The Hindu Business Line : Falling grain stocks ease subsidy bill by 12 pc

THE decline in public foodgrain stocks and accompanying reduction in the carrying costs borne by the Food Corporation of India (FCI) has helped in significantly containing the Centre's spiralling food subsidy bill.

The 2004-05 Union Budget had provided for an amount of Rs 25,800 crore as food subsidy expenditure for the current fiscal, which was marginally higher than the revised estimate of Rs 25,200 crore for 2003-04.

However, according to the 2004-05 Economic Survey, the total food subsidy during April-November 2004, at Rs 17,639 crore, has been nearly 12 per cent below the Rs 20,033 crore spent over the corresponding eight months of 2003-04.

The Survey has attributed the lower subsidy burden mainly to the decline in stocks with the Central pool - from a peak 64.7 million tonnes (mt) in June 2002 to 21.7 mt as on end-January this year. Since the carrying costs of foodgrains accounted for 20-25 per cent of the food subsidy during 2001-02 and 2001-02, the decline in stocks has resulted in a lower subsidy bill.

Moreover, the easing of the stocks position has also obviated the need for desperate measures such as exporting at highly subsidised rates. An indication of this is the fact that the total foodgrain offtake from the Central pool during April-November 2004 has been lower, at 256.73 lakh tonnes (lt), compared to 342.73 lt during April-November 2003.

The main decline has been recorded for exports (from 83.31 lt during April-November 2003 to 9.67 lt during April-November 2004), open market sale (from 7.54 lt to 1.69 lt) and welfare schemes (from 96.22 lt to 71.79 lt). On the other hand, offtake under the regular targeted public distribution system has gone up from 154.55 lt to 180.96 lt.

The Survey has also drawn attention to the "policy of restraint" adopted by it with regard to fixation of the minimum support price (MSP) of foodgrains in the last couple of years, which, too, has put the brakes on the subsidy outgo.

While the mid-1990s saw substantial increases in the MSP - by Rs 95 per quintal for wheat in 1996-97 and Rs 35 per quintal in 1997-98 - the extent of rise has been only to the tune of Rs 10 per quintal in the last three years.

The Survey has suggested that the MSP should be kept at a level equal to the C-2 costs, covering all costs in cash and kind borne by farmers, including the imputed cost of family labour.

It has also endorsed the suggestions made by the report prepared by the National Institute of Public Finance and Policy (NIPFP) on "Central Government Subsidies in India" to provide reimbursement of expenses to FCI based on normative unit costs and actual quantities involved.

Further, it has accepted the recommendation to replace the existing system of dual prices of grain (for poor and non-poor segments), "which encourages leakages", by a uniform price policy along with a system of food coupons for below poverty line families.

Despite the decline in inventories from their peak level, the Survey has noted that the stocks of 21.7 mt as on January 1, 2005 is higher than minimum buffer norm of 16.8 mt.

With the Agriculture Ministry projecting the wheat crop for 2004-05 at 73.03 mt (against 72.06 mt last year) and output of rice, too, higher at 87.8 mt (87 mt), procurement of wheat is likely to be good in the ensuing rabi marketing season, while "total procurement of rice during 2004-05 (October-September) would exceed last year's record level of 22.83 mt".

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