• PAGE ONE
• INDEX
• HOME

PDS price-cut may pare FCI stocks

Harish Damodaran

NEW DELHI, July 11

LESS than 17 months after the 2000-01 Union Budget decision to restrict supply of subsidised foodgrains from the public distribution system (PDS) to only the below poverty line (BPL) population and make the above poverty line (APL) segment pay the Food C orporation of India's (FCI) entire `economic cost' of procurement and distribution, things are back to square one, if not negative.

Following the move to eliminate the consumer subsidy for APL by charging them FCI's full economic cost, PDS rates for this segment were hiked at one go from Rs 682 to Rs 900 per quintal for wheat and from Rs 905 to Rs 1,180 per quintal for rice with effe ct from April 1, 2000.

Subsequently, there was a `reassessment' of the economic cost, leading to a marginal downward revision in APL issue price to Rs 830 per quintal for wheat and Rs 1,130 per quintal for rice from July 25, 2000. Simultaneously, BPL rates were also lowered, t aking into account the Centre's new `formula' of pegging the issue price for this section at 50 per cent of FCI's economic cost, i.e APL price.

But hardly a year later, the Government has slashed APL rates again-this time by around 26.5 per cent for both rice and wheat. The Cabinet's decision on Tuesday to reduce APL price of wheat to Rs 610 per quintal and that of rice to Rs 830 per quintal mea ns a return to the situation prior to the 2000-01 Union Budget. In fact, the accompanying table shows that APL prices are now even below the levels prevailing in early 1999!

Thus, at one stroke, the Centre has given the go-by to its neat formula of pricing APL grain at FCI's full economic cost. According to FCI Chairman, Mr Bhure Lal, the latest economic cost of wheat works out to Rs 950 per quintal while amounting to Rs 1,1 70 per quintal for rice. Thus, if the original formula-something that the Minister for Consumer Affairs and Public Distribution, Mr Shanta Kumar, till recently termed as the Government's `irrevocable and principled' commitment-were to be employed, not on ly APL but even BPL prices would have had to be raised by now.

Instead, the Centre has chosen to reduce APL rates while maintaining BPL prices at existing levels. The decision not to increase BPL rates has been taken mainly because it would have necessitated a simultaneous hiking of the prices at which FCI grains ar e being offered for exports.

Currently, FCI is offloading raw rice to exporters at an ex-godown price of Rs 5,650 per tonne, which is equal to the BPL rate. The Government is also planning to slash the export price of wheat from Rs 4,300 per tonne to BPL level of Rs 4,150 per tonne in order to render exports competitive. Pricing grains for export below BPL rates would obviously not have been politically expedient. The Centre has, therefore, preferred to play it safe by maintaining BPL prices at existing levels and remain `pro-poor' by being `pro-exporter'.

The decision to reduce APL rates has, on the other hand, been forced entirely on commercial considerations. FCI's foodgrain stocks, as on July 1, were estimated at roughly 65 million tonnes (mt)-almost thrice the required minimum buffer of 24.3 mt for th at date. The cost of holding the excess buffer stocks of over 40 mt at the rate of Rs 2,300 per tonne comes to around Rs 9,200 crore annually. Considering that total APL foodgrain offtake fell from 12.72 mt in 1998-99 and 10.13 mt in 1999-2000 to a mere 2.16 mt last year (following the massive budgetary price hike), one could realistically expect the lower APL rates to help liquidate stocks by an additional 8-10 mt.