Financial Daily from THE HINDU group of publications
Tuesday, Apr 09, 2002
Agri-Biz & Commodities - Foodgrains
Move to decentralise food procurement -- Third revolution on farm front?
THAT the NDA Government often suffers from a two-steps-forward-one-step-backward dysfunction for all its pro-reform credentials is, by now, awkwardly clear. Otherwise, it is difficult to explain how, against the express recommendations of the Commission on Agricultural Cost and Prices (CACP), the Union Cabinet decided to raise the minimum support price (MSP) for wheat in the rabi marketing season 2002-03.
Though the hike was only Rs 10 a quintal, or less than 2 per cent, this has come at a time when the aggregate stock of foodgrains is heading for 70 million tonnes, beyond the bearable capacity of the exchequer, which has other competing demands. This irrational gesture of buckling under political pressure, while masquerading as the so-called farm lobby, is bound to compound the fiscal crisis at the time of reckoning. An interesting feature of this ham-handed exercise is that the Government has effected the move at a time when its other wing, the influential Plan panel and a band of bureaucrats, seem to be testing the waters with novel proposals on reducing state intervention in foodgrains procurement and promoting active involvement of the private trade in grains management without much pain or dislocation to all stakeholders.
Before the Budget session of Parliament went for a recess on March 22, the former Prime Minister and kisan leader, Mr Deve Gowda, raised a pointed query in the Lok Sabha during question hour on the Government's foodgrains policy. He asked whether the NDA Government, which removed the restrictions on foodgrains movement, will also remove the minimum support price (MSP) regularly announced by the Government for procurement of foodgrains from the farmers. Mr Gowda said that "by removing the MSP, farmers will be subjected to exploitation by the market forces. The objective of MSP is to protect the farmers from distress sale and from being exploited by middlemen."
On the same subject, the Congress leader Mr Shivraj Patil recalled that sugar used to sell for Rs 2.80 per kg in the 1980s and, after sugar procurement was stopped and partial decontrol effected, the prices hovered around Rs 17 per kg. He urged the Government to be cautious in removing MSP or suspending procurement of foodgrains. But the Minister for Consumer Affairs, Food and Public Distribution, Mr Shanta Kumar, was quick to respond when he said: "That is why we are trying gradual decontrol in sugar."
He assured agitated Members that the Government is not going to suspend procurement operations just because its storage bins are overflowing, and that an Expert Committee under Prof Abhijit Sen is working out proposals and a final report would be ready shortly. The Expert Group will also evolve a long-term grain policy as the open-ended procurement at high prices by the Food Corporation of India (FCI) and disposal at a heavily subsidised price is becoming increasingly untenable.
That the food management policy is riddled with loopholes is an understatement, as the whole process from fixing minimum support price, to foodgrains procurement and storage and distribution to the poor leaves much to be desired. In fact, the Mid-Term Appraisal of the Planning Commission for the Ninth Plan spared no stricture, stating that all is not well with the public distribution system (PDS). Based on a study by Tata Consultancy Services (TCS) in 1997, the Plan panel stated that there is 36 per cent diversion of wheat, 31 per cent diversion of rice and 23 per cent diversion of sugar from the system at the national level.
The PDS is implemented under the joint responsibility of the Central and State Governments and Union Territory administrations. While the Centre is responsible for procurement, storage and transportation of the PDS products up to the godowns and making them available to the States, the onus for distribution to the consumers through the fair price shops and administration of the PDS lies with the State governments and UT administrations.
The burden of carrying food stocks is compelling the authorities to weigh several options. The surplus stock of foodgrains rose from a level of 14.42 lakh tonnes on March 1, 1998 to a massive 412.32 lakh tonnes as on January 1, 2002, against buffer norms of 168 lakh tonnes. The cost of buffer subsidy has also galloped from Rs 936.70 crore, constituting 12.49 per cent of total food subsidy in 1997-98, to a staggering Rs 5881.90 crore or 34.93 per cent of total food subsidy in 2001-02, official figures reveal.
The operations of the FCI and managing its unwieldy size had become a major headache to the Government and, as 80-82 per cent of procurement is confined to the three States of Punjab, Harayana (for wheat and rice) and Andhra Pradesh (for rice), it leaves a larger number of small and marginal farmers in the rest of the country untouched.
No doubt, the MSP policy served the country well in the past. But recently, the MSP has been fraught with problems on two counts: First, the agricultural production scene has undergone significant changes over the past four years. Surpluses of several farm products have surfaced in many States, with former deficit States, such as Bihar, Assam and Eastern Uttar Pradesh, now generating surpluses of certain cereals. At the macro level, the position is vastly better with the average production of foodgrains at 187 million tonnes during the Eighth Five Year Plan likely to have increased to 205 million tonnes in the Ninth Plan.
The policy of favouring a relatively higher MSP for wheat and rice than for other crops helped achieve augmented production in the 1980s and 1990s. Relatively higher prices of MSP for these crops increased their profitability and persuaded farmers to cultivate these crops rather than coarse cereals, pulses and even oilseeds, as in Punjab. The flip side of this diversion is the hefty price the country has to fork out now for the import of edible oil and pulses as the consumers' changing dietary habits also meant a greater consumption of these items in the face of a growing shortage.
It is against this dawning reality that the Plan panel suggested the need to scrupulously adhere to the recommendations of the Commission for Agricultural Costs and Prices (CACP) and not resort to fixation of procurement prices much in excess of the estimated costs of production. The MSPs, as and when they are fixed, should cover only the variable costs of the farmers and should not be meant to cover their entire production costs. Besides, the period during which food procurement is conducted should be limited and extended to a few weeks after the harvest, when there is the highest probability of prices falling below this economically defined MSP.
The point to ponder is whether the Government has the determination to correct the anomalies to the extant MSP scheme so that it does not lead to overproduction of wheat and rice to the neglect of other crucial cereals, the consumption of which has been rising and for which import is contracted at an increased level at considerable cost to the exchequer. Even the NDA Government's move to decentralise procurement operations to the States has predictably provoked outcries from such farm-surplus States as Punjab and Harayana. In coalition governance, the will of the alliance partner counts a lot, and how tactfully BJP handles this matter would go a long way in freeing the disproportionately massive resources locked up in first procuring and then storing these surplus stocks, the distribution of which reflects the inept handling by State agencies and poor offtake by people, either due to deficiency of demand or to the fear of consuming stale stocks.
A study by Indian Statistical Institute (ISI) researchers using NSS data for 1993-94 for two States (Andhra Pradesh and Maharashtra) estimated both the extent of leakage as well as the economic inefficiency of the public food procurement system relative to the open market. Only 56-58.5 per cent of the total food subsidy (Centre and State) reaches the PDS consumers. Leakages could form 15-28 per cent of the subsidy while 16-25 per cent is eaten up by the inefficiency of the procurement agencies and distribution system (FCI plus State level) relative to the market. In this regard, the suggestions being studied in official circles range from phasing out of all sorts of monopoly purchases, shifting of the FCI godowns, with staff, to the States and the hiring of private agencies by the States to procure grain. The Finance Minister, MrYashwant Sinha, said in his Budget speech that the country is now ready for its tryst with the third Revolution (after Green and White) of agricultural diversification and food processing. He said that "freedom to the farmer" kisan ki azaadi is the overarching goal of policy. If the Government is able to translate this slogan into action by removing the controls and rigidities that currently clog the food distribution system without bothering about the instant reaction this could provoke among the so-called farmers' lobby and parties masquerading as the `farmers' voice', India could well be on the threshold of a third revolution on the farm front. But care must be taken to ensure that in the process small and marginal farmers are not left to the mercy of markets, warts and all.
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