Decontrol In Madras - Economic and Political Weekly

August 15, 1952
Decontrol In Madras
K. G.
Sivaswamy
The author examines the results of decontrol in Madras, the improvements that can'be made in existing
controls, and the steps necessary to mitigate the hardship of a free economy in States which embark on
decontrol.
D
quantity, because of the resulting
h i g h price, poorer consumers w i l l
not f i n d easy to get.
M r S . Y . Krishnaswamy i n his
book on rural problems estimates the
required, quantity of rice at the rate
of 24 oz. per head for a population
of 50 i n n . as 68 lakhs of tons. For
a population of 57 mn, we shall need
78 lakhs of tons, i.e. 29 lakhs tons
of rice more than the quantity produced. A n d this w i l l be necessary
under a rationed economy.
Just
imagine how m u c h more should we
need under free trade! W h a t little
is available cannot reach the poorer
consumers owing to its high price.
Even in a surplus market in a
free economy, distribution is unduly
Heavy Food Deficit in the State
costly on account of wasteful comFood production in the State is petition. Husking, storage and deliestimated at 49 lakhs of tons of rice very cost less for a middle-man. But
a n d 28 lakhs of tons of millets. T h e the latter collects an excessive marm a x i m u m procurement of rice has gin for selling and credit costs.
nowhere exceeded a t h i r d of the Purchases by too many middle-men
estimated production.
T h e total increase costs of administration.
population of the State being 57 They cannot have better selection
millions, the total number of those and economies of large-scale buyneeding ration is estimated at half ing. Efforts to sell are duplicated
this figure.
T h e adult equivalent and m u l t i p l i e d .
Every merchant
at
of the total population works buyer t a n not have a proper knowout to 22 millions. If every ounce ledge of costs. He cannot enforce
of grain in the State is procured and quality. He cannot plan purchase
equitably distributed, the ration per and distribution.
His price-fixing
head per day w i l l be no more than is unscientific. A i l these disadvan8 ozs. of rice and 4 ozs. of millets. tages must raise the price and lower
M a k i n g allowance, therefore, for the quality for the consumer.
storage by land-holders, purchases
T h e Planning Commission had
by richer consumers, cornering by therefore concluded that even if
merchants, wastage in competition A l l - I n d i a production were increased
a n d delays in transit, we shall need by 7.2 mn. tons in 1956, there can
m u c h more grain in an economy of be no certainty that the marketable
free trade to enable all the con- surplus w i l l be large enough to rensumers to purchase daily 8 oz. of rice der imports unnecessary. M o n o p o l y
a n d 4 oz. of millets.
Even this procurement, they felt, w o u l d have-
E C O N T R O L under existing
scarcity conditions in the
M a d r a s State must lead to higher
prices.
If every ounce of surplus
grain in the State were procured
f r o m landholders and there was
total rationing for the entire popul a t i o n , including the food growers,
then the quantum of rice and millets
available per head per day in the
different zones w o u l d be as shown
in the table below.
If atleast twice the quantity of this
r a t i o n were allowed for producers,
as it should be, the other consumers
w h o f o r m roughly 50 per cent of the
population w i l l get only 2 / 3 of this
ration.
to be continued and that a m u c h ,
larger proportion of the produce
of surplus farmers should come u n der Government's direct procurement.
The Madras State Government,
on the other hand, have stopped
procurement for the future on the
ground that they have 5½ lakhs of
tons of rice in their custody, that
they w i l l procure a further 1 ½ lakhs
of tons, and that 2 lakhs tons of rice
imports have been ear-marked for
Malabar by the Central Government,
and that these stocks w i l l steady the
open market.
Seven lakh tons of procured rice
w i l l give a 6 oz. ration for 11 mn.
for a year as against a population
of 18 m n . (excluding Malabar and
Nilgiris) needing a 16 to 24 oz.
ration,
Malabar and Nilgiris w i l l
get a ration of 5 oz. out of the i m ported rice of 2 lakh tons, but as
internal procurement has been stopped in Malabar and as no fair-price
shop w i l l be supplied from internally
procured grain, the balance of rice
purchased in the free market in
deficit talukas of these districts w i l l
be exorbitantly costly.
It should be remembered that this
7 lakhs of tons of rice is less than
half of what was internally procured before decontrol in 1947 (15.7
lakhs of tons of r i c e ) , and that the
promised import of 2 lakhs of tons
is less by ¾ lakh ton of rice i m p o r t ed in 1948 after decontrol and in
1950.
Further we imported in
addition 2.6 lakh tons of wheat and
1.38 lakhs tons of other grains in
1946.
Under conditions of a rationed
economy we need 18,45 lakhs of
tons of rice and 4 lakhs of tons of
wheat and millet as was promised
and imported in 1947 and not 9
lakhs of tons of rice (5½ plus 1½ plus
2) as have been stocked and promised. A n d even this provided a
ration of only 8 oz. rice and 4 oz.
millet and just for 14 m n . adults
for a year.
Normally the adult
population needing rations is 25 m n ,
(86 per cent of half the total population).
The quantum of ration
needed per head is 24 oz. rice or
28 oz. millets. U n d e r conditions of
free trade the foodgrain market
should therefore deal in immensely
THE ECONOMIC WEEKLY
August 15, 1952
more g r a i n than 23 lakhs of tons
rationed in 1946-47.
T h e Planning Commission do not
expect production in Madras State
to increase by more than 8.34 lakh
tons w i t h i n 1956. A d d i n g to the
present average production of 12 oz.
per head, production per head ; w i l l
amount to 13.67 oz. But it should
be much above this average even
under rationing, as 2 / 3 of the production is the highest proportion
that can be procured, judging from
past experience. Plow much more,
then, have to be produced a n d i m ported in a free economy in w h i c h
the rich may buy more, the landowner may withhold stocks, the
trader may corner and unregulated
competition w i l l be wasteful?
T h e coming months, even in
normal years, are usually scarcity
months owing to rains, the time
lapse in agricultural production, low
purchasing power owing to underemployment and depletion of stored
stocks of partial producers. T w o thirds of procurable surplus has been
already procured by the State. T h e
balance loft, amounts only to 4.3
lakh tons of rice.
Further this
year's monsoon has been weak and
late. The short crop of paddy w i l l
take a m o n t h more to be harvested.
The. rabi crop w i l l not be sown before the north-east monsoon breaks.
Prices are therefore bound to be
high during these months for the
extra rice bought outside the fairprice shops, In whatever way we
look at our production figures, we
can think of free trade only when
our production substantially i n creases to at least 3 run. tons and
imports rise to a m i l l i o n tons of rice
or other foodgrains.
Decontrol W a s Inevitable
W h y , then, d i d the Government
restrict themselves to the running of
fair price shops for a few for a year
to supply a paltry 6 oz. rice per
head? Controls were after all only
reluctantly, inefficiently, and partially administered by the previous
Ministry.
W i t h adult suffrage it
is not easy to be in power while a
party antagonises millions of small
peasants by collecting their surplus
grain and preventing their free sale.
T h e peasants have not been assimilated into the state organisation
so closely as to induce them to part
w i t h their surpluses w i l l i n g l y in the
larger interests of planned production. The Madras State succumbed
to the pressure of land-holders and
traders, and weakened its procurement year after year since 1947.
T h e control policy of 1948 reduced
the rationing commitments of the
State to deficit areas," thereby stopping informal rationing w h i c h had
been in force in surplus areas. The
failure of the Government of I n d i a
to supply sufficient stocks led to the
breakdown of rationing even in
deficit areas in the latter half of
1950.
By January 1951, rural areas were
derationed though relief shops had
to he reopened immediately afterwards, under pressure of the circumstances.
Procurement was further weakened by the widening of
the open market in consequence of
the smallness of the statutory ration.
The ration, too. was reduced from
8 oz. to 6 oz. rice and restricted to
7 millions as against 25 millions
needing a ration of at least 24 oz.
rice or 28 oz. millets. M i l l e t s were
practically decontrolled 18 months
ago except that their entry into a
lew towns was banned and procurement by an easy system of levy
was still retained in two of the districts.
What remained therefore
of controls were more obstacles
rather than aids to the consumer.
For the consumer was prevented
from buying the balance of his requirements of rice as there was a
ban on free market in statutorily
rationed areas.
Clandestine purchases naturally raised the black
market price.
Secondly, the banning of inter-district movements
along w i t h derationing in rural areas
increased the deficit in deficit areas
and the surplus in surplus districts.
Finally, the control of prices w i t h out controlling stocks brought the
law into contempt and made criminals of all who sold and bought at
a higher price.
The inauguration of a free market
alongside of the existing fair price
shops was a lesser evil. T h e formation of several contiguous districts
into zones was another. T h e removal of price control was a t h i r d .
Following these; changes the old
ration shops and other relief shops
are being continued for just another
five months.
Consequences of Decontrol
The producer w h o does not grow
enough to meet his needs for the
whole year and the consumer have
thus been thrown to the mercy of
the. trader. T h e buffer stock of 7
lakhs w i l l soon he exhausted. I n d i vidual virtues of remaining content,
w i t h m i n i m u m profit and dumping
the market without concern for
one's security against future u n certainties and profits in a rising
market can hardly be awakened in
834
a single day by the appreal of pertonalities however big. Neither can
they take the place of knowledge
and organisation of marketing a n d
distribution which alone can narrow d o w n the price spread and
achieve a fair price for the producer and the consumer. Prices are
bound to shoot up to the level of
w o r l d food prices, if imports are
freely allowed or even higher. Food
articles being the major item in the
family budget for most people, and
food prices being the basis for the
rise and fall of other prices, a rise
in the price of rice must react on
the cost of living. The open market
price being 25 per cent higher than
the previous controlled price, cost
of l i v i n g must rise by at least half
this figure.
The corning months
being scarcity months, distress is
bound to be greater. As a result of
free trade, the price of rice has gone
up in surplus areas while the open
market price in deficit areas may
fall a bit w i t h arrival of imports.
T h e Government had closed the fair
{nice shops in surplus areas but
w i t h i n a day they realised their
grievous error. Prices shot up and
rice was cornered. T h e shops were
again reopened.
If this was the
case in surplus areas, what w o u l d be
the condition of deficit areas under
free trade?
Decontrol must also affect the cost
and price structure in industries,
o w i n g to the demand for a higher
wage consistently w i t h increased
cost of living. Stepping up of exports
considered necessary for a favourable balance of payments will be
retarded by such increase in costs.
The Five-Year Plan w i l l he thrown
out of gear as its whole structure is
based on the maintenance of at least
the present price level. Decontrol
of foodgrains and planned production are incompatible.
T h e integrated price control policy f o r m u lated by the Planning Commission
according to w h i c h the price of cash
crop should be brought down and
that of foodgrains should not be
raised for increasing food production is rejected. Now the price of
oil-seeds, jute, etc., w i l l have to be
raised if their exports and imports
production are to be maintained at
the desired level. This means a
reduction in export duties and loss
of revenue to Government.
T h e producer may benefit a little
by the higher price in which he may
get a share, but having little staying
power and collective bargaining
strength, he w i l l not be able to get
a b i g share w h i c h w i l l go to the
wholesale merchants,
Trade nor-
many Knew n o w TO comome and ox
uniform price. The appointment
of special nominees by the Government for wholesale business since the
war, concentration of trade in the
hands of rice-mill owners, the system of allowing- trade pools of merchants to r u n State fair price shops
in the Circars have accentuated the
trend towards monopoly in rice
trade. Left unchecked, such combines must lower the price for the
producer and increase it for the
consumer.
Improvement
in
Controls
A bolder p o l i t y for the Government w o u l d have been to shoulder
the responsibility for controls, and
radically alter the. machinery. Government should procure upto 16
lakhs of tons of rice as was done
in 1946, import 2 lakhs tons of rice
and as much of wheat and m i l o as
they could possibly obtain and give
8 oz. rice and 8 oz. other grains for
25 m i l l i o n adults.
By a proper psychological appeal
for public co-operation and different
inducements for production, internal procurement could be further
increased. Rice ration could be i n creased 10 12 oz. for the low-income
group by decreasing it. for the h i g h
income group, by the adoption of
differential rationing by income
groups.
At present, there is no efficiency
audit of State trading nor ate there
proper consumer councils for checking margins of distribution and exposing adulteration. N o r is there
an independent price board like the
Tariff Commission to fix a fair price
for produce. T h e best policy in the
circumstances would be to set up
non-profit making corporations for
i m p o r t i n g foodgrains and for regulating rationing. They would take
the place of the civil supplies department. If more than one corporation are set up, one. each for different regions, it w i l l help healthy
competition.
T h e existing district
co-operative wholesales which undertook procurement, and sales for
Rs 23 crores .in Madras State in
1949-50 and the primary stores that
sold food grains worth Rs 12 crores
for 13.3 lakhs of card-holders in the
year before should be strengthened,
as agencies for procurement and
distribution.
As the Government of Madras
have decided on dismantling food
controls and allowing a free economy, they should at least take the
following measures to mitigate the
835
THE ECONOMIC WEEKLY
August 15, 1952
hardships inevitable in a free economy under present conditions of
scarcity;
The existing fair price shops
should not exploit the consumer by
levying a high price. This is the
chief cause for the prevalence of
high price for rice in the open
market. Even so the open market
price is higher by 5 annas per M a d ras measure in the case of 1st and
2nd sort rice (Re 1-2 and Re 1)
respectively.
Government levied a surcharge of
Rs '2-4 per maund on the consumer
to cover the losses on the import of
UP rice. They admit that the losses
have been paid,
They have no
justification to continue this surcharge. O u t of this they have paid
Re 1 per maund of paddy, i.e.
Re 1-8 per maund of rice to the
producer. They have a balance of
12 annas. They have an additional
balance in the 5 annas which they
levy as administrative charge w h i c h
has almost been wiped out. by the
disbanding of supply and ration
offices.
Apart from these distribution
levies, the wholesaler's margin which
is lower than that of the retailer in
the trade has been reversed under
controls.
T h e wholesaler's average
margin is higher in Madras than in
many
States
and
amounts
to
Re 1-15-1. In South Kanara where
the co-operative wholesale operates,
it is not more than a rupee per
maund.
Further the wholesaler
makes more profit on paddy 1st sort
(33 per cent) and only 12 per cent
on the 2nd sort. He gets in addition the husk which he can sell at
a high price.
Because of these surcharges and
excessive margins, the wholesalers
who are at present procuring in
Tanjore and other surplus districts
compete for the little grain that is
left after State procurement by
paying Re 1 to Rs 2 per maund
more over the recently controlled
price. They are also selling rice at
a higher price between Re 1 and
Re 1-4 while the fair price shop
price is Re 0-10-0 and Re 0-13-3.
T h e lair price shops should reduce
their price by at least one-and-ahalf anna per Madras measure, if
not more.
The sales tax at present on a
rnaund of rice works to about 5½
annas.
Sales tax on foodgrains
should be stopped.
If the object
of Government is to bring down
food prices as low as possible, they
too should not profiteer, thus helping the high price in the open market.
Statements have been made
in responsible quarters that stocks
are available but the purchasing
power of the people is low. T h i s
can be an argument only to bring
down prices as much as possible.
A larger ration of rice should be
given to the poorer classes doing
manual labour by reducing the rice
ration to those whose salary is
Rs 200 and above. In as much as
milo and wheat are subsidised by
the U n i o n Government, they should
be sold freely in these fair price
shops along w i t h rice. Free trade
in wheat w i l l only raise its price. If
the benefit of subsidised wheat and
milo is to reach the consumer, there
is no alternative to running Statecontrolled shops.
H a v i n g closed down ration shops.
Government owe a duty of strengthening the co-operative stores as
non-profit seeking competitors for
steadying the open market and restraining prices. When they allow
the rice-mills who are stockists for
the Government to do free market
business, they ought to allow cooperative stores which are government agents today for procurement
and distribution to deal in the open
market. In fact these stores should
be released from their present responsibilities of state-trading and
assisted to enter the market and
build up co-operative trading. T h e
financial facilities given to them by
the State and the Reserve Bank
should be continued. Federations
of district wholesale stores should
be started for importing foodgrains.
T h e co-operative department w i l l
give a better audit if released from
its responsibility for the administrative success of these stores.
There
should also
be internal efficiency
audit.
Consumers' group buying agencies
among employees of big establishments should be actively promoted
by the State. This w i l l reduce the
cost of distribution. A n d statutory
consumer councils should be started
and invested w i t h powers of testing
and appraising food articles and
examining the costs of distribution.
W a r economy has brought into
being a high concentration of trade
in the hands of rice-mill owners, big
wholesalers nominated by Government, and pooled trade of merchants. This has led to many u n desirable
practices.
Government
should appoint a commission to
investigate and expose such practices.
Zest for production to which the
Chief Minister referred as the great
boon of a free economy does not
836
operate where producers are atomised millions w h o have no collective
bargaining power as against traders
The farmers' .market the w o r l d over
is a buyer's market and the I n d i a n
farmer being illiterate, disorganised,
and having only a tiny surplus to
sell, can hardly stand against b i g
business. M a r k e t i n g boards of producers, marketing co-operative societies, rural ware-housing, and the
development of regulated markets
for sale of foodgrains arc the desiderata to withstand the malpractices
of private trade.
T h e provision of a floor price for
the peasant cannot be avoided under
these conditions.
A floor price
means that the Government have to
support the market when prices fall
below the floor. They w i l l have to
regulate the area of production, and
arrange for storage. Producers cannot ask at the same time for a floor
price and a free economy.
The
former means controls over production and costs, and subsidies.
The
only help w h i c h Government can
give is to declare before each crop
is sown the floor price that should
be paid to the producer. The declaration to be fair should not be
made by Government but an independent price board.
It is not contended that these proposals will bring down prices nor be
as effective as controls properly devised and administered.
But they
w i l l act as healthy checks on profiteering. M a n y of these are of a
long-term character to regulate the
free economy through the operation of statutory organisations of
producers and consumers.
But if
the present Government are sincere
about, lowering the prices at least
to the level of the control price, and
helping the poor to buy food cheap,
they have to undertake 1 certain measures of reform consistently w i t h their
policy of free trade. To begin w i t h ,
they should bring down the price
of rice by 1½ annas per measure
in their own shops, restrict the rice
ration only to the poor, convert fair
price shops into co-operative stores
and give them all facilities, sell rice,
wheat and m i l o through them, start
statutory consumer councils, enforce
Adulteration A c t , appoint a Commission to watch the foodgrain
trade, investigate and expose u n desirable practices and examine distribution costs. They must also start
public markets and r u r a l warehouses, strengthen marketing cooperative federations and appoint an
independent price board to declare
a fair price for produce.