The Hindu Business Line : Reforms — a must in food management

THE chapters on agriculture as also on prices and food management in the Economic Survey 2003-04 released on Wednesday, are bound to leave most readers with a sense of ennui. Haven't we read all this before?

Whether it is the issue of food subsidy or foodgrains management or crop diversification or food processing, the latest survey has merely stated what policymakers have been saying, but doing little to remedy the situation or deliver on the assurances in recent years.

Having said that, it is only appropriate that the survey has once again helped focus attention of the nation on the mounting food subsidy burden. At Rs 25,160 crore for 2003-04, food subsidy reflects a ten-fold increase since 1990-91 (Rs 2,450 crore).

For 2004-05, the estimate is even higher at Rs 27,746 crore. These levels are clearly unsustainable for a fragile economy on the growth path. Given that farm subsidy is a global phenomenon, it would be churlish to fault food subsidy per se. What is important is the manner of application of funds.

A significant part of the food subsidy represents what, with some justification, can be termed as wasteful expenditure on unlimited buffer stock creation. The huge carrying costs incurred for nursing unconscionable levels of grain stocks, should instead be applied for stepping up public investment.

Lasting assets in rural areas: access roads, primary grading facilities, warehouses and revamped marketing yards, are the need of the day.

The Government took a long time to muster some courage to freeze the minimum support price (MSP) for wheat and rice. However, it is going to take several seasons before a reasonable parity between wheat and rice on the one hand, and crops in short supply such as oilseeds and pulses on the other, is established.

Mercifully, the survey recognises that raising the MSP for oilseeds is not the ideal solution because it would not only impose a fiscal burden, but also exert an upward pressure on the market. A more crop-focused approach to oilseeds is necessary.

One way to reduce the subsidy burden would be to limit the volume of wheat and rice purchases. Instead of open-ended procurement, the quantity necessary for buffer stock - for food security, welfare programmes and intervention, should be purchased. Instead of being the first and often the only buyer, Food Corporation of India should be the buyer of last resort.

Crop diversification cannot happen in isolation. Diversification plans have to take into account the sensitivities of farmers across the country; and no plan is likely to succeed unless the rationale of procurement is changed to reflect current needs and compulsions.

Restricting procurement of fine cereals to three or four States has meant discrimination in favour of some and against others. The environmental challenges arising out of mono-cropping of grains: rice-wheat-rice cycle, too cannot be ignored.

Foodgrain exports can help support farmgate prices; but there are limits.

The global grain market is volatile and major exporting countries are known to grant liberal subsidies for production and exports.

Our grain exports are more of a reaction to ballooning stocks, rather than a conscious attempt to cultivate and retain markets.

The sugar sector too is crying for reforms; but the Economic Survey reflects the political pressures and dilemma within the Government.

The report says the Central Government controls the sale of sugar by mills in the open market to avert a fall in prices resulting from excess supply.

In the same breath, the report admits to a sharp fall in domestic sugar production in 2003-04 season to a recent low of 140 lakh tonnes (l.t.), down from 201 l.t. in the previous season. Closing stocks at the end of 2003-04 are estimated at 80 l.t., again the lowest in the last four years.

Clearly, the period of excess production and burdensome stocks is over. In fact, imports of raw sugar are taking place to meet a possible shortage. It is estimated that as much as 10 l.t. have been contracted for and a sizeable portion has arrived.

The present situation of lower domestic production, tightening stocks and imports is ideal for taking the plunge - total decontrol. But there is nothing in the survey that suggests decontrol any time soon. The Government has decided to retain the levy provision and release mechanism till October 2005, the time by which decontrol in any case must take place.

The Government has its job cut out. Whether it will demonstrate political will to reform the management of foodgrains and the sugar sector remains to be seen.

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