April 04, 2020
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Grains Of Truth

It's a case of too much of a good thing

Grains Of Truth

It's a common sight for anyone driving on a Punjab highway. Overflowing granaries, with tarpaulin-covered sacks of wheat and rice extending up to the roadside. And that's where most of it remains, till it rots.

The country clearly has more foodgrains than it needs. This year, thanks to an all-time high wheat procurement of 16.2 million tonnes in the rabi season, food stocks will swell to 42 million tonnes by the end of this month. That's about 10 million tonnes more than last year and 17.7 million tonnes more than we need. For, the country's buffer stock need is set at 24.3 million tonne.

Yet, India's farmers keep producing more and more grain. That's because the government increases the minimum support price by 5-7 per cent every year. In 1999-2000, the country's foodgrain production is expected to touch a record 205.5 million tonnes, up three million tonnes from last year. Holding so much grain costs money. This year, finance minister Yashwant Sinha budgeted a food subsidy bill of Rs 8,100 crore but according to agricultural economist Ashok Gulati, the figure could cross Rs 10,000 crore.

This burns a huge hole in the finance minister's pocket. For the inflated bill, thank the Food Corporation of India (FCI). "When the FCI was formed in 1965, it was supposed to incur a holding cost of about 15-20 per cent over its procurement cost. Today, the FCI's holding costs work out to about 60 per cent," says Gulati. According to his calculations, the economic cost of the grain supplied to the PDS is Rs 900 a quintal. This, when the procurement price is Rs 575. The extra Rs 325 the taxpayer has to pay is because of the FCI's inefficiencies.

Holding the extra grain costs the government about Rs 15,000 crore. Is there a way out, or will the taxpayer have to keep shelling out? This high holding cost ensures India can't export the grain. More so when the European Union-which accounts for 86 per cent of the total agricultural subsidy in the world-gives its farmers about $40 as export subsidy. This year, the government is trying out barter as an option. But that is at too small a scale and won't provide much comfort.

The only option, says Gulati, is to let the free market operate. That can be done by dismantling the FCI, freezing procurement prices at current levels and announcing a five-year policy allowing exports. "This will encourage private players to come in, procure the grain and sell it to the government or export it if need be. This will cut costs," he says. It might sound like wishful thinking but the battle against food subsidy is one every finance minister has lost. And the taxpayer has paid the price.

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