MTID DISCUSSION PAPER NO. 68 Markets, Trade, and Institutions Division International Food Policy Research Institute 2033 K Street, N.W. Markets, Trade, and Institutions Division International Food Policy Research Institute 2033 K Street, N.W. Washington, D.C. 20006 U.S.A. http://www.ifpri.org May 2004 Copyright © 2004 International Food Policy Research Institute MTID Discussion Papers contain preliminary material and research results, and are circulated prior to a full peer review in order to stimulate discussion and critical comment. It is expected that most Discussion Papers will eventually be published in some other form, and that their content may also be revised. ECONOMIC LIBERALISATION, TARGETED PROGRAMMES AND HOUSEHOLD FOOD SECURITY: A CASE STUDY OF INDIA S. Mahendra Dev, C. Ravi, Brinda Viswanathan, Ashok Gulati, and Sangamitra Ramachander ACKNOWLEDGEMENT We are grateful to Jos Mooij for comments on Chapter 3. Thanks are also due to S. Indrakant and Nageswara Rao for the village level information on targeting errors in Andhra Pradesh. i TABLE OF CONTENTS 1. Food Security in the Indian Context ................................................................... 1 1.1 Background and Objectives ................................................................................ 1 1.2 Food Security in the Era of Reforms .................................................................. 2 1.3 Liberalization in the Case of Wheat: A Story of Reversals................................ 4 1.4 Impacts of Liberalization: The Prognosis for the Poor....................................... 6 1.5 Objectives of the Study....................................................................................... 7 2. Food Consumption in India: Patterns and Trends............................................ 9 2.1 Introduction......................................................................................................... 9 2.2 Consumption and Price Data .............................................................................. 9 2.3 Consumption Patterns ....................................................................................... 11 2.4 Cereals .............................................................................................................. 11 2.5 Non-Cereal Food............................................................................................... 18 2.6 Nutritional Intakes ............................................................................................ 26 2.7 Income and Prices............................................................................................. 28 2.8 Shifts in Tastes and Preferences ....................................................................... 29 2.8.1 Demand Model ...................................................................................... 33 2.9 Conclusions....................................................................................................... 50 3. Public Distribution System (PDS): Performance and Options for Reforms. 51 3.1 Introduction....................................................................................................... 51 3.2 Performance of PDS ......................................................................................... 54 3.2.1 Accumulation of Foodgrains and Increase in Food Subsidy ................. 54 3.2.2 Coverage under PDS.............................................................................. 60 3.2.3 Impact on Consumption and Poverty..................................................... 66 3.2.4 Targeting Errors..................................................................................... 73 3.3 Micro Study in Andhra Pradesh........................................................................ 74 3.3.1 Leakages ................................................................................................ 75 3.3.2 Cost Effectiveness: Cost per One Rupee Transfer to the Poor .............. 77 3.4 Constraints: Political Economy of PDS............................................................ 79 3.4.1 Farmers and Politicians:......................................................................... 79 3.4.2 FCI Officials and Civil Supplies Departments ...................................... 82 3.4.3 PDS Dealers........................................................................................... 83 3.4.4 Politicians............................................................................................... 83 3.5 Options for Reforms ......................................................................................... 84 3.5.1 Strengthening the Present System of PDS............................................. 85 3.5.2 Shifting to Food Stamps ........................................................................ 87 3.5.3 Hard Option: Replace it with Food for Work Programme .................... 90 3.5.4 Which Option is Better? ........................................................................ 91 3.6 Conclusion ........................................................................................................ 91 ii 4. Public Works Programmes and Food Security................................................ 98 4.1 Introduction....................................................................................................... 98 4.2 Employment Guarantee Scheme In Maharashtra ........................................... 100 4.2.1 Expenditure And Benefits.................................................................... 100 4.3 Benefits Due To EGS ..................................................................................... 102 4.4 Public Works Programmes at National Level................................................. 109 4.4.1 Developments in Public Works Over Time......................................... 109 4.4.2 Contribution of JRY and EAS to Rural Employment������.. 109 4.4.3 Concurrent Evaluation of JRY (1993-94)............................................ 111 4.4.4 Evaluation of EAS ............................................................................... 112 4.4.5 Employment and Income Benefits: Concurrent Evaluation Of JRY... 113 4.4.6 Jawahar Gram Samridhi Yojana (JGSY)............................................. 114 4.5 Reforms needed for Rural Public Works......................................................... 115 4.5.1. Reforms under Employment Guarantee Scheme (EGS) of Maharashtra .... ............................................................................................................. 115 4.5.2 Reforms Under JRY............................................................................. 118 4.6 Task Force and Study Group on Wage Employment ..................................... 123 4.7 Tenth Five-Year Plan Proposals ..................................................................... 124 4.8 Conclusion ...................................................................................................... 125 5. Integrated Child Development Services and Food Security ......................... 127 5.1 Introduction..................................................................................................... 127 5.2 Location and Trends in Nutrition Status among Children in India................. 128 5.2.1 Rural Areas Show Larger Percentages of Undernourishment than Urban Areas. ................................................................................................... 129 5.3 Integrated Child Development Services (ICDS) ............................................ 133 5.3.1 About the Program............................................................................... 133 5.3.2 Targeting.............................................................................................. 135 5.3.3 Impact of ICDS.................................................................................... 137 5.3.4 Supplementary Nutrition...................................................................... 138 5.3.5 Other Services...................................................................................... 141 5.3.6 Investment and Efficiency ................................................................... 142 5.3.7 Trends in Government Expenditure on Nutrition and Malnutrition Reduction............................................................................................. 142 5.3.8 Benefit Cost Ratios and Cost Effectiveness ........................................ 146 5.4 Nutrition Security for Pre-School Children in Tamilnadu............................... 147 5.4.1 About the Nutrition Program ............................................................... 147 5.5 Conclusion ...................................................................................................... 154 6. Summary and Conclusions............................................................................... 157 6.1 Changes In Patterns of Food Consumption .................................................... 157 6.2 An Evaluation of the Public Distribution System........................................... 159 6.3 The Impact of Public Works Programmes on Food Security ......................... 160 6.4 A Study of two Specific Direct Food-Based Intervention Programmes......... 161 iii 6.5 A Few Related Policy Suggestions................................................................. 163 6.6 Concluding Remarks....................................................................................... 163 LIST OF APPENDIXES Appendix 3.1: Methodology for Estimating Additional Demand ................................... 93 Appendix 3.2: Cost of One Rupee Transfer to Poor: Methodology PDS......................... 95 LIST OF TABLES Table 1: Trends in Per Capita Cereal Consumption ( at 1999-2000 prices).................... 13 Table 2: Trends in Cereal Consumption in Major states of India (Rural) ....................... 15 Table 3: Trends Per Capita Consumption of Rice, Wheat, Other Cereals and Total Cereals in Rural India ...................................................................................... 16 Table 4: Trends in Per Capita Non- Cereal Consumption (at 1999-2000 Prices) ........... 20 Table 5: Per capita Consumption of Items of Non-Cereal Food in Rural Areas of India (at 1999-2000 Prices) ....................................................................................... 22 Table 6: Per capita Consumption of Items of Non-Cereal Food in Urban Areas of India (at 1999-2000 prices) ....................................................................................... 23 Table 7: Trends in Per Capita Non- Food Consumption at 1999-2000 Prices ................ 24 Table 8: Trends in Per Capita Daily Intake of Calories in Rural India............................ 27 Table 9: Trends in Per capita Daily Intake of Calorie, Protein and Fat in Urban areas of India ................................................................................................................. 27 Table 10: Trends in Per Capita Total Expenditure (at 1999-2000 Prices)........................ 30 Table 11: Relative Prices of 9 Broad Commodity Groups in Rural Areas....................... 32 Table 12: Parameters of Linear Expenditure System � All India Rural .......................... 37 Table 13: Parameters of Other Food Sub model � All India Rural .................................. 39 Table 14: Marginal Budget Shares of LES....................................................................... 42 Table 15: Expenditure Elasticities in Rural and Urban Areas .......................................... 44 Table 16: Own Price Elasticities in Rural and Urban Areas............................................. 44 Table 17: Uncompensated Own, Cross Price and Expenditure Elasticities...................... 46 Table 18: Uncompensated Own, Cross Price and Expenditure Elasticities...................... 48 Table 19: Effect of 10% Increase in the Prices of Cereal, Non-cereal Food and Non-food on the Consumption of 9 Broad Commodity Groups ...................................... 50 Table 20: Growth of Minimum Support Prices and Issue Prices...................................... 55 Table 21: Food Economy: Production, Procurement and Food Subsidy.......................... 59 Table 22: Percentage of Household Accessing PDS: 1999-00......................................... 62 Table 23: Per capita Monthly Purchases of Rice and Wheat from PDS........................... 63 iv Table 24: Share of Consumption from PDS in Total Consumption: 1993-94 and 1999-00 (%)�..������������������������.67 Table 25: Income gain from PDS Foodgrain Distribution as % of consumer expenditure: All India: 1986-87 and 1999-00.................................................. 69 Table 26: Income gain from PDS Foodgrain Distribution as % of consumer expenditure, Major States: 1986-87 and 1999-00............................................ 70 Table 27: Decline in Poverty Due to Income Transfers Through PDS Supply of Rice and Wheat ........................................................................................................ 72 Table 28: Targeting Errors in Andhra Pradesh and Maharashtra ..................................... 74 Table 29: Errors in Targeting Public Distribution System in Selected Villages .............. 75 Table 30: State and National Level Diversion from PDS: 2000-01 ................................. 77 Table 31: Cost Effectiveness: Cost per Re. 1 of Income transferred by various programmes...................................................................................................... 78 Table 32: Cost of Providing one Rupee of Food Subsidy: 1993-94 ................................ 78 Table 33: Decomposition of the Cost of Food Subsidies (in Rs. Millions): 1993-94 ...... 79 Table 34: Maharashtra Employment Guarantee Scheme: Expenditure and Employment, 1972-73 to 2000-2001 ............................................................. 101 Table 35: Area Under Fruit Crops in Maharashtra (Before and after EGS linked horticulture), Area in 000ha. .......................................................................... 101 Table 36: Person-day Unemployment Rates for Rural Areas: Maharashtra and all India ............................................................................................................... 104 Table 37: Rural Poverty: Maharashtra and all India....................................................... 105 Table 38: Average Monthly attendance on EGS sites (in 000�s)................................... 107 Table 39: Financial & Physical Performance Under EAS/SGRY Since Inception ........ 110 Table 40: Average Person Days of Employment Generated During the Last 30 days Preceding the Date of Survey: Major States, 1993/94 113 Table 41: Percentage of Undernourished Children across Place of Residence and Standard of Living in India ............................................................................ 131 Table 42: Percentage of Undernourished Children Across Socio-economic Variables in 2000 for Rural Areas in Select States ........................................ 132 Table 43: Difference between ICDS and Non-ICDS areas in select indicators ............. 140 Table 44: Select Indicators on Nutrition Expenditure Across States.............................. 144 Table 45: Various Nutrition Schemes in Tamilnadu ...................................................... 149 Table 46: Direct Nutrition Coverage in Tamil Nadu, 2002-2003................................... 150 Table 47: Nutritional Status of 0-36 month old Children and Rankings for Select economic and social indicators by districts in Tamil Nadu ........................... 153 v LIST OF APPENDIX TABLES Appendix Table 1: Cost of one Rupee transfer to Poor through Rice Subsidy Scheme of Andhra Pradesh � 1999-2000.................................................................................... 95 Appendix Table 2: Basic Parameters for estimation of cost of transfers through AP Rice Scheme...................................................................................................................... 96 Appendix Table 3: Cost of one Rupee transfer to poor through PDS in India (1999-2000)............................................................................................................... 96 Appendix Table 4: Basic Parameters for estimation of cost of transfers through PDS (Rice and Wheat) in India ......................................................................................... 97 LIST OF FIGURES Figure 1: Rice Trade and Protection in India 1980-2002 ................................................. 4 Figure 2: Wheat Trade and Protection in India1980-2002 ............................................... 5 Figure 3: Key Rice Prices ................................................................................................. 5 Figure 4: Key Wheat Prices .............................................................................................. 6 Figure 5: Trends in Cereal Consumption-All India Rural .............................................. 14 Figure 6: Per capital Monthly Rice Consumption (Kg) All India-Rural ........................ 17 Figure 7: Trends in Per capita Non-Cereal Consumption-All India Rural and Urban .. 21 Figure 8: Trends in Percapita Non-food Consumption-All India Rural ......................... 25 Figure 9: Per Capita Daily Calorie intake in Rural Areas of India (k. Cal).................... 28 Figure 10: Total Expenditure (1999-2000 prices) All India Rural ................................... 31 Figure 11: Relative Price of cereals and Non-cereals food............................................... 33 Figure 12: Marginal Budget Shares of cereals in Rural Areas for Period 1 and 2 ........... 40 Figure 13: Marginal Budget Shares of Cereal in Urban areas of period 1 and 2.............. 41 Figure 14: Expenditure Elasticities in Rural Areas........................................................... 45 Figure 15: Estimated Additional Demand in 1990s Assuming 1980s Prices and Growth of Consumption.................................................................................................. 57 Figure 16: Food Subsidy as Percent of GDP .................................................................... 59 Figure 17: Components of Food Subsidy ......................................................................... 60 Figure 18: Do poor states gain more from PDS?.............................................................. 66 Figure 19: Coverage of Non-Poor Households under Rice Scheme................................. 76 LIST OF BOXES Box 1: Food Coupons: The Andhra Pradesh Experiment................................................. 89 vi EXECUTIVE SUMMARY Although there is little consensus on the impact of trade liberalization on poverty and food security, it is nevertheless widely acknowledged that there is a need for governments to establish safety-nets to guard against any potentially harmful effects on the poor and vulnerable sections of society. Against this background, programs aimed at achieving food security and reducing poverty gain increased importance in the reform era. This study aims to evaluate several such programs that are currently in place in the country from the point of view of their impact, efficiency and financial sustainability. The purpose is to determine how these programs may be improved and propose appropriate policy options for reform, while also keeping in mind the new challenges that might lie ahead. Specifically, the study evaluates the Public Distribution System (PDS), Public Works Programs, and certain food-based direct intervention programs such as the Integrated Child Development Scheme (ICDS) and Tamil Nadu Integrated Nutrition Program (TINP), with a view to suggest how they can be made more cost effectiveness and better targeted. A summary of the main findings of the study is presented here. The Background: Food Security in the Era of Reforms The first chapter of this report provides the background in which the issues of food security and poverty are being studied in the Indian context. During the last five decades there have been highly interventionist trade policies in India that have discriminated against agriculture, particularly in the category of basic foods such as cereals. On the domestic front, there has been substantial control over the pricing, procurement, stocking, marketing and transport of foodgrains. These domestic and international trade policies resulted in a considerable wedge between the domestic and international price of wheat and rice, as observed by Gulati and Kelly (1999). vii Due to the historically lower domestic price relative to the international price, it was expected that with liberalization, (i) the volume of exports of rice and wheat would increase and (ii) domestic prices of rice and wheat would rise. In the immediate years following liberalization, both of these were true for wheat, and for rice, export volumes increased while domestic prices did not rise as expected. Against this background, several studies have analyzed the impact of trade liberalization on food security but the results appear to be mixed. Nevertheless, to guard against any possible adverse impacts on the poor and vulnerable sections of the population, there is agreement over the fact that adequate safety nets must be in place in the country. Changes in Patterns of Food Consumption In the second chapter, the study analyzes the trends in food consumption in India as a backdrop to understanding the status of food security and poverty in the country. The consumption patterns of an average Indian are undergoing significant changes. In general there is an expansion of the shares of non-cereal food and non-food in the consumption basket, while the share of cereals is shrinking. This is true even for the bottom 30% of the population, although in absolute terms cereal consumption per capita has not fallen. The substitution of non-cereals with cereals is resulting in a decline of calorie intake and is not contributing substantially to protein intake. While the decline in the cereals consumption can be explained by the slow down in the growth in the incomes of the poor and adverse prices of cereals versus non-cereal food, its decline in the seventies and eighties seem to be related to shifts in tastes and preferences. The complete set of expenditure and own and cross price elasticities are estimated by the demand system. The following results emerge from the exercise: There are marked differences in consumption behavior among the income groups and between rural and urban areas. Estimated price effects indicate the importance of cereal price, especially in rural areas. viii The simulation exercise indicates that the adverse relative price of cereals dampens the demand of not only cereals but also that of other food items. The adverse movements in the relative price of cereals together with lower growth in rural incomes may have resulted in the stagnant food consumption in rural areas. It is noted that during the economic reform period, cereal prices increased faster than in the 1980s. The increase in prices in the 1990s was primarily on account of the increase in procurement price. Procurement prices rose due to devaluation and because the government wanted to compensate the farmer for the prevailing restrictions on trade. Finally, another significant finding is that consumption of non-cereal food, particularly fruits and vegetables, has increased faster during the reform period than in the 1980s. An Evaluation of the Public Distribution System The third part of the analysis studies the effectiveness of public distribution of food within the country. In particular, the objective is to examine the performance of the Public Distribution System (PDS) with a view to provide suggestions for cost-effective and better-targeted alternatives. This is probably the first study to look at the impact of the PDS on consumption and poverty after the introduction of targeting in 1997. Two basic questions are addressed with respect to the performance of the PDS: (a) Does the target group receive significant subsidy? (b) Are the subsidies provided in a cost-effective manner? The evaluation of performance is in terms of extent of food subsidy provided, coverage, impact on consumption and calories, impact on the poor in particular, leakages from the system and targeting errors, and cost effectiveness. The political economy of the PDS is also discussed. The following are the findings from this exercise: ix (i) The impact on consumption by the poor increased in rural areas between 1986-87 and 1999-00 and poverty also declined during this period. The impact on urban areas has been more or less same. (ii) A higher impact of the PDS on consumption by the poor is found in certain states like Andhra Pradesh, Orissa and Tamil Nadu. However, overall the impact of the PDS on the poor is still marginal at the all-India level. (iii) The finding in terms of the political economy of the PDS is that the dealers of the PDS, the bureaucrats, politicians, and the Civil Supplies departments have a vested interest in keeping the present system in operation. Based on the findings, three options for reform are suggested: (i) revamping the existing PDS through decentralization, (ii) introducing food stamps, and (iii) replacing it with the food-for-work program. In the short run the authors also recommend that decentralization of the PDS and better targeting through village-level government units, known as Panchayats, can be attempted. The study is also in favor of linking the PDS with employment programs and the ICDS in order to improve targeting. This aspect is discussed in greater detail in a later section of the study. In the medium term, a move toward food stamps and the replacement of the PDS with a food-for-work or cash-for- work program are suggested. The Impact of Public Works Programmes on Food Security The fourth chapter of the study looks at the impact of the Public Works Programmes on food security in the country. Public works programs play an important role in raising economic access of the poor. The case for RWPs (Rural Works Programs) lies primarily in the self-targeting nature of the schemes. However, public works are often criticized, with some justification, for creating unproductive (low productive) assets, providing only short-term supplementary income, and for not raising the skill- levels of workers. The analysis shows that wage employment programs like the Employment Guarantee Scheme, Jawahar Rojgar Yojana and Employment Assurance x Scheme seem to be more pro-poor than programs like the Integrated Rural Development Program (self-employment programs) and the Public Distribution System. They also achieve the additional objective of creating productive assets. However, the authors recommend the effective involvement of Panchayats (village-level government units) in order to ensure better planning of projects at the local level using local priorities and greater involvement of voluntary organizations as ways to ensure that the assets created may be more productive and better maintained. Finally, the authors also make the point that in the changing context of trade liberalization, public works also can be used promoting diversification of agriculture. Although they are not a substitute for a sustained and broad based growth process, the authors believe that in a country like India, which has surplus labor and poor infrastructure, these programs can be a useful component for providing food security at the household level. A Study of Two Specific Direct Food-based Intervention Programmes The next section of the report analyzes two direct food-based intervention programs for pre-school children in India, namely the Integrated Child Development Service (ICDS) and the Tamilnadu Integrated Nutrition Project (TINP). These schemes are evaluated using three parameters: targeting - whether they cover the entire group for whom they have been designed, effectiveness � do the programs bring about the anticipated results, and efficiency - for a unit of money spent per person, how much eventually reaches the individual and the benefit-cost ratio of the programs. The important findings of the study are presented below: About 50 percent of children below three years are undernourished in rural India and about 38 percent in urban India. Even in states like Maharashtra and Tamil Nadu where per capita (real) state domestic product has grown significantly in the last decade, commensurate improvements in nutritional status cannot be seen. xi The recent evaluation studies of the ICDS have shown improving trends in child nutritional status in the project areas. The studies found a reduction in severe under- nutrition but minimal impact in reducing moderate under-nutrition. The projects also contributed to a reduction in the infant mortality rate and the incidence of low birth weights. A national evaluation of the ICDS, however, revealed an unsatisfactory performance overall. The nutritional status of children in ICDS areas was found to be only slightly better than in non-ICDS areas. The percentage of severely malnourished children below the age of three in the ICDS areas is lower by 1.8 percentage points than the non-ICDS areas, and for children 3-6 years old, by 1.5 percentage points. The percentage of moderately malnourished children in ICDS areas is 2.5 and 3.4 percentage points lower than in the non-ICDS areas for the two subgroups. The two major limitations of this study are that there has not been an evaluation of the cost-effectiveness of the ICDS program and regional disaggregates have not been provided. The Tamil Nadu Integrated Program on the other hand has been hailed a success. The scheme has reduced severe malnutrition without any apparent need to fear a reversal of the problem. The important lessons to be drawn from this scheme�s success are effective management with very few leakages, educating the mother and adolescent girls about good nutrition and health practices, and increasing participation by the community and the involvement of the government in running the program efficiently. However, the questions of sustainability in terms of the cost of the program and its contribution in reducing moderate and mild under-nutrition are yet to be addressed. This study finds that there is a paucity of relevant, reliable and timely data to study the trends in nutritional status even in the areas where the ICDS program is being implemented. There is a provision for a Management Information System (MIS) for all the ICDS blocks that is supposed to keep track of bottlenecks in the program and maintain regular records of the nutritional status, immunization rates, and participation rates. While this is a good idea, it must be ensured that the data is more accessible for research purposes. xii The study also finds that most evaluations have assessed impact on anthropometric indicators, rather than aspects like improvements in cognitive development, school achievement of the child or poverty status of the household. Information on these aspects will go a long way in convincing (a) the policy makers about the need for such programs and their efficient management, and (b) the participants about the impacts in order to encourage greater community participation, which would result in more effective outcomes. Concluding Remarks By providing a detailed analysis of some of the major government-operated programs in place today, the hope is that there will be a better understanding of the specific areas where the government needs to focus its attention and resources in order to achieve better targeting and greater cost-efficiency. In this way the reforms can be undertaken with greater confidence and without sacrificing the goals of social welfare. 1 ECONOMIC LIBERALISATION, TARGETED PROGRAMMES AND HOUSEHOLD FOOD SECURITY: A CASE STUDY OF INDIA S. Mahendra Dev,1 C. Ravi,2 Brinda Viswanathan,3 Ashok Gulati,4 and Sangamitra Ramachander5 1. FOOD SECURITY IN THE INDIAN CONTEXT 1. 1 BACKGROUND AND OBJECTIVES Food security can be assessed both at the national and household level. At the national level, in the context of an open economy, as long as the country has sufficient foreign exchange reserves, it is considered to be safe with regard to food security even if it is not self sufficient in food grain production. With this logic, food security is not a problem in India at the national level as the foreign exchange reserves in India have now crossed the mark of $100 billion (as of the end of 2003) as against the level of $1.5 billion in July 1991 at the time when the economic crisis occurred. Additionally, India�s stock of food grains with the public sector agencies stood at a record level of 63 million MT as of July 2002, thereby placing the country in an extremely comfortable position with regard to food security. However, at the household level, approximately 26 percent of the population remains below the poverty line, and therefore household food security is still a critical issue in the Indian context. The main problem at the household level is the lack of economic access among the poor. Therefore, (i) generating employment 1 Director, Center for Economic and Social Studies, Nizamiah Observatory Campus, Begumpet, Hyderabad 500016 Andhra Pradesh, India. 2Joint Director, Center for Economic and Social Studies (CESS), Nizamia Observatory Campus, Begumpet, Hyderabad 500 016, Andhra Pradesh, India. 3 Faculty Member, Madras School of Economics, Chenai, India. 4 Director, Markets, Trade and Institutions Division, International Food Policy Research Institute, 2033 K Street NW Washington, DC. 5 Senior Research Assistant, Markets, Trade and Institutions Division, International Food Policy Research Institute, 2033 K Street NW Washington D.C. 2 opportunities to increase purchasing power (through overall economic growth and specific poverty alleviation programs), and (ii) supplying food grains at subsidized prices to the poor, can help ensure food security. This study examines the problem of household food security in India against the background of economic reforms initiated since the early nineties. 1.2 FOOD SECURITY IN THE ERA OF REFORMS During the last five decades there have been highly interventionist trade policies in India that have discriminated against agriculture, particularly in the category of basic foods such as cereals. International trade in cereals by the private sector was practically banned during the period 1950-1995, with the exception of Basmati rice exports and maize imports for the poultry sector. On the domestic front, there have been substantial controls over pricing, procurement, stocking, marketing and transport of food grains. These domestic and international trade policies resulted in a considerable wedge between the domestic and international prices of wheat and rice, as observed by Gulati and Kelly (1999). The authors calculate the price wedge as approximately 61% for rice and 6% for wheat under the Exportable Scenario and as much as 100% for rice and 78% for wheat in the Importable Scenario, for the base years of the triennium ending 1993- 94.6 Moreover, as can be seen from the NPC values in Figures 1 and 2, domestic prices have consistently remained below the export parity levels for both rice and wheat, with the exception of a few years in between. (Gulati and Mullen, 2003). Due to the historically lower domestic prices relative to the international prices, it was expected that with liberalization (i) the volume of exports of rice and wheat would increase and (ii) the domestic prices of rice and wheat would rise. 6 The NPC is defined as Domestic price/Reference price, where the reference price is either the export parity price or the import parity price, depending on whether the commodity is an exportable or importable respectively. In order to determine whether the commodity is an exportable or importable, one can simply look at whether it is currently exported or imported. However, if the commodity is not currently traded, one must make a judgment as to whether it can be exported or imported when trade is opened up, by comparing the domestic price with the export and import parity prices. Both wheat and rice were considered exportables for India, due to the domestic price being far below the international prices. 3 As expected, when India opened up exports of common rice in 1994-95, the volume of exports surged from 1 million to nearly 5 million MT, making the country the second largest exporter of rice that year (Gulati and Mullen, 2003). Encouraged by the experience with rice exports, wheat was also liberalized soon after, resulting in the level of exports rising to almost two million MT or three percent of the production in 1996 (Hoda and Sekhar, 2003). However, with regard to domestic retail prices, while the retail price of wheat increased between 1995-98 quite sharply for wheat, it was actually found to decline in the same period for rice. The retail prices for rice and wheat are shown in Figures 3 and 4 respectively. It is important to note, however, that the increase in retail prices in the case of wheat is also argued to be a consequence of the policy followed by the government with respect to the Minimum Support Price (MSP). The Minimum Support Price is the price at which the government procures food grains from the farmers, and it is meant to protect farm incomes against price fluctuations in order to provide them an incentive to invest and produce7. In the nineties, the government has consistently and sharply increased the MSP every year in the case of wheat, and to a lesser extent in the case of rice also (Figures 3 and 4). This has translated into a higher PDS price, due to attempts by the government to reduce the aggregate food subsidy bill. It has also resulted in a higher open market retail price, through the diversion of grain from the open market to the public sector (Persaud and Rosen, 2003). The high degree of correlation of support prices, open market farm prices and retail prices is evident from figures 3 and 4, and is particularly noteworthy in the case of wheat. 7 The MSP determined by the Commission for Agricultural Costs and Prices (CACP) by taking into account several factors such as the costs of production, changes in input prices, trends in domestic and international prices, the estimated effect of changes in the support price on the industrial cost structure, etc. It is, however, unclear exactly how the commission assesses the relative weights of each of these factors in its calculation. The Food Corporation of India guarantees to buy all food grains from farmers at the support price, which is normally less than the open-market farm price. Therefore the farm support price acts as the floor price, while the ceiling is determined by the forces of demand and supply. 4 1.3 LIBERALIZATION IN THE CASE OF WHEAT: A STORY OF REVERSALS The situation in the case of wheat became one where stocks were piling up due to the high MSPs on one hand and distribution from the PDS was declining due to the increase in issue prices on the other. Therefore in 1996, the government decided to impose a 50% tariff on imports of wheat, while exports were allowed to continue as a means to offload the built up stocks. In fact in October 2000, the government decided to export 2 MT of wheat at 4,150 rupees/tonne, to further reduce domestic stocks, even though this price is 30% below the MSP and 50% below the government�s cost of acquisition, which is in violation of WTO commitments8. However, export of subsidized wheat by private traders was still not allowed, as the government feared that they would re-sell the wheat in the domestic market at a premium. The volume of exports from the central pool increased to 3.9 million MT in 2001-2002 and 6.7 million MT in 2002-03. Figure 1�Rice Trade and Protection in India 1980-2002 0.0 0.3 0.2 4.9 5.0 2.22.52.42.5 0.9 0.70.50.70.4 0.00.3 0.4 0.5 0.9 0.5 0.4 1.5 0 1 2 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 N PC s 5 0 5 N et E xp or ts (i n m illi on to nn es ) Net Exports (in million tonnes) Importable Hypothesis Exportable Hypothesis Source: Trade data is from FAO Source of Figure 1: Gulati and Mullen (2003) 8 http://www.agr.gc.ca/mad-dam/e/bulletine/v14e/v14n18e.htm. 5 Figure 2�Wheat Trade and Protection in India1980-2002 Source: Trade data is from FAO Source of Figure 2: Gulati and Mullen (2003)\ Figure 3�Key Rice Prices 182 1 3 7 259 138 254 16 12 139 658 37 87 632 1146 2 5 813 344 528 1619 3044 1306 130 148 21 1792 63 1364 242 613 1486 1804 1367 2649 4 33 81 0 1 2 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 N PC s 3200 0 3200 N et E xp or ts (i n '0 00 to nn es ) Exports (in '000 tonnes) Imports (in '000 tonnes) Importable Hypothesis Exportable Hypothesis 6 Figure 4�Key Wheat Prices 1.4 IMPACTS OF LIBERALIZATION: THE PROGNOSIS FOR THE POOR Studies that evaluate the impact of trade liberalization on food security and poverty appear to produce different results. Parikh et al (1997) have systematically analyzed the potential effects of agricultural trade liberalization on food security, poverty and welfare, using a computable general equilibrium model (CGE). The results show that Agricultural Trade Liberalization (ATL), even without liberalization in the other sectors, leads to a decrease in poverty, by making the rural poor better off and the rural rich worse off in terms of average equivalent income. The consumer price index (CPI) is also found to move more favorably for the poorer classes compared to the richer classes. Another important finding is that, on the whole, the rural population appears to gain whereas the urban population loses. While the above study may seem to suggest that there is little to worry about, other studies point out that the current mix of liberalization and simultaneous increases in the domestic Minimum Support Price (MSP), is producing disastrous consequences. 7 Parikh et al (2003) examine the consequences of increasing the MSP of wheat and rice by ten percent, within an applied general equilibrium model of India, using 65 sectors, and five rural and urban expenditure classes. From a macro perspective, the results indicate that the policy to hike procurement prices of rice and wheat has had an adverse impact on overall growth, raised the level of inflation in the economy, and reduced real incomes and demand. The decline in total private consumption of rice and wheat is estimated to be between 3 and 3.5 percent. Yet another important finding is that the increasing MSPs have had a worsening effect on the welfare of 80% of the rural population and also the entire urban population. Further, the welfare loss in general is larger for the urban population than for the rural population, across classes and over time, and it is also regressive overall. The findings from our study, however, seem to suggest that the impact on the consumption of the poor (in particular, the bottom 30% of the population) has been neutral rather than bad, since the per capita cereal consumption of this expenditure class has not fallen over time. It does appear, however, that the cereal consumption per capita, in the case of the middle and upper income brackets has gone down, although this decline can presumably be interpreted as the income effect. Nevertheless, given the mixed evidence on the potential impacts of the reforms on the poor, the government must be prepared for the worst-case scenario. It is imperative, therefore, that adequate safety nets are in place in the country to guard against any potential negative impacts on the vulnerable groups in society. 1.5. OBJECTIVES OF THE STUDY Against this background, the broad objectives of this study are: 1. To determine whether the safety nets in place in India at present are effective in terms of how well they target the poor and vulnerable sections of society. 8 2. To analyze how cost effective the existing safety nets are and to investigate possible alternatives or options for reform. Given the focus on food security, Chapter 2 begins with a background on consumption trends in India over the past 30 years, across income groups and in the rural and urban areas. The subsequent chapter investigates the efficacy of the Public Distribution System in India, the generic name for the network of Fair Price Shops through which food and other essential commodities are sold to the poor sections of society at subsidized prices. Chapter 4 evaluates the contribution of the Public Works Programs - the various employment schemes operated by the government that are intended to create assets and simultaneously generate income � toward achieving food security and reducing poverty. Finally, the fifth chapter explores the effectiveness of two direct food-based intervention programs in achieving the same goals. As can be seen, the importance of assessing the efficiency and sustainability of social safety�nets in India today, in the context of the possible adverse impacts of trade liberalization, cannot be over-emphasized. Although the likelihood of undesirable outcomes is uncertain and disputed, when dealing with issues that are as serious as food security and poverty, even potentially small risks cannot be ignored. Therefore, the findings of this study are crucial, as they will bring to light the existing capabilities in the country by way of social safety nets and provide recommendations on how they can be expanded and strengthened. By addressing these challenges, India can undertake the process of liberalization with greater confidence and reap the benefits with no sacrifice to the basic welfare objectives. 9 2. FOOD CONSUMPTION IN INDIA: PATTERNS AND TRENDS 2.1 INTRODUCTION This section focuses on the analysis of food consumption patterns for India. We address the following issues: (i) What are the trends in the consumption of important items of food? (ii) Are there any significant differences in these patterns across different income groups and between rural and urban areas? (iii) What are the factors responsible for these changes? Having examined the above issues, we estimate a complete demand system duly incorporating the taste factor, which seems to be a significant factor in explaining the consumer behavior in India. Based on the parameter estimates a simulation exercise is carried out to assess the impact of prices on food consumption. 2.2 CONSUMPTION AND PRICE DATA Consumption Data: The National Sample Survey Organization (NSSO) periodically conducts sample surveys on consumer expenditure among several other topics. Each survey is called a round. In general each of these surveys is conducted in the period July to June, which is the agricultural year in India. However, a few rounds are spread over calendar year (January-December). Also because of various reasons, a few rounds cover only six-month period. The schedule designed for the consumer expenditure surveys elicits information regarding the expenditure on several items of consumption from the respondents by recall. The reference period for consumption is �last 30 days� for 10 items of frequent purchases and �last one year� for others9. These surveys were conducted on regular basis over large samples till 1973-74. From 1986-87 the regular �large� sample surveys were replaced by annual �thin sample series� with a large sample survey once in about five years. The published data contains expenditures on about 20 broad groups of consumption items by 12-10 monthly per capita expenditure (MPCE) classes, separately for rural and urban. The consumption data for the present analysis have been compiled from the published reports. We cover 16 periods of the survey data spread over the last three decades10. For some rounds, the published results also give the nutritional intakes estimated from the consumption data. We use this data for examining the nutritional consequences of changing food consumption patterns. Prices Data: In India Consumer price indices are not compiled separately for rural and urban areas11. What we have are price indices compiled for different section of people like agricultural labor, industrial workers and urban non-manual employees. Even these indices are not available at the disaggregated commodity level. On the other hand, the Economic Advisor�s wholesale price indices are compiled for the country as a whole and also their weighing diagram is production based. Therefore the existing price data cannot serve for consumption analysis. In order to overcome this, a separate price index series was constructed following the procedure of Radhakrishna et al (1979). Broadly this procedure is as follows The Economic Advisor�s Wholesale Price Indices Series give monthly item-wise average price relatives. For every NSSO round the monthly item-wise price relatives were averaged over the corresponding survey period. The item-wise NSS-period-average price relatives form the basic data for constructing the consumer price indices separately 9 During the recent surveys the NSSO experimented with the reference periods. In the last large sample survey (1999-2000), 30 day and 7day references were used simultaneously. This resulted in a controversy over the comparability of results of this survey to those of earlier surveys. See Deaton and Dreze(2003), Sundaram and Tendulkar (2003). In the present analysis we use results of 1999-2000 survey based on 30- day period and assume that they are comparable to those of earlier survey. 10 Surveys with six months duration have not been considered. 11 Attempts to compile separate consumer price indices were made by Minhas, et al (1988,1991). Recently, Deaton(2000) constructed price indices for rural India using prices estimates from NSS consumer expenditure survey data. 11 for rural and urban areas. Using the mean level item-wise expenditure data of the 32nd round (1977-78) we formed the weighting diagram separately for rural and urban areas. The round-wise average relatives are then aggregated according to commodity scheme followed. These indices were constructed for 16 years for which we have the expenditure data. For examining the trends in the relative prices, separate price indices were constructed using annual average (April-March) price relatives and NSSO weighting diagram for rural and urban. 2.3 CONSUMPTION PATTERNS The trends in consumption patterns have been examined for three broad income groups, viz., bottom thirty percent, middle forty percent and top thirty percent. Consumption estimates for each group is made using linear interpolation method from MPCE class-wise data. The consumption data were aggregated to 9 broad groups, viz. 1) Cereals, 2) Milk and milk products, 3) Edible oils, 4) Meat, fish and eggs, 5) Sugar and gur, 6) Pulses, 7) Fruits and vegetables, 8) Other food, 9) All non-food. All the expenditures were expressed in terms of 1999-2000 prices. For this we used the round- specific commodity price indices by shifting their base to 1999-2000. For presenting the broad trends, the commodity groups were then further aggregated into three broad groups viz. Cereals, non-cereal food (milk, edible oils, meat, fish and eggs, sugar, pulses, fruits and vegetables and other food) and non-food. Growth rates for the periods 1970-90 and 1990-2000 are estimated following trend method. Trends for the items of non-cereal food are presented separately for the last six large sample rounds. 2.4 CEREALS The per capita monthly real expenditures on cereals over the years 1970-2000 are presented in table 1 and figure 5. As can be seen, there are significant differences in the consumption patterns of cereals between rural and urban areas. In rural areas the cereal consumption declined consistently among all the income groups, while in urban areas it exhibited mixed trends. At mean level, the cereal consumption in rural areas declined at 12 1.1%pa during the seventies and eighties, while in the nineties it declined at 2.2% pa. In the urban areas it was almost stagnant in the first period while in the second period it declined at about 0.4% pa. In other words the cereal demand declined faster in the nineties compared to the seventies and eighties in India, especially in the rural areas. In both rural and urban areas, the cereal consumption of the poorest 30% started declining during the nineties. It can be seen that the rate of decline increases as one moves from the poor to richer groups in rural areas. For the poorest 30%, the rate of decline in the cereal consumption was about 1.4% pa while for the top 30% it was 2.1%. On the other hand in the urban areas the decline is slower among the richer groups- in fact the cereal consumption of the urban non-poor appears to be almost stagnant. To examine the regional patterns, we have presented the mean level per capita cereal consumption (in quantity terms) across major states of India for the last three large sample rounds of NSSO in rural areas (Table 2). Across all the states, the cereal consumption has declined between 1993-94 and 1999-2000. It can be seen that even in those states where the cereal consumption increased in the eighties have registered decline in the nineties. Table 3 and figure 6 presents the consumption of rice, wheat and other cereals (coarse) in rural areas of India in quantity terms for the six NSSO rounds by the three broad income groups. The data show that the consumption of other cereals is rapidly shrinking for all the income groups, while that of rice and wheat is increasing. Between 1972-73 and 1999-2000, the decline in coarse cereals was as much as 3.4 kg at mean level. The consumption of rice and wheat show increasing trend, though it seems to have tapered off in the recent periods. However, the increase in the consumption of so-called superior cereals is not commensurate with the decline in the coarse cereals in quantity terms. This resulted in the decline in intake of total cereals over time. 13 Table 1�Trends in Per Capita Cereal Consumption ( at 1999-2000 prices) RURAL URBAN YEAR B 30% M 40% T 30% All B 30% M 40% T 30% All 1970-71 102.2 144.2 183.2 143.3 97.71 124.77 134.30 119.51 1972-73 101.9 145.5 185.0 144.3 100.80 127.84 135.82 122.12 1973-74 106.6 151.4 195.0 151.1 101.15 131.76 145.58 126.72 1977-78 103.4 143.1 165.4 137.9 100.19 125.15 138.11 121.55 1983 102.0 139.1 170.3 137.3 97.85 122.31 137.68 119.58 1986-87 100.4 136.6 164.1 134.0 98.58 121.28 135.87 118.84 1987-88 104.7 134.0 158.0 132.4 101.13 118.79 134.95 118.34 1988-89 103.7 134.5 156.4 131.9 99.78 121.69 133.83 118.76 1989-90 109.7 132.5 146.3 129.8 104.31 122.60 132.40 120.05 1990-91 104.2 132.4 148.7 128.8 1992 96.9 125.8 143.9 122.5 96.77 115.23 129.20 113.88 1993-94 97.3 123.0 138.6 120.0 94.83 112.98 125.90 111.41 1994-95 96.6 118.1 135.8 117.0 95.44 117.27 133.69 115.64 1995-96 91.4 109.9 122.4 108.1 92.59 109.59 122.10 108.24 1997 92.6 113.7 127.2 111.4 93.21 112.61 128.06 111.43 1999-2000 91.0 109.9 124.9 108.7 90.35 106.93 123.29 106.86 Growth Rates 1970-90 0.10 -0.55 -0.55 -1.10 0.25 -0.15 0.00 0.00 1990-2000 -1.38 -2.15 -2.15 -2.17 -0.65 -0.60 0.03 -0.39 14 Figure 5�Trends in Cereal Consumption-All India Rural Trends in Cereal Consumption-All India Rural (Rs.0.00 in 1999-2000 Prices) 75 95 115 135 155 175 195 215 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 Years Bottom 30% M iddle 40% Top 30% Trends in Cereal Consumption-All India Urban (Rs.0.00 in 1999-2000 Prices) 80 90 100 110 120 130 140 150 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 Bot tom 30% Middle 30% Top30% 15 Table 2�Trends in Cereal Consumption in Major states of India (Rural) Kg/Month Per Capita Consumption (kg/Month) Annual Growth Rate States 1983 1987-88 1993-94 1999-00 1987-88 1993-94 1999-00 Andhra Pradesh 15.37 14.35 13.27 12.66 -1.36 -1.30 -0.79 Assam 14.23 14.23 13.17 12.63 0.00 -1.28 -0.69 Bihar 15.77 15.39 14.31 13.76 -0.49 -1.21 -0.65 Gujarat 12.56 12.00 10.66 10.19 -0.91 -1.95 -0.75 Haryana 14.54 15.02 12.92 11.38 0.65 -2.48 -2.09 Karnataka 15.03 13.75 13.15 11.53 -1.76 -0.74 -2.17 Kerala 10.01 10.36 10.11 9.89 0.69 -0.41 -0.37 Madhya Pradesh 15.83 15.39 14.20 12.93 -0.56 -1.33 -1.55 Maharashtra 13.79 13.03 11.39 11.32 -1.13 -2.22 -0.11 Orissa 15.61 15.72 15.93 15.09 0.14 0.22 -0.90 Punjab 13.52 12.41 10.78 10.58 -1.70 -2.32 -0.32 Rajasthan 17.19 16.62 14.85 14.19 -0.67 -1.86 -0.75 Tamil Nadu 13.05 12.24 11.72 10.66 -1.27 -0.72 -1.57 Uttar Pradesh 15.47 15.32 13.91 13.66 -0.19 -1.60 -0.30 West Bengal 14.28 15.12 14.96 13.59 1.15 -0.18 -1.59 All India 14.80 14.47 13.40 12.72 -0.45 -1.27 -0.86 16 Table 3�Trends Per Capita Consumption of Rice, Wheat, Other Cereals and Total Cereals in Rural India Rice (kg/month) Decile Group 1972-73 1977-78 1983 1987-88 1993-94 1990-00 Lowest 30% 4.82 5.17 4.44 5.74 6.10 6.60 Middle 40% 6.91 7.57 7.01 7.42 7.54 7.02 Top 30% 7.93 8.48 8.32 7.83 7.28 6.64 All 6.59 7.12 6.63 7.04 7.02 6.78 Wheat (kg/month) Decile Group 1972-73 1977-78 1983 1987-88 1993-94 1990-00 Lowest 30% 2.09 2.33 3.40 3.71 3.38 3.44 Middle 40% 3.58 3.73 4.18 4.70 4.17 4.47 Top 30% 6.08 6.20 5.90 6.49 5.73 5.76 All 3.88 4.05 4.46 4.94 4.40 4.55 Other Cereals (kg/month) Decile Group 1972-73 1977-78 1983 1987-88 1993-94 1990-00 Lowest 30% 4.45 3.92 4.11 2.82 2.28 1.41 Middle 40% 4.83 3.94 3.61 2.44 1.90 1.45 Top 30% 5.07 4.41 3.43 2.23 1.76 1.30 All 4.79 4.08 3.71 2.49 1.98 1.39 Total Cereals (kg/month) Decile Group 1972-73 1977-78 1983 1987-88 1993-94 1990-00 Lowest 30% 11.36 11.42 11.95 12.27 11.76 11.44 Middle 40% 15.32 15.24 14.80 14.56 13.61 12.95 Top 30% 19.08 19.09 17.65 16.55 14.77 13.69 All 15.26 15.25 14.80 14.47 13.40 12.72 17 Figure 6�Per capital Monthly Rice Consumption (Kg) All India-Rural Per capita Monthly Rice Consumption (Kg.) All India -Rural 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 Lowest 30% Middle 40% Top 30% All 1972-73 1977-78 1983 1987-88 1993-94 1990-00 Per capita Monthly Wheat Consumption (Kg.) All India Rural 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 Lowest 30% Middle 40% Top 30% All 1972-73 1977-78 1983 1987-88 1993-94 1990-00 Per capita Monthly Other Cereal Consumption (Kg.) All India Rural 0.00 1.00 2.00 3.00 4.00 5.00 6.00 Lowest 30% Middle 40% Top 30% All 1972-73 1977-78 1983 1987-88 1993-94 1990-00 18 2.5 NON-CEREAL FOOD The expenditure on non-cereal items of food in rural and urban areas shows expansion during the entire period of three decades. However, the rate of expansion seems to have slowed down in the nineties (Table 4 and figure 7). The pattern is almost similar across all the income groups and between rural and urban areas. During the seventies and eighties, the growth rate of non-cereal consumption for the bottom 30% was 2.8% pa in rural areas but it declined to 1.3% pa in the nineties. For the middle 40% and top 30%, the growth rates dropped to 1.0 and 0.5% respectively in the nineties from about 2.2% in the first period. Similarly, in the urban areas, the growth rate declined from 1.6 percent to .8 percent. In rural as well as urban, the rate growth declined with income in both the periods. To probe further, the non-cereal food is disaggregated into milk and milk products, Edible oils, Meat, fish and eggs, Sugar, Pulses and Fruits and vegetables and trends in their consumption are examined (Table 5 and 6). These trends show significant differences among income groups and between rural and urban areas. Consumption of milk and milk products increased throughout the entire period in both the rural and urban areas. However, between 1993-94 and 1999-2000 its expansion slowed down in the rural areas, especially for the poor, while for the urban poor continued to increase. Consumption of Edible oils is growing faster in rural compared to urban areas. For the rural poor its growth rate is higher than for the rest. Both in the rural and urban areas, the consumption of meat, fish and egg is declining at mean level, while it is almost stagnant among the poor in both the regions. The consumption of pulses is declining for the all income groups in rural and urban areas. Fruits and vegetables is the only group, which registered consistently high growth throughout the period. Rural areas have higher growth in the consumption of fruits and vegetables compared to the urban. Between 1993-94 and 1999-2000 the consumption of fruits and vegetables increased at 19 the rate of 6.3% pa in rural and 4.8% pa in urban. Both in rural and urban areas, the poor have higher growth rates of its consumption compared to the richer groups. The rapid expansion of non-cereal food in the consumption basket in spite of declining cereal consumption resulted in increase in food consumption during earlier period. However during the nineties, the faster decline in the cereal consumption and near slow down in the growth of non-cereal food consumption together have resulted in almost stagnant levels of food consumption. On the other hand, the consumption of non-food is expanding faster for all the income groups in rural and urban areas throughout the last three decades (Table 7 and Figure 8). At mean level, the rural non-food consumption increased at the rate of 4.4% per annum in during both the periods. In the urban areas its growth rate increased from 4 to almost 6% between the same periods. In the seventies and eighties, all the income groups had more or less the similar growth in the non-food consumption. In the nineties, the rate of expansion declined with income. For the bottom 30% of rural poor the growth of non-food was 5.8% pa and for the top 30% it was 3.7% pa. Corresponding growth rates for the urban are 6.2% and 5.8% pa. 20 Table 4�Trends in Per Capita Non- Cereal Consumption (at 1999-2000 Prices) Rural Urban Year B 30% M 40% T 30% All B 30% M 40% T 30% All 1970-71 50.2 105.3 219.9 123.1 89.97 178.64 429.56 227.31 1972-73 47.0 89.4 188.6 106.5 89.45 175.04 411.22 220.22 1973-74 51.0 99.0 189.3 111.7 86.78 161.60 376.24 203.55 1977-78 50.9 100.4 193.8 113.6 89.00 175.75 382.15 211.64 1983 60.7 118.4 249.9 140.6 103.32 202.85 418.49 237.68 1986-87 72.4 134.7 272.4 157.3 123.99 233.93 462.54 269.53 1987-88 71.8 132.2 273.3 156.4 119.29 223.97 469.09 266.10 1988-89 77.7 137.7 274.6 160.8 126.68 237.06 453.49 268.87 1989-90 83.6 151.3 299.4 175.4 128.81 236.86 469.55 274.25 1990-91 78.4 146.7 286.4 168.1 1992 76.9 142.0 267.3 160.0 127.93 244.35 471.22 277.48 1993-94 81.7 148.0 281.5 168.2 133.02 246.57 485.44 284.16 1994-95 76.9 135.6 253.9 153.5 121.81 229.87 476.38 271.41 1995-96 80.0 139.3 242.5 152.5 134.82 242.38 441.88 269.96 1997 83.3 155.5 281.3 171.6 134.38 248.72 457.36 277.01 1999-2000 87.4 158.1 301.8 180.0 144.64 264.15 516.28 303.94 Growth Rates 1970-90 2.79 2.23 2.20 2.29 2.38 2.09 1.05 1.57 1990-2000 1.26 0.98 0.52 0.79 1.14 0.97 0.48 0.75 21 Figure 7�Trends in Per capita Non-Cereal Consumption-All India Rural and Urban Trends in Per capita Non-Cereal Consumption- All India Rural (Rs.0.00 in 1999-2000 Prices 0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 Years Ex pe nd itu re (0 .0 0/ m on th ) Bottom 30% Middle 40% Top 30% Trends in Per capita Non-Cereal Consumption- All India Urban (Rs.0.00 in 1999-2000 Prices) 0.00 100.00 200.00 300.00 400.00 500.00 600.00 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 Bottom 30% Middle 40% Top 30% 22 Table 5�Per capita Consumption of Items of Non-Cereal Food in Rural Areas of India (at 1999-2000 Prices) Rs. 0.00/month Milk and milk products Edible oils Meat, fish and eggs Year 30.00% 40.00% 30.00% All 30.00% 40.00% 30.00% All 30.00% 40.00% 30.00% All 1973-74 5.22 17.95 49.22 23.51 4.84 8.76 14.28 9.24 7.68 14.69 26.98 16.27 1977-78 5.60 19.65 58.12 26.98 5.30 9.64 15.27 10.03 7.57 15.05 25.48 15.93 1983 7.25 22.93 64.70 30.76 6.39 11.02 20.12 12.36 6.83 14.52 31.97 17.45 1987-88 8.74 25.95 74.46 35.34 7.33 12.01 20.96 13.29 7.77 15.66 31.75 18.12 1993-94 10.89 31.85 82.49 40.75 9.54 14.79 22.71 15.59 7.52 15.36 28.41 16.92 1999-2000 10.87 32.56 87.55 42.55 11.41 17.39 25.94 18.16 7.56 14.76 26.56 16.14 Growth Rate 1977-78 1.76 2.29 4.24 3.50 2.31 2.43 1.68 2.07 -0.36 0.60 -1.42 -0.53 1983 4.81 2.84 1.97 2.41 3.47 2.46 5.14 3.88 -1.85 -0.65 4.21 1.66 1987-88 4.24 2.78 3.17 3.13 3.10 1.93 0.91 1.62 2.91 1.69 -0.16 0.84 1993-94 3.73 3.48 1.72 2.41 4.48 3.53 1.35 2.69 -0.54 -0.33 -1.83 -1.13 1999-2000 -0.04 0.37 1.00 0.72 3.04 2.74 2.24 2.58 0.10 -0.66 -1.12 -0.79 Sugar Pulses Fruits and Vegetables Year 30.00% 40.00% 30.00% All 30.00% 40.00% 30.00% All 30.00% 40.00% 30.00% All 1973-74 3.41 7.48 14.65 8.41 10.42 19.30 31.30 20.24 7.23 11.92 20.13 12.98 1977-78 4.00 7.94 16.31 9.27 9.28 16.70 26.08 17.29 7.33 12.34 20.24 13.21 1983 5.19 10.25 22.07 12.28 10.87 17.96 29.88 19.41 9.53 15.10 28.92 17.58 1987-88 6.19 11.68 23.58 13.60 14.03 21.51 30.62 22.00 9.81 16.60 28.24 18.05 1993-94 5.31 9.51 17.43 10.62 12.61 18.12 26.64 19.02 15.45 24.35 40.62 26.56 1999-2000 5.91 10.63 18.48 11.57 11.89 17.99 25.73 18.48 22.58 35.06 58.38 38.31 Growth Rates 1977-78 4.05 1.53 2.71 2.46 -2.87 -3.55 -4.46 -3.86 0.36 0.87 0.13 0.44 1983 4.85 4.75 5.65 5.24 2.93 1.33 2.51 2.13 4.89 3.74 6.71 5.33 1987-88 4.00 2.93 1.48 2.30 5.82 4.09 0.55 2.82 0.63 2.13 -0.53 0.60 1993-94 -2.51 -3.37 -4.91 -4.03 -1.75 -2.82 -2.30 -2.39 7.87 6.59 6.24 6.64 1999-2000 1.81 1.89 0.98 1.43 -0.98 -0.12 -0.57 -0.48 6.53 6.27 6.23 6.30 23 Table 6�Per capita Consumption of Items of Non-Cereal Food in Urban Areas of India (at 1999-2000 prices) Rs 0.00/month Milk and milk products Edible Oils Meat, fish and eggs Year 30% 40% 30% All 30% 40% 30% All 30% 40% 30% All 1973-74 12.43 32.36 82.34 41.38 8.97 16.38 29.04 17.96 11.77 21.63 48.00 26.59 1977-78 14.26 40.50 102.79 51.32 9.78 18.55 32.11 19.98 12.07 24.04 49.94 28.22 1983 17.24 45.89 104.89 55.00 11.04 20.49 34.00 21.71 12.43 25.15 51.00 29.09 1987-88 20.62 51.23 118.21 62.14 11.57 20.35 34.90 22.08 14.01 25.16 51.15 29.61 1993-94 23.26 58.64 125.22 68.00 14.60 24.00 36.79 25.01 13.52 24.71 44.06 27.16 1999-2000 26.92 63.87 135.13 74.16 16.17 26.00 38.51 26.80 13.77 25.20 41.89 26.78 1977-78 3.50 5.77 5.70 5.53 2.19 3.15 2.54 2.71 0.62 2.68 0.99 1.50 1983 3.51 2.30 0.37 1.27 2.24 1.83 1.05 1.52 0.55 0.83 0.38 0.56 1987-88 4.06 2.47 2.69 2.75 1.04 -0.15 0.58 0.38 2.69 0.00 0.06 0.39 1993-94 2.03 2.28 0.97 1.51 3.95 2.79 0.88 2.10 -0.60 -0.30 -2.46 -1.43 1999-2000 2.47 1.43 1.28 1.46 1.72 1.34 0.77 1.16 0.30 0.33 -0.84 -0.23 Sugar Pulses Fruits & Vegetables 30% 40% 30% All 30% 40% 30% All 30% 40% 30% All 1973-74 6.02 10.60 17.76 11.37 14.28 23.85 35.86 24.58 11.11 20.20 45.52 25.07 1977-78 6.61 11.67 19.84 12.61 13.70 23.02 34.33 23.62 12.36 22.95 49.63 27.78 1983 8.03 13.44 20.65 13.98 15.63 25.06 36.93 25.79 15.21 28.36 57.31 33.10 1987-88 8.55 14.25 21.64 14.75 15.93 24.74 36.27 25.55 17.81 32.76 67.57 38.72 1993-94 8.89 14.07 19.15 14.04 16.22 24.29 33.16 24.53 23.92 41.85 82.81 48.76 1999-2000 9.36 13.92 18.74 14.00 16.09 23.77 33.04 24.25 32.13 56.16 108.20 64.57 1977-78 2.36 2.45 2.81 2.60 -1.04 -0.88 -1.08 -1.00 2.72 3.24 2.18 2.60 1983 3.58 2.60 0.73 1.90 2.43 1.55 1.34 1.61 3.84 3.92 2.65 3.24 1987-88 1.40 1.31 1.04 1.21 0.42 -0.29 -0.40 -0.21 3.56 3.26 3.73 3.54 1993-94 0.66 -0.21 -2.01 -0.82 0.30 -0.30 -1.48 -0.68 5.04 4.16 3.45 3.92 1999-2000 0.86 -0.18 -0.36 -0.05 -0.13 -0.36 -0.06 -0.19 5.05 5.03 4.56 4.79 24 Table 7�Trends in Per Capita Non- Food Consumption at 1999-2000 Prices Rs. 0.00/month Rural Urban Year 30.00% 40.00% 30.00% All 30.00% 40.00% 30.00% All 1970-71 23.5 48.6 138.4 68.0 41.20 90.41 307.99 140.92 1972-73 25.4 49.1 137.6 68.5 43.90 95.09 336.69 152.22 1973-74 28.4 53.9 145.4 73.7 45.57 92.14 307.48 142.77 1977-78 32.1 63.2 155.4 81.5 55.26 122.57 354.17 171.85 1983 43.1 83.9 249.0 121.2 72.82 160.74 511.77 239.67 1986-87 46.0 87.2 259.6 126.5 77.07 175.40 604.25 274.56 1987-88 52.4 95.2 282.5 138.5 79.82 168.33 568.10 261.71 1988-89 54.6 101.1 297.8 146.1 79.51 175.05 551.60 259.35 1989-90 56.2 109.5 283.2 145.6 83.46 180.83 632.78 287.21 1990-91 54.7 100.3 260.2 134.6 1992 54.1 103.0 318.7 153.1 89.32 199.72 698.17 316.14 1993-94 64.2 115.5 325.8 163.2 102.31 217.50 710.24 330.77 1994-95 62.3 115.3 357.5 172.1 97.94 209.93 783.51 348.41 1995-96 64.6 122.6 360.2 176.5 107.88 240.02 911.25 401.75 1997 71.9 137.1 411.1 199.7 117.02 267.12 899.69 411.86 1999-2000 92.6 156.5 356.3 197.3 146.06 309.31 921.07 443.87 Growth Rates 1970-90 4.53 4.23 4.47 4.41 3.91 4.00 4.08 4.04 1990-2000 5.73 5.09 3.69 4.38 6.19 6.49 5.47 5.81 25 Figure 8�Trends in Percapita Non-food Consumption-All India Rural Trends in Percapita Non-food Consumption- All India Rural (Rs.0.00 in 1999-2000 Prices 0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 400.0 450.0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999Ye a r s Ex pe nd itu re (R s 0. 00 /m on th ) Bottom 30% Middle 40% Top 30% Trends in Non-Food Expenditure (1999-2000 Prices)- All India Urban 0.0 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 900.0 1000.0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 Bottom 30% Middle 40% Top 30% 26 2.6 NUTRITIONAL INTAKES What are the implications of these trends on the levels of nutrition intake? Table 8 (Figure 9) presents the calorie intake levels of the three income groups over 1972-73 and 1999-2000 in rural areas. As can be seen the average calorie intake levels decline steadily over time. For poorest 30% the calorie intake levels increased till the early nineties but stagnated thereafter. For the middle and top groups it shows declining trend from late seventies. Table 9 presents the trends in mean level intake of calorie, protein and fat across major states of India (rural areas). It can be seen that except Punjab, Rajasthan and Uttar Pradesh, the calorie intake levels of all other states remained stagnant during the last decade. The protein intakes levels do not show considerable improvement in spite observed diversification to non-cereal food. This could be due to the fact that cereals form cheap source of proteins also (apart from calories) and the increases in non-cereals food intake is not commensurate with the loss due to reduced cereal intake. However, the content of other micronutrients in the food basket of all, especially of the poor might have improved considerably due to increased non-cereal food consumption. In contrast, the trends in fat intake levels show substantial improvement over time. In rural areas the fat intake increased from 24 gm per capita per day to 36 grams in the last three decades. During the same period in urban areas it increased from 36 grams to almost 50 grams. The reason for the increasing content of fats in the Indian food basket while energy and protein content is almost stagnant needs to be probed further. A possible reason is the high expenditure elasticity of edible oil, which is the basis for most Indian cooking. What are the factors responsible for these changes? Given tastes, the consumption levels respond to the changes in relative prices and income. It is also possible that the preferences of consumer change over time. Together, these factors influence the consumption patterns of an individual. At aggregate level, income distribution is another factor that affects the aggregate consumption level. However, this factor may not play significant role when we consider the consumption patterns at broad income group level. In what follows we examine these factors. 27 Table 8�Trends in Per Capita Daily Intake of Calories in Rural India Decile Group 1972-73 1977-78 1983 1993-94 1990-00 Lowest 30% 1504 1630 1620 1678 1696 Middle 40% 2170 2296 2144 2119 2116 Top 30% 3161 3190 2929 2672 2646 All 2268 2364 2222 2152 2149 Table 9�Trends in Per capita Daily Intake of Calorie, Protein and Fat in Urban areas of India Calories (K.cal/day) Proteins (gm/day) Fat (gm/day) States 1972-73 1983 1993-94 1999-00 1972-73 1983 1993-94 1999-00 1972-73 1983 1993-94 1999-00 Andhra Pradesh 2143 2009 1992 2052 51.0 50.0 49.6 50.8 31.0 32.0 34.9 41.5 Assam 2135 2043 2108 2174 56.0 52.0 53.5 56.5 25.0 25.0 30.8 38.7 Bihar 2167 2131 2188 2171 61.0 61.0 61.4 61.0 25.0 26.0 32.7 34.2 Gujarat 2172 2000 2027 2058 57.0 55.0 54.9 54.7 58.0 53.0 57.9 67.0 Haryana 2404 2242 2140 2172 67.0 67.0 63.6 62.5 42.0 49.0 49.4 56.3 Karnataka 1925 2124 2026 2046 46.0 55.0 53.1 53.5 32.0 36.0 37.6 45.1 Kerala 1723 2049 1966 1995 44.0 51.0 52.4 55.2 27.0 38.0 37.0 42.9 Madhya Pradesh 2229 2137 2082 2132 61.0 62.0 59.8 60.6 34.0 36.0 40.3 43.5 Maharashtra 1971 2028 1989 2039 55.0 56.0 55.5 55.9 41.0 45.0 47.9 52.6 Orissa 2276 2219 2261 2298 55.0 56.0 57.2 57.8 23.0 24.0 28.1 27.4 Punjab 2783 2100 2089 2197 70.0 63.0 61.8 64.8 52.0 49.0 53.7 57.9 Rajasthan 2357 2255 2184 2335 70.0 69.0 66.5 70.4 47.0 47.0 51.6 61.5 Tamil Nadu 1841 2140 1922 2030 44.0 45.0 48.7 51.7 23.0 29.0 33.9 43.2 Uttar Pradesh 2161 2043 2114 2131 62.0 62.0 63.2 62.0 35.0 34.0 41.2 45.5 West Bengal 2080 2048 2131 2134 58.0 55.0 56.6 55.5 31.0 31.0 34.2 40.2 All India 2107 2089 2071 2156 56.0 57.0 57.2 58.5 36.0 37.0 42.0 49.6 28 Figure 9�Per Capita Daily Calorie intake in Rural Areas of India (k. Cal) Pe r Capita Daily Calor ie Intak e in Rural Are as of India (K.Cal) 0 500 1000 1500 2000 2500 3000 3500 Low est 30% Middle 40% Top 30% A ll 1972-73 1977-78 1983 1993-94 1990-00 2.7 INCOME AND PRICES Table10 and figure 10 presents the trends in the real total expenditures of the three broad income groups in rural and urban areas. The data show significant differences in the growth patterns between rural and urban areas. The growth rates in rural areas have always been higher than those in rural areas. During the seventies and eighties, the rural growth was about 1.8%pa but it dropped to 1.4% in the nineties. The decline is visible across all the income groups. For the bottom 30%, the growth rate dropped from 1.7% to 1.5% between the two periods. For the top 30%, the drop in growth rate was from 2% to 1.4% in the same period. Though the rural growth in the nineties is lower, it was uniform across the three income groups. On the other hand, in the urban areas the growth rate increased from 2.1% pa in the seventies and eighties to 3% in the nineties. Though, the growth rate in urban areas is higher during the nineties, it is inequitable within urban income groups. The growth rate for the top 30% of the urban is one percentage point more than that for the bottom 30%. With positive growth in real expenditures and with high expenditure elasticities the consumption of food items should have increased in the eighties and nineties unless the relative prices were adverse. We examine the trends in the relative prices. 29 Relative prices for the 9 broad groups of items have been worked out for the last three decades using the wholesale price relatives and NSSO weighting diagram separately for rural and urban areas. The relative prices are worked out as ratios of commodity price indices to the general index. Table 11 and figure 11 presents the relative prices in rural areas. During the seventies and eighties, the relative price of cereals showed declining trend. But in the nineties, it increased rapidly at almost 1% pa. The aggregated price non-cereal food items declined in the nineties relative to the general price. Meat, fish and eggs and Pulses are the only two commodity groups, whose price relatives increased in the nineties. Though the price movements of non-cereals are favorable, because of the increasing relative price of cereals, the overall food relative price showed an increasing trend in the nineties. It can be seen that in the eighties, the relative price of non-cereal food was responsible for the adverse trends in the food price. 2.8 SHIFTS IN TASTES AND PREFERENCES The expenditure elasticity of cereals is known to be higher in rural areas compared to the urban areas. Also, in urban areas poor have higher expenditure elasticity compared to the richer groups. The adverse cereal price and the slow down of growth in rural and for urban poor in the nineties might have dampened the demand for cereals. However, with the positive growth in the income across all the income groups and favorable cereal price movements in the seventies and eighties, one expects an improvement in the cereal consumption of the poor. But no such improvement had taken place. For explanation, one may have to consider exogenous factors, which affect food consumption. One possible explanation could be the changing tastes and preferences. The tastes and preferences of Indian consumers seem to be changing in favor of non-food items from food, within food in favor of non-cereal food from cereals. Within cereals the preference patterns seems to be moving in favor of rice and wheat from coarse cereals (Radhakrishna and Ravi 1992). More recently, Rao (2000) observed that the decline has been sharper in the rural areas where improvements in rural infrastructure made other food and non-food items available to the rural households and hard manual work is 30 greatly reduced in agriculture due to farm mechanization. Rao further observed that a reduction in the intake of food grain on this account should not be taken as deterioration in human welfare. In the next section we estimate a complete demand system keeping the shift in tastes and preferences as one of the factors and derive the complete set of elasticities. Table 10�Trends in Per Capita Total Expenditure (at 1999-2000 Prices) Rs. 0.00/month Rural Urban Year 30.00% 40.00% 30.00% All 30.00% 40.00% 30.00% All 1970-71 175.8 298.2 541.4 334.4 228.87 393.83 871.86 487.75 1972-73 174.3 284.0 511.2 319.2 234.15 397.98 883.73 494.55 1973-74 186.0 304.3 529.8 336.4 233.51 385.49 829.30 473.04 1977-78 186.3 306.7 514.6 332.9 244.45 423.46 874.43 505.05 1983 205.8 341.4 669.2 399.0 273.99 485.90 1067.94 596.94 1986-87 218.8 358.5 696.1 417.9 299.64 530.61 1202.66 662.93 1987-88 228.9 361.4 713.8 427.4 300.24 511.08 1172.13 646.15 1988-89 236.0 373.3 728.8 438.8 305.98 533.80 1138.92 646.99 1989-90 249.5 393.3 728.9 450.9 316.59 540.29 1234.73 681.51 1990-91 237.2 379.4 695.3 431.5 1992 227.9 370.7 729.9 435.6 314.02 559.29 1298.59 707.50 1993-94 243.2 386.5 746.0 451.4 330.16 577.05 1321.58 726.34 1994-95 235.8 369.1 747.2 442.5 315.19 557.07 1393.58 735.46 1995-96 236.0 371.7 725.0 437.0 335.29 592.00 1475.23 779.95 1997 247.8 406.3 819.6 482.8 344.61 628.45 1485.11 800.30 1999-2000 271.1 424.5 783.1 486.0 381.05 680.39 1560.64 854.66 Growth Rates 1970-90 1.73 1.48 2.02 1.78 1.92 2.02 2.22 2.11 1990-2000 1.49 1.32 1.41 1.40 2.30 2.88 3.26 3.01 31 Figure 10�Total Expenditure (1999-2000 prices) All India Rural Total Expenditure (1999-2000 Prices)- All India Rural 0 100 200 300 400 500 600 700 800 900 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 To ta l E xp en di tu re Bottom 30% Middle 40% Top 30% Trends in Total Expenditure (1999-2000 Prices)- All India Urban 0.0 200.0 400.0 600.0 800.0 1000.0 1200.0 1400.0 1600.0 1800.0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 Bottom 30% Middle 40% Top 30% Relative Price of Cereals and Non-cereals food (Relative to ot General Index) All India Rural 80.0 85.0 90.0 95.0 100.0 105.0 110.0 115.0 120.0 125.0 130.0 19 69 -70 19 71 -72 19 73 -74 19 75 -76 19 77 -78 19 79 -80 19 81 -82 19 83 -84 19 85 -86 19 87 -88 19 89 -90 19 91 -92 19 93 -94 19 95 -96 19 97 -98 19 99 -20 00 20 00 1-2 00 2 Cereals Non-Cereals Food Non-food 32 Table 11�Relative Prices of 9 Broad Commodity Groups in Rural Areas Year Cereals Milk and milk products Edible oils Meat, Fish and Eggs Sugar Pulses Fruits and Vegetables Other Food Non- cereal Food All food Non- food 1969-70 98.8 101.9 75.9 64.9 75.0 68.7 94.3 91.5 92.7 99.2 101.4 1970-71 97.7 104.0 83.5 67.3 72.4 73.6 118.7 96.8 97.2 98.8 102.2 1971-72 98.7 105.0 73.2 69.6 95.1 83.6 96.6 102.3 93.6 97.3 104.8 1972-73 101.7 101.9 76.1 71.5 112.8 92.7 101.6 90.7 95.1 100.0 100.1 1973-74 105.6 106.9 95.5 74.7 111.3 88.2 117.4 80.7 101.3 103.3 94.0 1974-75 109.0 96.9 89.6 71.0 82.3 86.0 92.8 91.4 94.2 105.9 89.3 1975-76 108.5 105.4 65.7 74.3 88.0 74.1 87.6 100.4 94.3 101.7 97.0 1976-77 97.4 101.9 75.8 77.8 92.0 71.6 94.2 123.3 96.5 97.7 104.2 1977-78 93.6 96.8 92.1 81.3 75.1 98.7 112.6 131.6 105.7 100.6 98.9 1978-79 93.9 103.0 82.9 91.0 63.7 113.8 96.9 114.0 102.8 98.7 102.4 1979-80 99.5 99.0 90.9 94.0 84.6 101.6 102.3 115.0 99.7 97.9 103.8 1980-81 100.4 94.8 99.0 94.1 118.5 103.5 108.6 102.6 100.4 99.7 100.5 1981-82 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1982-83 106.8 101.7 91.8 106.0 76.3 94.8 100.7 109.1 99.9 101.3 97.7 1983-84 109.6 100.7 97.1 98.8 76.6 102.8 118.4 145.3 106.1 103.8 93.1 1984-85 100.7 107.8 94.9 103.2 82.2 105.5 98.5 160.5 109.8 102.0 96.3 1985-86 100.7 105.9 82.1 114.1 92.8 101.1 104.2 132.4 107.1 101.8 96.8 1986-87 99.2 104.8 102.6 115.8 88.8 99.8 149.1 126.4 112.4 103.2 94.3 1987-88 99.0 108.3 121.6 115.5 81.6 117.1 130.7 117.7 115.8 104.7 91.6 1988-89 102.0 109.9 96.7 111.9 82.1 125.6 105.4 113.5 112.3 104.8 91.4 1989-90 100.6 116.8 92.6 111.6 91.3 121.9 98.9 158.6 113.3 103.8 93.2 1990-91 96.3 110.8 117.5 112.7 83.1 127.7 124.0 156.8 117.9 104.2 92.5 1991-92 99.7 107.7 117.7 107.2 74.1 126.1 119.7 122.5 118.3 107.0 87.3 1992-93 104.5 109.0 97.5 116.1 76.3 115.0 105.3 125.7 114.6 107.6 86.4 1993-94 106.1 107.9 89.2 125.7 96.5 119.7 122.3 136.3 114.5 106.8 87.8 1994-95 105.6 110.7 90.8 139.7 94.4 129.4 103.2 118.6 112.7 106.6 88.0 1995-96 103.1 103.6 91.6 137.6 80.8 151.4 116.7 122.0 116.4 107.1 87.2 1996-97 104.9 97.3 83.8 127.4 76.4 152.4 129.6 114.0 115.4 108.4 84.9 1997-98 105.9 100.2 78.1 136.4 89.5 128.8 101.5 153.0 114.5 107.8 85.9 1998-99 101.9 96.4 91.4 127.3 81.1 130.4 170.1 127.0 124.7 110.6 80.9 1999-2000 113.4 99.0 75.0 123.3 77.3 129.4 88.6 120.2 111.0 110.3 81.4 2000-2001 108.8 103.4 62.8 128.9 76.8 128.4 80.7 101.3 107.2 105.6 89.9 20001-2002 109.7 105.4 68.9 135.0 77.1 131.3 125.1 94.7 113.4 108.1 85.4 Growth Rates 70s -0.5 -0.5 1.0 3.5 -2.4 2.8 -0.9 3.4 0.8 -0.1 0.2 80s -0.3 1.8 0.4 2.0 -1.7 2.4 1.0 2.8 1.7 0.5 -1.0 90s 0.9 -0.9 -4.8 1.4 -0.5 0.6 -1.0 -2.5 -0.4 0.2 -0.5 33 Figure 11�Relative Price of cereals and Non-cereals food Relative Price of Cereals and Non-cereals food (Relative to ot General Index) All India Urban 80.0 85.0 90.0 95.0 100.0 105.0 110.0 115.0 120.0 125.0 19 69 -70 19 71 -72 19 73 -74 19 75 -76 19 77 -78 19 79 -80 19 81 -82 19 83 -84 19 85 -86 19 87 -88 19 89 -90 19 91 -92 19 93 -94 19 95 -96 19 97 -98 19 99 -20 00 20 00 1-2 00 2 Cereals Non-Cereals Food Non-food . 2.8.1 Demand Model A complete demand system has been estimated to compute the complete set of price and expenditure elasticities of major consumption items. We used a hierarchic version of modified Linear Expenditure system (LES), where in the first stage a LES is specified for the broad groups of consumption items. In the second stage a model of Nasse�s extended LES is specified to disaggregate one or more broad commodity groups of first stage. The combined model is then used to estimate the elasticities. For the first stage model the commodity grouping followed was 1) Cereals and cereal substitutes, 2) Milk and milk products 3) Edible oils, 4) Meat, fish and eggs, 5) Sugar and gur, 6) other food, and the last is 7) non-food. A separate sub models is specified for the commodity group �other food�12. The sub model disaggregates other food group into pulses, Fruits 12 A sub model cereal with break up of rice, wheat and other cereals also was tried. However, inclusion of cereal sub model led to violation of second order condition, which, results in unreliable elasticities. Therefore the cereal sub model was dropped and that of �other food� alone was use to form the combined model. 34 and vegetables and other food. It is important to note that the elasticities computed using this method vary significantly from those calculated by other authors. For example, P.Kumar et al. in their paper Changing Consumption Pattern In South Asia (2003) compute demand elasticity using the Food Characteristic Demand System (FCDS), following Bouis (1992) and their estimates are found to be significantly lower in the case of several commodities such as cereals, milk, meat, fruits and vegetables etc. Since its formulation by Stone (1954), LES has been extensively used for consumption analysis in various countries (Deaton, 1975, Lluch et al. 1977, Radhakrishna et al 1979, 1980, Radhakrishna and Ravi 1990). However, two limitations of LES, which restrict its application, arise out of linear income effects and inherent additivity of its utility function. The first limitation can be overcome by specifying the piece-wise LES. (Ludlow, 1988). The second limitation of additivity does not allow inferior goods. However for broad commodity groups the additive demand model may not be restrictive. For specifying the piece-wise LES, the population within rural and urban is divided into four income groups, very poor (those below 75% of the poverty line), moderately poor (below poverty line but above 75% of it), non-poor lower (between poverty line and 150% of it) and non-poor high (above 150% of the poverty line). The first and second stage models were estimated for each of these groups in rural and urban areas separately using cross section time-series data on consumption expenditure and prices. Commodity prices are assumed to be the same for all the expenditure groups. In order to capture the shifts in the consumption patterns the model specified with a dummy in marginal budget share parameter13. We specify the LES as follows. pitqit = cipit + (bi + b* i D) (yt - Σ ck pkt) + uit i=1,2,�n Σi bi = 1 , Σi bi * = 0 D = 0 for t= 1983 to 1986-87 13 Several alternative specifications are possible to isolate taste effects; a dummy in b parameter or in c parameter or in both with different periodisation or a time trend. However our results with these specifications indicate that the a dummy in �b� gives better results in terms of likelihood and also in terms of significant coefficients. 35 =1 for t= 1987-88 to 1999-2000 where, qi , pi and y are quantity and price of i th commodity consumed, y is total expenditure and b, b* and c are parameters. The b parameter gives the marginal budget share. In above specification the c coefficient is assumed to be constant over the entire period but the marginal budget share of i th commodity takes the value bi in the first period i.e. 1983-1986-87 and bi + bi* for the second period covering 1988-00. The expenditure and the price elasticities are given by ηyi = bi/wi ηij = -δij + (δij � bi) pjcj/piqi where w is budget share of ith commodity and δij =1 if i=j and zero otherwise. The Nasse�s extended version of LES is used as the second stage model. It allows inferior goods. The model is specified as, piqi = pici(p) + bi ( y - Σ pk ck(p)) where ci(p) = Σjcij(pi/pj)1/2, 0