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Resource centre on India's rural distress
 
 

Budget 2014 will show government's will to reform food security system -Ashok Gulati
-The Economic Times


Think for a moment that you are a small or marginal farmer of wheat or rice, and the government promises to give to your family wheat at Rs 2 per kg and rice at Rs 3 per kg (5 kg per person per month). What would you do? You would rush to sell your produce to the government at the minimum support price (MSP), which is currently Rs 14 per kg for wheat and about Rs 20 per kg for rice, and then wait for the government to give the same wheat and rice back to you at Rs 2 or Rs 3 per kg.

In states with effective procurement like Punjab, Haryana, Andhra Pradesh, and now Madhya Pradesh and Chhattisgarh, this is already happening. It will happen in any state that strengthens procurement systems. This has led to a state takeover of trade in wheat and rice in states where 70-90 per cent of market arrivals are procured by the government.

There is nothing wrong if the government wants to go back to the 1973-74 era of grain trade takeover. But when the cost of managing this food system by the government turns out to be Rs 24.70 per kg for wheat and Rs 32.30 per kg for rice, we have a problem.

This high cost and corruption will drill a hole of aboutRs 1,64,000 crore, with Rs 1,15,000 crore as food subsidy plus unpaid bills of about Rs 49,000 crore of the Food Corporation of India ( FCI) in the Budget, under the National Food Security Act (NFSA) of 2013.

Now think of an alternative, where the government offers to pay you cash of, say, Rs 16 (Rs 18 - Rs 2) per kg for wheat and Rs 22 (Rs 25 - Rs 3) per kg for rice. So, the effective price of your wheat now will be Rs 18 per kg instead of Rs 14 per kg, and effective price of rice Rs 25 per kg instead of Rs 20 per kg, and you can keep wheat and rice at home for consumption or local sales, if you have some surplus.

This should make you happier as your effective income from wheat and rice will go up by 22 per cent and 25 per cent, respectively, for wheat and rice. But this will also save the government hugely, almost 27 per cent for wheat and 22.6 per cent for rice.

Let us take it roughly 25 per cent saving for the government for wheat and rice combined after augmenting farmers' income by about 23.5 per cent. It will be a win-win situation. On top of this, it will save at least 8-10 per cent on real wastage of grain and contain massive leakages in the public distribution system (PDS), of around 30-40 per cent.

Why would any policymaker lose such an opportunity to kill three birds with one stone and switch over to cash transfers? Only those making huge rents from the current inefficient and corrupt system may resist this change. They would have us believe that the only way to help farmers is to feed them through the government's food security system.

If our top policymakers realise this, they can make huge savings, contain the fiscal deficit and achieve their ends in a much better fashion, than under the current way the NFSA works. This can be done within the existing legal framework of NFSA, which has the provision for cash transfers.

Of course, it can't be done overnight. But we can start with farmers from surplus or self-sufficient states, extending it to cities with more than one million people, by asking them whether they want cash or grain. This can go through the universal ID route and it will be easy to track how much assistance a family is getting from other welfare schemes.

After this, switch to cash, food markets will not be skewed in favour of cereals, and diversification towards high-value crops, especially fruit and vegetables, will speed up. Indians are consuming less cereal than before.

According to NSSO 2011, it stood at 10.6 kg per person per month, and less than 20 per cent of this came from the PDS. So, 80 per cent of cereal needs of the people were being met by markets. Therefore, it would be better to rely on markets, and help the poor by augmenting incomes through cash transfers.

The time to bite the bullet is now. This will show the Narendra Modi government's innovative approach. It will also show political will to reform the food security system so that each rupee spent for the poor gives them maximum benefits.

(The writer is Chair Professor for Agriculture at the Indian Council for Research on International Economic Relations. Views are personal)