UPA-nomics: High growth plus high inflation equals worse child malnutrition

One of the great myths about poverty alleviation and the elimination of hunger and malnutrition is that you have to keep throwing money at the problem. Being pro-poor means flinging money and schemes in the direction of the poor; the quality of the intervention and macroeconomic outcomes of the same policies do not matter much.

In the Sonia Gandhi-led UPA scheme of things, high inflation was an acceptable side-effect of high growth and high social spends that were effectively targeting votes rather than real human development. The high growth rates that coincided with UPA-1 delivered high tax revenues which enabled high social spending, including a large farm loan waiver. But the same splurge brought UPA-2 to grief when the government bankrupted itself by shifting money from the productive sectors of the economy to rural areas.

Somewhere at the start of its second term in office, when the seedcorn for fast growth was being consumed, the UPA continued with high non-merit subsidies and rural spending, resulting in high inflation. It paid the price in 2014 not only because of the scams that surfaced during 2010-2013, but because it landed the economy in the ditch, destroying both growth and purchasing power in rural areas. UPA-2’s worst legacy was structural inflation.

An empirical study in Andhra Pradesh provides us with strong evidence that persistent inflation can be a poverty and malnutrition booster - something which cannot be eliminated merely by bunging in more schemes for the poor. Macroeconomic outcomes like structural inflation are the result of misplaced fiscal policies driven by the wrong kind of consumption spending, and these directly impact the level of hunger and malnutrition in the country.

A report in The Indian Express yesterday (9 July) quotes a long-term study on the impact of inflation on malnutrition and found a strong causal link between the two. More inflation leads to more malnutrition. It’s commonsense, for more inflation means lower food purchasing power for the poor. The study was conducted by Oxford University, the Public Health Foundation of India (PHFI) and the London School of Hygiene and Tropical Medicine, and published in the Journal of Nutrition.

The main takeaways are the following:

#1: Rising inflation causes a rise in child malnutrition levels. As food costs rise during inflation, consumption falls, causing an increase in “wasting” – a measure of malnutrition that is measured through the loss of muscle and fat in a child for any given height.

#2: Wasting malnutrition fell when inflation was lower, and rose when inflation was turning persistent. Says the report: “Between 2002 and 2006, the proportion of wasting in children in Andhra fell from 19 percent to 18 percent. This improvement reversed by 2009, when 28 percent of children were wasting — an increase of 10 percentage points compared to 2006. This was after high inflation in food prices, beginning in 2007 and continuing through 2009. The rise was observed only in children in low- and middle-income groups but not among high-income groups.” Put in political terms, even when the economy was growing like gangbusters, and social spends were rising, malnutrition worsened during the mid-UPA-1 years due to inflation.

#3: The reason why malnutrition rose – especially in the form of wasting – was because high food prices reduced the intake of rice (which reduced the calorie count) and high-protein foods like meat, eggs and milk, where the inflation rate was even higher than in cereals.

#4: The sharp increase in rural wage growth, which peaked in 2011, thus didn’t help lower malnutrition because inflation turned killer. In 2009, when wages were growing robustly, especially when NREGA spends were peaking,  malnutrition was wasting more kids in Andhra Pradesh.  In the end, even NREGA could not ensure rural wage growth endlessly .

Some other secondary implications of the study are the following:

First, the NDA-1 years, when the Vajpayee government struggled with low growth and bad fiscal deficits, helped bring down inflation. This is one reason why malnutrition kept falling from 2002-06.

Second, the Vajpayee years also saw the first steps to boost investment in infrastructure, through the launch of a massive highway and rural roads building programme. This productive spending was what helped improve rural wages, even while macro policies were bringing inflation down. UPA-1 reaped the twin benefits of rising wages and falling inflation – a position that started reversing towards the fag end of UPA-1 and in UPA-2.

Third, UPA-1’s initial social spends were bankrolled by growth, but UPA-2’s growth was built on sand and the steroid of high fiscal deficits. Excessive spending on subsidies ultimately killed growth and boosted inflation. Thus, even while poverty may have reduced, fewer productive jobs were being created , and the roaring inflation that followed excess spending ate away a part of the gains from higher wages and growth. This is why the poor fed their children less, causing wasting. The clear lesson for the Modi government is to not repeat the mistakes of UPA, never mind Rahul Gandhi’s taunt that the government is not raising minimum support prices (MSPs) for farmers and is anti-poor. The way to reduced rural poverty is through higher infra spending and improving farm productivity, and not higher MSPs and social subsidies. Nor is the Food Security Act, as now legislated, going to make a difference.

The Express report quotes Dr Sukumar Vellakal of PHFI as underlining a simple point – that “poorer households face the greatest risk of malnutrition, in spite of the public distribution system…Better targeting of food security policies may be necessary to meet the needs of India’s most vulnerable households. India’s remarkable economic growth in the last decade had not translated in to betterment of children nutrition status because of rising food prices….”.

The UPA’s boast of high growth is really an empty one. High social spending is not a panacea when inflation is hitting the stratosphere. NDA-2 is broadly on the right track, but it needs to stick to the trajectory. It must focus on increasing public spending on infrastructure, and also keep the inflation genie bottled.