. Debates on the power and efficacy of local elected councils (panchayats) suggest reason for concern.**

Duflo (ibid) suggests an alternate use of transfers, focusing on insurance to reduce long-term income variability rather than using cash transfers as a short-term income boost. This may seem optimistic given the current kinks in India's distribution system. However a recent initiative by the Ministry for Women and Child Development (MWCD) suggests the government may be able to increase the fineness of its targeting scheme and increase accountability in transfer distribution.

The MWCD is finalising a scheme to provide insurance cover for every young woman from a below the poverty line (BPL) family.

Under the scheme, the government will provide cash transfers of Rs 5,000 at the time of the girl's birth and registration; Rs 500 after every three months, for immunisation; Rs 2,500 at the time of her school enrollment; Rs 1,000 every year till the completion of primary school; Rs 5,000 at the time of enrollment and Rs 1,500 every year till the completion of elementary school; and Rs 7,500 for enrollment and Rs 1,500 every year till the girl completes her secondary and higher secondary education. The rest of the money will be handed over at the age of 18, if the girl is unmarried.

Currently, the MWCD is running a pilot of this program in 11 blocks in the country, in 5 states with some of the highest numbers of female infanticide: Bihar , Orissa, Jharkhand, Punjab, and Haryana. 10 blocks are economically backward, while the 11th (Sirhind, Fatehgarh Sahib, Punjab) is wealthy. This allows the government to monitor the effects of transfers on poverty rates across economic contexts as well as their effects on gender equity.

Better targeting and monitoring of transfers may do more than cushion the shocks of inflation - such programs may actually reduce poverty in the long run.

**For a positive view on the use of reservations in Panchayat elections, see Chattopadhyay and Duflo. Panchayat elections are shown to produce less progressively-skewed benefits in Besley, Pande and Rao. A report of Panchayat's current ineffectiveness in Karnataka State is presented in an India Together article.