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Plan panel for hoarding grain to curb subsidy? by Nitin Sethi

Is the Planning Commission too singularly focused on reducing food subsidy and intending to dissuade people from buying subsidized food rations even as the government spends thousands of crores to store excess grains in its stocks? Is it being penny wise but pound foolish? An internal note of the Plan panel suggests so.

A note prepared by the panel reveals some startling information. On April 1, 2010 -- normally the time when wheat stocks are at its lowest -- the government had 16.1 million tonnes of wheat in its granaries as compared to the norm of seven million tonnes for maintaining buffer and reserve. This is more than twice the requirement. In case of rice, the government expects this year in October (when rice stocks are at their lowest) to have 19 million tonnes stored in the godowns -- again more than twice the 7.2 million tonnes of buffer plus reserve the government prefers.

It is costing the exchequer in excess of Rs 4,000 crore a year to just hold these stocks in the godowns. The Planning Commission admits: The costs for holding these stocks are already being incurred though they may not be fully reflected in the national accounts for 2010-11. But it plans to keep the stocks in godowns rather than try to increase procurement as well as disbursement of grains to people through the proposed Food Security Act.

While the panel talks of making a legal guarantee to those living above the poverty line to provide foodgrains, it actually wants to raise the grain prices so high for the 11.52 crore APL families that they stop buying the grains. This would allow the UPA to have its cake and eat it too -- it would be able to claim it has given a legal right but make sure it's too costly for the people to use it.

The Plan panel wants to raise the rates at which it provides ration to the 11.52 crore APL families by 35-40%. At present wheat is provided at Rs 6.10 per kg and rice at Rs 8.30 per kg. The Plan panel has suggested the rates be raised to Rs 8.25 per kg for wheat and Rs 11.55 per kg. It's in favour of letting the rates rise further if the support price offered to farmers to grow the crops increase in years to come.

Strangely, while the Congress in its manifesto during the last general elections promised that it will guarantee access to food all people, the Plan panel is suggesting that raising the prices so substantially will help dissuade people in the APL category from buying the grains -- reducing the ration off-take from government godowns by 11 million tonnes and saving the government Rs 8,000 crore.

The panel suggests prices be raised further in case procurement process fails to deliver. It suggests that this move will "not only allay criticism of government as a hoarder, but also allow the initial hike in the APL issue price to be more modest, subject to subsequent increase in price by withdrawing the discount".

The only option the Plan panel has as against raising the APL food prices is to not give any guarantee at all on the quantum of grains to be provided.

In its bid to keep chipping at the subsidy burden, it even wants the number of BPL beneficiaries to be kept artificially low. The Tendulkar committee had said that 37.2% of the population lives below the poverty line. The Plan panel has suggested that the government use the March 2005 figures to keep the beneficiary households down to 7.41 crore instead of using the 2011 population projection (which would be much closer to reality) but would increase the beneficiary families to 8.07 crores. Oddly, it defends the recommendation claiming that the numbers of poor are shrinking even as the population increases. This militates against the government's figures. Tendulkar had recently estimated that 37.2% people live below the poverty line as compared to 27.5% in 2004-05.

With the Congress high command weighing heavy, the Plan panel has come around from its initial reluctance to also recommend 35kg of grain to BPL rather than 25kg that it earlier advocated but it has not looked at improving government procurement of grains. It has instead found other smarter ways of keeping the government's responsibility to the minimal.

So while it takes a serious note of the additional burden of Rs 9,557 crore borne out of guaranteeing rations to BPL beneficiaries, it also wants to save Rs 8,000 crore by ensuring that the millions living above the poverty line are dissuaded from going to the ration shops.