Whether the rains revive or not, India faces the worst drought since 1987. If it rains steadily for the next two weeks in drought-hit states, something can be retrieved from the wreckage of the monsoon. Even so rural India will face one of the greatest natural calamities in recent memory.
Some readers might think that a fall in grain production will be the main problem. Not so: we have over 60 million tonnes of grain in storage. Besides, as Amartya Sen has graphically depicted, a famine is a shortage of purchasing power rather than of grain. When crops fail, all employment from farming operations–tilling, weeding, harvesting, agricultural processing and transportation of the crop–falls sharply. Rural economic activity like construction and trade also falls sharply. The result is a big fall in earnings of landless labourers, the poorest of the poor. Small farmers who lose their crop also need wage labour to survive in a drought. It matters little to such people what the level of agricultural production or stored grain is. They need income to buy the grain.
Amartya Sen and Jean Dreze famously compared the experience of Maharashtra and the Sahelian countries of the Africa, both of which were hit by several consecutive droughts in the early 1970s. Food availability (local production plus food brought in) was far lower in Maharashtra than in the Sahel, almost 50 per cent less in one year. Yet there was no starvation in Maharashtra while people died like flies in the Sahel, where food availability was higher. Why? Because in Maharashtra the Employment Guarantee Scheme provided income to those in distress, enabling them to buy enough grain to survive. The Sahel had more food but no income in the hands of the needy, and they died.
After that episode, rural employment schemes have been institutionalised in India to tackle poverty. In the post-monsoon season, employment schemes are devised at the minimum wage to help the needy. The accompanying table shows that person-days of work generated rose steadily to a peak of 1232 million man-days in 1995-96, but then declined sharply. This was due partly to budgetary stringency, partly to disillusionment with the use of rural employment as an anti-poverty tool.
Fall of rural employment schemes
Why the disillusionment? First, many studies showed that only a fraction of the money reached the needy. Half was spent on materials, maybe another tenth on overheads, and half the balance went to the non-poor or ghost workers. In theory, rural employment schemes were supposed to build durable assets to benefit local communities. In practice the assets tended to mud roads that disappeared in the next monsoon.
Besides, experience led many economists (including me) to conclude that rural employment schemes were a palliative rather than a cure for poverty. Such schemes rendered yeoman service in drought years. But in normal years they provided one more ineffective subsidy. Ultimately, the abolition of poverty must be based on increased prpoductivity that translates into higher wages. That can only be achieved by moving towards world-class agriculture, through heavy investment in agricultural infrastructure and new technology.
Maharashtra pioneered food-for-work, and has long boasted the biggest outlays for rural employment schemes. Yet poverty reduction in Maharashtra has actually been less than in neighbouring Madhya Pradesh, a notably backward state.
At the national level, the rural poverty ratio declined very modestly from 39.1% in 1987-88 to 37.3 % in 1993-94, when person-days of employment in central schemes shot up from 675 million to 1073 million. But the rural poverty ratio then dipped sharply to 27.1 % in 1999-00 despite the fact that person-days of work plummeted to 546 million. There is little connection between poverty and wage schemes on a long-term basis.
But in a drought, employment schemes are all-important. The issue is not long-term poverty reduction but staving off acute deprivation and starvation. Indeed, wage schemes in such a crisis also have important long-term effects too. In a drought, poor people are often forced to sell assets like land, livestock and jewellery. Since asset prices crash in a drought, they sell at rock-bottom prices. The next year, if the monsoon is normal, they generate a cash surplus, but cannot buy back their assets: a good monsoon pushes up asset prices beyond their reach. Rural employment schemes in a drought stave off distress sales of assets by the poor, and thus have a major long-term effect on poverty.
So, we must have a major reversal of the decline in employment schemes witnessed since the mid-1990s. If we created 1,232 million person-days in 1995-96, surely we need to create 1,500 million person-days this year. When drought hit several pockets of India in 2000, the government deplorably failed to meet the challenge. Person-days of work in 200-01 were just 485 million. We cannot afford another such blot on our record.
Generating 1,500 million person days will probably cost Rs 12,000 crore. This means increasing the budget provision by a whopping Rs 7,000 crore. We must not shirk the challenge.
In past years, I have written thousands of words on the need for fiscal prudence. But a drought is not the time to worry about the fiscal deficit. We need to throw open the treasury to the needy. Mr Jaswant Singh, please note.