The Hindu : Procurement policy failure

Online edition of India's National Newspaper
Friday, Apr 05, 2002

Opinion

Opinion - Editorials

Procurement policy failure

THE GOVERNMENT HAS once again shown its inability to take the politically difficult decision of putting a lid on procurement prices. True to past form, it has over-ridden the recommendations of the Commission on Agricultural Costs and Prices and raised the minimum support price for wheat in the rabi marketing season of 2002-03. The CACP had suggested that the procurement price be kept at last year's levels as the Government had made excessive increases throughout the 1990s. The increase in the support price this year is a small one — Rs. 10 a quintal or less than 2 per cent — but what was at stake here was the Government's ability to signal that it was determined to make a beginning in overhauling a system that has created a food mountain of 60 million tonnes. By yielding to pressures from the farm lobbies, the Centre has failed in this task, no matter that some of the demands, including from the Government of Punjab, were for hikes of as much as Rs. 150 a quintal.

The Food Corporation of India now has 25 million tonnes of wheat, more than six times the April buffer norm of 4 million tonnes. The result of the procurement operations in the new season could well result in new purchases of another 25 million tonnes. Procurement last year was a little over 20 million tonnes and purchases from a larger wheat harvest in 2002 are likely to exceed the record of 2001. Slack open market prices, the emergence of the Government as a preferred buyer and now the offer of an attractive procurement price makes this less of a likelihood and more of a certainty. This means that total Government stocks of wheat and rice could rise, after off-take by the public distribution system (PDS), to more than 70 million tonnes. What can the Government do with such stocks (not to mention finding the space to store this food mountain)? The recent decision to lower PDS prices for the non-poor could make a dent — but only a dent — in these stocks. Contrary to optimistic expectations of the Commerce Ministry, the high cost (and often poor quality) make wheat exports a viable option only on the margin. The one possible channel for distribution of fairly large amounts is the national mid-day meal programme for school children. But many State Governments have been less than enthusiastic about this programme because they do not have the funds to meet even the small cash costs that are needed to convert the free cereals into cooked food. The net result then is going to be that the Government is going to tie up an even bigger amount of bank funds in procured grain (outstanding food credit now stands at over Rs. 50,000 crores) and the food subsidy for expensive grain that nobody wants will, in 2002-03, exceed the budgeted level of Rs. 21,200 crores.

In any case, the Government cannot go on procuring larger and larger amounts of cereals every year and then look for possible channels of distribution. If the FCI has come to be seen as the preferred buyer of cereals in the surplus-producing States it is because there is no market demand for the cereals. One option that has been talked about for some years is diversification into other crops, the agro-climatic conditions permitting, for which there is a demand. The obvious candidates are oilseeds and pulses, a short supply of which regularly results in large imports of edible oil and pulses. To encourage a shift away from wheat and rice, the Government has announced a fairly large increase in the minimum support prices of oilseeds and pulses. These crops are not procured by the Government, but the support prices act as a signal to the market. However, for these signals to have any kind of impact, support prices have to be announced before sowing begins and not when the crop is ready to be harvested as it is today.

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