KHETI BARI

Food Management in India

Alien models won't work

- Neehar Ranjan Pandey

In a recently released paper titled "The Economics of Foodgrain Management in India" the chief economic adviser in ministry of finance, Prof Kaushik Basu, has made certain interesting observations. He has been particularly harsh, and rightly so, on the procurement and delivery aspect of the government's foodgrain policy.

It has been pointed out that during the past one year or so, in spite of our food stock continuing to be massive, food prices have been high, meaning thereby that our foodgrain procurement and distribution policy is flawed and has failed to serve farmers and consumers both.

Over dependence on agriculture

Prof Basu underscores the fact that 15% of the notional income comes from agriculture, while close to 60% of India's labour force lives off agriculture, to claim that we have created special incentives which hold back large segments of the population in agriculture, instead of allowing them to move out to industry and manufacturing. However, this line of reasoning is an over-simplification. People in rural areas are stuck in the agriculture sector, not because the government has provided them with spectacular incentives, but simply for lack of any worthwhile options to do something else. There is little opportunity in villages and small towns due to almost non-existent industrialisation. Given the fact that our cities are also teeming with migrant population, the best possible way to reduce excess dependence of the population on agriculture is to somehow explore possibilities of creating sufficient opportunities in rural and semi-urban areas.

Possibilities of establishing new industries in small towns and villages can only be brightened up, if we are able to provide proper infrastructure, including enough power, to sustain industrial activity. Towards this end, the recently launched National Solar Mission could turn out to be a game changer, provided the proposed 5MW solar power projects are evenly distributed across the country. In this context, in the larger interest of the country, we must shed our preference for a tariff-discount-based regime while sanctioning these projects, and instead, strive to cover the entire rural landscape to provide power all across the country.

Release of foodgrain to poor

While criticism of the government's existing policy to hold and release foodgrain is understandable to an extent, it seems that the true import of the recent popular demand (subsequently endorsed by the Supreme Court) to release the grain, rather than letting it rot, to the poor has not been appreciated. The apprehension that the demand might have an important design aspect to it, a part of this food might be resold to the government through the procurement window at a profit, is largely misplaced. No one is asking the government to supply foodgrain to whosoever comes to collect it. Instead, the demand is to distribute foodgrain to the poorest of poor, even at a nominal cost, which otherwise is rotting in godowns.

Prof Basu is right when he lists "maintenance of buffer to hold down prices during food shortages" and "making sure that the poor and vulnerable have access to food at all times" as the two features of his ideal foodgrain policy. However, if it is so, how can the government of a welfare state be a silent spectator when the poor do not get enough food at affordable rates, while FCI storage facilities are overflowing? Further, it must be kept in mind that the two stated objectives are exclusive to each other: release to hold down prices and feeding the poor must be seen and tackled as two different problems, requiring separate solutions.

It is a fact that while we have steadily procured foodgrain, releasing it when the need arises has left a lot to be desired. Prof Basu recommends buying more when prices are low and selling more when prices are high. While the point is well taken, we have also to remember that the government fixes an MSP not only for the purposes of buying to shore up its buffer, but also to provide protection to an ordinary farmer. If the market rates of foodgrain start falling below a certain level, the farmer can always turn to the government and sell his produce at MSP. Therefore, the food procurement mechanism serves a useful welfare purpose as well. Keeping in view all this, we have to take into account a delicate balance of necessity to create a buffer, protecting farmers' interests and objective to keep prices down to an acceptable level, while formulating a market intervention policy.

In this context, the suggestion offered that a ready set of rules of how and when to release foodgrain, a kind of standard operating procedure (SOP) must be in place needs to be pursued with vigour. If prices are rising, there has to be a rule about automatic release of food, that too in small batches, preferably to each district of the targeted area, rather than rushing to seek approval of cabinet committees. Further, in this context, more private participation should be encouraged, with government's role limited to ensure affordability only.

Release mechanism

However, it is in his views on release mechanism of the foodgrain to poor, one can sense that the chief economic adviser has not appreciated the peculiarity of our country in proper perspective. Prof Basu is of the opinion that the food subsidy should be handed over directly to the poor by way of food coupons to be used as money to buy food from any store. The store owner can take the coupon to any bank and change it back to cash. Since buyers will have right to go to any store they will go to stores that charge the most competitive prices and assured quality. It is also suggested that the government can go one step further and usher in direct cash transfer to the poor.

While the suggested model might work in urban areas, it certainly is unworkable in villages, at least in the current scenario. Well, for starters, where are multiple food stores in rural India which will facilitate choices to rural folk? Further, the question still remains that whether the government can restrict its role in providing food security to the poor and vulnerable by simply handing them over money; or does it also need to ensure availability of food in those areas? Taking the proposal of the chief economist forward, can tomorrow the government say that since it has provided the rural population with medical allowances, it does not have any stakes towards ensuring adequate health care facilities in the villages, and let the market forces take care of their needs?

The pitfall in applying internationally successful schemes in India, without proper adaptation, is that one tends to forget complete absence of the so-called market forces in areas inhabited by very large number of deprived people. The government, at the present level of development, cannot disassociate itself from its commitment to ensure food for all by leaving everything to the market.

Instead, the key lies in revamping our delivery mechanism. Let us accept that our public distribution system has not lived up to expectations due to variety of reasons. Not only is there a need to revamp it, but we should also explore other possibilities to reach food to the poor. One possible way could be through NREGS: some part of daily wages in respect of BPL population may be given in the form of foodgrain. After all, if the scheme can be trusted to successfully deliver cash to the poor, it can surely be used to deliver foodgrain as well.

Besides, that would also insure at least part of the wages against inflation. For people above poverty line, the need of the hour is a major overhaul of PDS network utilising the coming UID numbers, coupled with enhanced participation of private traders and gradual withdrawal of the government.

Finally, while there can be no denial that there is a need to have more liberalised policy in place, we must remember to adjust theories of economics to explain life, rather than somehow trying to fit real life in to the theory. After all, for about two decades now, the poor are still waiting for that promised fruit of economic prosperity that was supposed to trickle down, to reach them.

(The author is a deputy secretary in the finance ministry. The views are his own.)

Courtesy: TOI, Dated Nov 26, 2010