A Food Stamps System for India

Vikas Bajaj has an excellent report, on India's public distribution system (PDS) for staple foods, in today's New York Times (As Grain Piles Up, India’s Poor Still Go Hungry). It's a stupid and criminally wasteful system that defies reform even though most economics undergraduates would know how to fix it.

As the article makes clear, the national government buys foodgrains from farmers -- at prices high enough to keep the farmers' lobby happy -- and stores the food in warehouses. Each state government collects its share -- which is based on the number of poor people in the state -- and distributes the food at subsidized prices through what are called "ration shops". A great deal of the food rots or is eaten by vermin in the government's warehouses. Many poor people do not get acccess to the subsidized food because of administrative inefficiencies.

In Bajaj's article, Ashok Gulati, a highly-regarded agricultural economist, identifies the obvious solution to the system's problems: just adopt an American-style food stamps system. Give cash to the poor and let them buy food in the open market. This would directly meet the goal of helping the poor. Moreover, the increased purchases of food by the poor would raise food prices, thereby meeting the government's other goal of helping farmers get a good price for their crops. (Of course, farmers could be given direct subsidies too, if necessary.) In this system a lot of the waste that comes with the government's lackadaisical approach to food storage would come to an end.

It's all ridiculously simple. And it is not just a theory. Many countries -- rich and poor -- have effectively used the food stamps solution. And yet, how can one explain the fact that "most officials [including K.V. Thomas, the food minister!] say they are worried that if India switched to food stamps, men would trade them for liquor or tobacco, depriving their families of enough to eat"?

My hunch is that it is futile to argue supply-and-demand with a bureaucrat; there is no way to convince him/her that a big and sprawling government fiefdom needs to be dismantled and replaced by the market mechanism. This is basically the Upton Sinclair syndrome: "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"

But to take the specific argument about liquor and tobacco, men could just as well grab the foodgrains handed out by the government under the current PDS, sell it for cash, and then buy liquor or tobacco with the cash. Moreover, it is a bit disappointing that Bajaj does not go into the factual basis, if any, of this offensive and misandrist generalization, especially given that important public policy is being justified on the assumption that it is true. Finally, the question is not whether the food stamps solution is perfect. The question is whether it is superior to the current system.