Opinion - Editorials

Overhauling the cereal economy

SINCE THE MID-1990s, the food procurement and distribution policies of each Government have lurched from one failure to another. The Government has replaced the market as the preferred buyer of rice and wheat, off-take from the public distribution system (PDS) has fallen, exports are being promoted at prices lower than PDS levels and stocks have ballooned to almost three times the buffer norms. A high-level committee on long-term grain policy has now come out with a comprehensive set of recommendations for reform of the food policies. The recommendations may not satisfy all the groups involved — farmers, consumers and the Government. But the committee's report should provoke a serious debate aimed at reshaping the hydra-headed system that past and current policies have given birth to.

One of the basic premises of the committee is that with global food trade marked by high price volatility, self-sufficiency in cereals is a strategic necessity for a large grain-consuming nation like India. This makes it imperative to continue with the use of minimum support prices (MSP) for promoting cereal production. The recommendations for the short-term are to reduce stocks from the present 63 million tonnes (m.t.) of cereals to about 30 m.t. over the next two years. The key suggestion is to set the MSP at the level recommended by the Commission of Agricultural Costs and Prices (CACP) and end the practice of setting arbitrary MSPs and announcing bonuses. The CACP price would be comprehensive covering all paid and imputed expenses that farmers incur on seeds, fertilizers, hired and family labour, rent and all opportunity costs. Since the new MSP would mean a medium-term loss of income to farmers, the committee has recommended that the Centre should pay compensation through direct income support in cash or through other forms of assistance. This would cost Rs. 3,915 crores in the first year and compensation would continue until the new MSP reaches past levels. In the process, there would be a fiscal gain and not loss, since the annual savings from lower procurement (down to around 28 m.t.) are placed at Rs. 10,000 crores and more. On the distribution side, the suggestion is to disband the Targeted PDS and go back to the single-issue price system that existed until 1997. This should be done since the ad-hocism in the TPDS and a constant tinkering with issue prices and allocations has contributed to a decline in the off-take. Since this would mean a lower food subsidy for the `below the poverty line' population, a related recommendation is to provide States with cash support that they can use for food assistance. Finally, expanded budgetary allocations for rural employment programmes, the Antyodaya Anna Yojana for the destitute and the school mid-day meal programme will be supplementary routes for increasing demand for cereals and therefore for reducing stocks.

The long-term thrust is essentially to restore to the MSP its original function of stabilising cereal prices and to delink income transfers from food subsidies. State agencies are expected to take over the procurement operations in the surplus States of the northwest, while the FCI focuses on central and east India. Other suggestions include the removal of all barriers to private trade in cereals, ending the system of levy procurement in rice and setting MSPs for all crops in such a manner that a healthy crop mix is encouraged. In the long-term as well, cash assistance that States can use to aid food security for the poor, rural employment programmes and welfare schemes are expected to continue. The first question will be about the additional fiscal cost of all the proposed measures. The committee estimates that because of the lower procurement demands on the system, the total cost should not be much more than one per cent of GDP annually. There may even be a saving then, since the present annual cost of procuring, maintaining and selling cereal stocks is placed at nearly 2 per cent of GDP. There is the larger benefit in the form of better food security, crop diversification and creation of rural assets.

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