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Resource centre on India's rural distress
 
 

An embarrassment of riches


The Union government has been widely criticised for letting foodgrain rot in its godowns, while food prices soar and millions remain underfed. In its defence the government has spoken about the fiscal cost of selling these stocks. However, the underlying problem of excessive procurement and overstocking of foodgrain has not received as much attention. The government has claimed that official agencies have been mopping up over 99.5 per cent market arrivals of wheat in key grain-surplus states like Punjab and Haryana, and over 87 per cent at the all-India level in recent years. In the case of paddy, this figure is above 93 per cent. The private trade has virtually been alienated from food transactions in the peak marketing seasons. The government’s annual foodgrain procurement has, consequently, blown up to a whopping 60.4 million tonnes in the year ended September 2009, against just 36 million tonnes in 2006-07. Over 53 million tonnes more have since been bought by public agencies in the current year. Given that the total foodgrain off-take from the public distribution system (PDS) has seldom exceeded 42.4 million tonnes, including the foodgrain issued for sale to the non-poor, the annual buys of this magnitude are hard to justify. Besides causing storage glitches, it leads to unnecessary blocking of public funds in the form of a non-productive and, more importantly, perishable item like foodgrain. The food subsidy is also likely to surge much above Rs 60,000 crore this year, against the budgetary provision of Rs 55,578 crore. Moreover, since the total foodgrain storage capacity is no more than 43 million tonnes, against the present food inventories of over 58 million tonnes, over 15 million tonnes of foodgrain have inevitably to be kept in the open, covered just by sheets.

Strangely, though, instead of reducing its stocks and allowing private participation in food trade, the government plans to augment the storage capacity and that too in the east and north-east where high humidity makes the safe storage of these stocks all the more difficult. A minimum of Rs 4,000 crore is reckoned to be required to create an additional warehousing capacity of around 15 million tonnes, much of which may subsequently remain unutilised if stocks drop to more manageable levels. Though the Centre blames high taxes and mandi charges levied by state governments for poor private participation in food trade, the more important reason is the uncertain and trade-unfriendly policy environment, marked by frequent restrictive interventions like stock-holding limits, movement curbs, import-export restrictions and the like. The Essential Commodities Act is often used by the authorities to harass traders. These issues need to be suitably addressed. Moreover, the government should end its virtual monopoly status in food procurement and storage. Open-ended foodgrain procurement should give way to need-based purchases that cater to the requirements of the PDS. Existing surplus stocks should either be disposed of locally or exported, given that favourable world wheat prices provide an opportunity to do so without loss.