The first Budget of the 21st century fails miserably to address the problems of mass poverty in India. The proposed reduction in food subsidies and the accompanying changes in the system of public distribution of food are likely to worsen food and nutritional deprivation among a large mass of the population. The changes announced in the Budget in respect of the issue price of foodgrains under the public distribution system portend the end of the PDS and worsening food and nutrition security for large sections of the population.
 
In 1997, the Government of India introduced the Targeted Public Distribution System. This was a system in which a distinction was proposed between Below Poverty Line (BPL) and Above Poverty Line (APL) households and a system of dual prices was introduced . Allocations to the APL families, it was announced, would be transitory. That targeting narrowly to a small section of the population was the first step in a process of excluding large numbers of vulnerable people from the PDS and in changing the character of the PDS is now confirmed by the changes proposed in the 2000-2001 Budget.
 
In his Budget speech, the Finance Minister has announced steep price increases for rice and wheat supplied through fair-price shops. Specifically, Central issue prices, that is, prices at which the Food Corporation of India (FCI) sells grain for the PDS to State governments, will be set at half the "economic cost" incurred by the FCI for BPL households and at the full "economic cost" for APL households. The economic cost comprises the procurement price of foodgrains, costs related to procurement (such as statutory taxes, labour costs, mandi fees, and so on) and costs of distribution (including freight, storage and administration). In effect, wheat will now be available at Rs.8.40 (against Rs.6.82) a kg and rice at Rs.11.70 (against Rs.9.05) a kg for APL families. BPL families will be charged Rs.4.20 (against Rs.2.50) a kg of wheat and Rs.5.85 (against Rs.3.50) per kg of rice.
 
These are the new Central issue prices, and the impact on consumers will depend on the retail prices set by State governments. Several State governments, including Andhra Pradesh, Kerala, Tamil Nadu and West Bengal, have already protested against the price hike. Some of the proposals may be modified or "rolled back" soon, given the concerted protest by the Bharatiya Janata Party's allies. Nevertheless, it is important to understand the implications and likely effects of the new policy for the welfare of the poor and the undernourished.
 
In the first place, the increase in the prices of basic foodgrains will reduce substantially the real incomes of millions of consumers. For BPL families, the prices of rice and wheat have been hiked by as much as 68 per cent. For APL families, the price of wheat has increased 23 per cent and that of rice 29 per cent. According to Professor M.H. Suryanarayana, the higher price of cereals could lead to a 35 per cent decline in cereal consumption among the poorest 10 per cent of the rural population.
 
Secondly, the new policy has introduced an in-built mechanism for raising prices. Every time procurement prices are raised, the issue prices of grain for the poor will be raised. It bears emphasis that procurement prices have risen regularly each year and in recent years the increases have actually been above those recommended by the Commission on Agricultural Costs and Prices. The inflationary effects of the new policy can hardly be overstated.
 
Thirdly, this measure, in effect, removes APL families from the PDS. A comparison of the economic costs of the FCI with wholesale prices and retail prices in different States shows a steady deterioration of the price advantage of the FCI in the 1990s com pared with the 1980s. In situations where the economic cost is higher than the market price, APL consumers will have to pay more for grain in the ration shop than in the open market. This applies especially to several North Indian States. The exclusion of APL households from the PDS has implications for the consumption and nutrition of a large part of the population, for the quality of the programme and for stocks of foodgrains, and, ironically, for the Central government's food subsidy bill.
 
Fourthly, for BPL families, allocations have been doubled. The increase in allocations for BPL households, from 10 to 20 kg per family per month is a long-overdue, though still inadequate, measure. To put matters in perspective, for a family of five persons, the proposed allocation works out to a monthly per capita entitlement of 4 kg or 35 per cent of the norm recommended by the Indian Council of Medical Research. However, as prices have been raised steeply, genuinely poor families will have to spend more now on acquiring the same quantity of grain. This will compound an existing hardship: in the PDS system as it works in many parts of the country, the BPL family is required to buy the monthly allocation, or at best half the month's allocation, on a take-it-or-leave-it basis. It cannot phase out its monthly PDS purchase on an ability-to-pay basis.
 
Fifthly, the method of targeting chosen for the PDS has already led to the exclusion from the BPL category of millions of undernourished people and people at risk of undernourishment. The reason for this is that the use of a very low absolute level of income (the poverty line) has already excluded a large number of undernourished persons and households from the category of BPL. According to the Expert Group on Poverty, around 35 per cent of the Indian population in 1993-94 was below the official poverty line. This was the population considered eligible for the BPL category. Data on nutritional outcomes, however, indicate that 50 per cent of India's population is malnourished. Further, about 56 per cent of the people are unable to meet their minimum daily energy requirements and 74 per cent are unable to meet their minimum daily protein requirements. Another indicator of poverty is the food share: 90 per cent of rural households spend more than 60 per cent of their total expenditure on food.