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The politics of foodgrain management by Himanshu
The empowered group of ministers (eGoM) recently decided on two important steps seen crucial for management of foodgrains. The first was the finalization of the National Food Security Act (NFSA) and, secondly, extending the term of the Nandan Nilekani committee to explore the possibility of introducing cash transfers for delivering food subsidy directly to the poor. Another linked decision was to allow exports of wheat and rice to international markets.
The decision making has been disappointing. The eGoM watered down the proposal of the National Advisory Council on the NFSA. The ministers proposed a food law that would cover only 68% of the population, close to 80 million fewer than what the NAC wanted. The excuse? Limited availability of foodgrains. Interestingly, the group agreed to allow exports of foodgrains as the country has a surplus with little storage space. With a record output of 241 million tonnes (mt) this year, we have enough foodgrains not only to feed the domestic population, but also subsidize international consumers through exports. Of course, only one of these can be true. Either we have shortage of foodgrains that justifies pruning down the NAC proposal or we have so much surplus thatexportis the only way out.
The reality is somewhere between those extremes and unfortunately, as in many other areas of governance, the problem of surplus has been created due to a policy paralysis. This chaos in food management has happened in the last three years despite prudent advice from the government’s advisers. Today, there are 65 mt of foodgrains in government stocks against the buffer and strategic reserve requirement of 32 mt.

How did the stocks build up to this extent and why is the country not able to reduce their level? In the last three years the government’s procurement effort led to an accumulation of 60 mt of grains, close to what the expanded NFSA desires. At the same time, the government was unable to offload stocks. The average off-take was less than 50 mt every year, leading to an addition of almost 10-15 mt every year. Clearly, the problem is neither production nor procurement, but one of management. Essentially the issue is that of distribution. The problem is not new and this has been the situation for almost three years now. But do we know how to get rid of the stocks.

Last year, the chief economic adviser (CEA) of the Union finance ministry, Kaushik Basu, wrote a working paper (later published in Economic and Political Weekly) on how to manage foodgrains. The paper made several important statements based on sound economic reasoning backed by analytical models. First, it argued that the problem was not of storage. Secondly, it argued that the price at which foodgrains are distributed should be lower than the price at which it is procured, the Minimum Support Price. And third, but vitally, the produce should be sold to large number of small traders/consumers in small batches. The last point implies that the best way to achieve the objective of sound management is to enlarge the number of buyers with frequent delivery/sale of foodgrains.

It is not surprising that the only way to enlarge the number of buyers is universalization as that is the way to maximize the possible number of buyers in the economy. Any attempt to reduce the number of buyers will not help in resolving the problem. It also implies that the best way to achieve the stated objectives of foodgrain management is frequent distribution. Nothing could be better than selling it monthly or weekly. In other words, a universal and expanded NFSA makes for not only good politics, but good economics as well.

Unfortunately, Basu seemed less than convinced of his own results and the latter half of the paper argued for a system of cash transfer. It is a different matter that the issue of cash transfers was neither a result that was derived from the analytical exercise outlined in the paper nor is it in any way helpful in ensuring proper foodgrain management. Incidentally, it is also not helpful in ensuring food security for the poor.

But why was the advice of sound economic reasoning crucified at the altar of wrong politics? While there are no plausible explanations, the problem has worsened in the last one year. So much so that today we are in a situation that is reminiscent of the summer of 2001. That was the time when foodgrain stocks were at near sky-high levels. The irony is that the solutions are similar to what was advocated then, with India exporting around 15 mt of foodgrains in the international market after 2001 to get rid of the excess stocks at a time of severe agrarian crisis.

Unfortunately, after a decade of activism and monitoring by the Supreme Court, we will be again exporting foodgrains at a price cheaper than domestic prices, effectively subsidizing international consumers. But we refuse to universalize the NFSA, despite strong economic and political arguments for it and foodgrain production increasing by 30-40 mt. Needless to say, history repeats itself, the first time as a tragedy and next time as a farce.