THE FOOD SITUATION AND THE COMMON MAN

By B. R. Shenoy

Summary

In this Forum of Free Enterprise pamphlet, Professor B. R. Shenoy diagnoses India’s post-Independence food crisis as fundamentally a monetary phenomenon rather than an output problem. He organises the argument under five heads — the nature of the problem, its basic causes, the Government’s responses, the adequacy of those responses, and remedies — and shows that the General Index of prices has risen 27% since May 1955, with rice and wheat rising 33% and 23% respectively. The root cause, he insists, is that the demand for foodgrains, swollen by money incomes climbing 33% over First-Plan and Second-Plan deficit-financed expenditure, has outrun supplies that grew only 4.8%.

Shenoy then evaluates the Government’s five ‘first-aid’ measures — export bans, releases from stocks, fair price shops, imports from Burma and the U.S.A., and credit squeezes against hoarders — and finds each a palliative. Fair price shops, he argues, cannot eliminate the gap between controlled and open-market prices, so leakages and black markets are inevitable; selective credit squeezes fail because hoarding follows expectations of further price rises and the larger stockists can self-finance; comprehensive controls of the wartime British or Maoist type are administratively impossible across millions of producers and distributors in a democracy. Price controls do not generate savings; they merely ration scarcity ‘egalitarianly’ on the home front while doing nothing for the investment-consumption gap.

The pamphlet’s positive prescription has two prongs: first, prune the Plan to the available real resources and abandon inflationary over-investment; second, finance imports of foodgrains sufficient to close the supply gap and sell them through the open market rather than fair price shops, saving subsidies that currently leak to black-marketeers. Shenoy closes with seven numbered conclusions hammering the point that the foodgrain crisis ‘is almost wholly a monetary phenomenon’ rooted in over-investment that began in the last year of the First Plan, and that control over allocation of resources on the communist pattern is incompatible with planning in a democratic economy.

Key points

• Frames the food crisis as a price-level problem driven by money-supply expansion, not a shortfall in foodgrain output — money incomes rose 33% from 1952-53 to 1955-56 while foodgrain output rose only 4.8%.

• Quantifies the inflation: General Index up 27% since May 1955, with rice and wheat up 33% and 23% respectively; foodgrain prices up 27%.

• Traces deficit financing to the Second Plan’s Public Sector outlay of Rs. 1,600 crores in its first two years, of which only a third — roughly Rs. 1,600 crores total — represents inflationary deficit financing taken from Public Sector loans.

• Catalogues five Government ‘first-aid’ measures (export bans, stock releases, fair-price shops, foreign imports, credit squeeze) and judges each a palliative that cannot reach the root cause.

• Argues that fair-price shops cannot abolish the price differential with open markets, so subsidies inevitably leak into black-market hands, and that selective credit squeezes are easily dodged because hoarding tracks expected price rises.

• Rejects comprehensive wartime-style or communist-pattern controls as administratively unworkable across millions of small Indian producers and distributors, and as incompatible with planning in a democratic economy.

• Prescribes a two-part remedy: cessation of over-investment (pruning the Plan to available resources) and sufficient foodgrain imports sold through the open market rather than fair-price shops, to save subsidy expenditure under a deficit budget.

• Closes with seven numbered conclusions arguing the foodgrain crisis is ‘almost wholly a monetary phenomenon’ arising from over-investment that began in the last year of the First Plan.

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