From: Sanjeev Nayyar
Bizarre are the ways of the government when it comes to managing, or mismanaging, the country's food economy. On the one hand, it goes on mopping up bulk of the wheat and rice arriving in the mandis to build up its grain stocks, clearly to prevent foodgrain prices from falling below the minimum support price (MSP) level. On the other hand, it plans to offload 3 million tonnes of wheat and rice, in addition to the normal supplies from the public distribution system (PDS), to slash its overflowing grain stocks and bring down grain prices. This is not only bad management but also bad economics. The empowered group of ministers, which has taken this decision, has pegged the sale price of wheat at Rs 8.42 a kg, nearly half of the actual economic cost (procurement cost plus overheads) of around Rs 16 a kg. Similarly, rice is to be sold at Rs 11.85 a kg, against its effective economic cost of around Rs 19 a kg. This will cost the exchequer Rs 2,000 crore over and above the food subsidy, which is set to overshoot this year's budgetary provision of around Rs 55,600 crore by a wide margin. Some estimates project it at over Rs 70,000 crore this year. The subsidy bill is soaring also because of higher inventory carrying costs due to over-stocking and non-revision of the issue prices of wheat and rice for the PDS since 2002, even though the procurement prices have nearly doubled during this period. On the eve of the beginning of the current rabi marketing season on April 1, the government held over 16 million tonnes of wheat, four times the buffer norm of 4 million tonnes, and over 26 million tonnes of rice, nearly two-and-half times the buffer need of 12.2 million tonnes. Since then over 20 million tonnes more wheat have been bought from the fresh crop and the purchases are still continuing.
To top it all, the government eliminated import duty on wheat in November 2009. This was the time when the domestic wheat availability had turned comfortable, thanks to a couple of surplus wheat harvests, and the international prices had begun to soften. This mistimed, as also needless, policy intervention has resulted in regular wheat imports at southern ports, where its landed cost works out cheaper than the cost of wheat transported from the north, accentuating the grain glut. So, why should an open-ended grain procurement policy continue? The total requirement of the PDS is much lower than the government's annual purchases. Even if the government goes in for a new food security law, giving the right to the poor to get 35 kg grains per month, instead of the original proposal of 25 kg, the total foodgrain requirement will still not increase as, even today, the ration card holders, poor as well non-poor, are entitled to this much grains. In fact, the grain bill may decline if the non-poor are taken out of the PDS system after the enactment of the food law. There is, thus, an urgent need for the government to revisit its food management policy and think of a system which would ensure availability of grains to the really poor at affordable prices without over-stocking and needlessly stressing the exchequer.
1. Shreekant Sambrani: Crisis foretold - http://www.business-standard.com/india/news/shreekant-sambrani-crisis-foretold/384758/
Shreekant Sambrani / February 6, 2010, 0:42 IST
2. Managing food prices - http://www.business-standard.com/india/news/managing-food-prices/383041/
|More hype than hope in de-hoarding|
Business Standard / New Delhi January 19, 2010, 0:36 IST