Well, it has been mathematically proven that the Indian Government is wrong. In his recent paper The Economics of Foodgrain Management In India, Kaushik Basu, India's Chief Economic Adviser, no less, has proven how the food security policy of the country is economically impossible!
Although this blog is not about food security, this is too sweet an opportunity to miss. Using economics and basic game theory, Basu has criticized the Indian food security policy in an extremely subtle but convincing manner and then got the Ministry of Finance to put the paper up on their own website. His most critical finding is that the current policy that the government follows is in fact leading to higher food prices in the country than if the government was not involved at all.
What Basu has proved is that to maintain low food prices as well as make food accessible to the poor at all times, following steps are necessary:
1. The government has to maintain food reserves. Privatizing the entire process will not help.
2. Instead of what is done today, the government policy should be to hoard when the weather is good and release when the weather is bad. Keeping food reserves at all time does not help anyone.
3. The government has to sell its food reserves at a lower price than what they had bought it at. As of now, when the government releases food, it is at the buying price plus transportation and storage charges. The food thus put in market is more expensive than what the market has to offer itself!
4. The food has to be released in small batches instead of a large bundle. The smaller the batches, the lower the price will be.
5. Instead of opening subsidized shops, introduce coupons for the poor to buy the food from any shop at the market price.
Image Credit: chmoss
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