Insights into Editorial: Reform of grain management system
Context:
With GDP growth rate plummeting to 4.5 per cent and with the agriculture GDP (GDPA) growth at 2.1 per cent in the second quarter of this fiscal year, everyone concerned with the economy is anxious.
The question being asked is whether the Indian economy can be put back on the 7-8 per cent growth trajectory and can Agri-GDP grow at least at 4 per cent.
And now, when the quarterly growth in GDPA is hovering at around 2 per cent, it is a cause for great concern.
Inflation effects in Agriculture sector:
Agriculture still engages about 44 per cent of India’s workforce.
If the masses do not gain from the growth process, their incomes remain subdued, then the demand for manufactured goods, housing and other goods will remain low.
Inflation is led by different components of the food segment: cereals, pulses, and vegetables: in the consumer price index (CPI).
Low demand in the economy is one of the main reasons behind India’s great slowdown today.
Interestingly, it is during this slowdown that inflation has started to surge after a long period of low inflation during last five years.
Also, there is the challenge of not slipping on the fiscal deficit target of 3.3 per cent.
The Comptroller and Auditor General of India (CAG) has already indicated that the real fiscal deficit of the country is much more if one accounts for the loans taken by many public sector undertakings (PSUs).
Therefore, Managing and Improving inefficiencies will provide more resources for other works:
- The central as well as state governments should take a look at the massive inefficiency in the grain management system under the National Food Security Act (NFSA) to find the required resources.
- The NFSA gives certain quantities of wheat and rice to 67 per cent of the population at Rs 2/kg and Rs 3/kg respectively, while the economic cost of these to the Food Corporation of India is Rs 25/kg and Rs 35/kg respectively.
- This led to a provision of Rs 1.84 lakh crore for food subsidy in the last Union budget.
- Not many people know that the FCI had pending bills of Rs 1.86 lakh crore that have not been cleared by the government, and that it has been asked to borrow more and more to finance its operations.
- The grain stocks with the FCI are far more than double the buffer stock norms as on January 1, every year.
- The massive accumulation of grain stocks is the result of a deeply inefficient strategy for food management wherein the procurement for wheat and rice (paddy) remains open-ended, but the disbursal of those stocks remains largely restricted to the public distribution system (PDS).
- The open market operations (OMO) are much less compared to what is needed to liquidate the excessive stocks. We don’t have a clear strategy. And now, if the rabi procurement is good, FCI may not have the storage space to accommodate it.
- The money locked in these excessive stocks (beyond the buffer norm) is more than Rs 1 lakh crore.
- Even if the government decides to liquidate half of it, it can garner Rs 50,000 crore to finance at least half of its infrastructure projects.
Solution: Shanta Kumar Committee Recommendations:
The government had set up a six-member committee in 2014 to suggest some streamlines to the Food Corporation of India (FCI) regarding storage, procurement and distribution of the crop. The committee is headed by Shanta Kumar.
Procurement:
- Grain procurement surplus state like Punjab, Haryana should be delegated to state government.
- Food Corporation of India (FCI) focus more on price support operations in Eastern states like Uttar Pradesh, Bihar, West Bengal, Assam etc. where the majority of the farmers are small and marginal.
Procurement Payment Systems:
- Under this system popularize negotiate Warehouse Receipts (NWRs) system should start in which farmers can deposit their produce to the FCI authorized warehouse and can get advance from banks against their produce valued at Minimum Support Price (MSP).
- This will bring back the private sector and reduce massively the costs of storage to the government and be more compatible with a market economy.
Storage Reforms:
- The government should introduce storage reforms in the country such as to outsource grain storage function to Centre Warehousing Corporation ( CWC), State Warehousing Corporation (SWC) and Private Sector Players.
- The government should introduce a Private Entrepreneur Guarantee (PEG) scheme to construct go-downs, cold storage and other infrastructure based on Public-Private Partnership (PPP). It increases efficiency and infrastructure.
- For the storage purpose government should adopt ‘Silos’ rather than gunny bags. Because they are more efficient are safe for storage.
- Provide rail connectivity and end to end computerization and online tracking from procurement to retail distribution.
Reforms in Policies:
- The government should reform MSP policy and better price support operations for pulses and oilseeds.
- Proactive Liquidation Policy for excess buffer stocks.
India can improve its quality of services with the implementation of good policies. The government must focus on mechanized policies that escalated the growth and development of the economy.
Way Forward:
Finance Minister has already announced an investment package for infrastructure of about Rs 102 lakh crore over the next five years, which implies more than doubling the growth in infra-investments from its current levels.
The legitimate question being asked is: Where will the resources come from? The announcement does not unveil any clear strategy on the resource mobilisation front.
Here are the two cents to raise (save) Rs 50,000 crore per annum to finance infrastructure projects without causing high inflation or without breaching the fiscal deficit target.
The blueprint for reforming the grain management system was presented to the PM by the Shanta Kumar panel.
Only three points need reiteration:
First, while the poor under the Antyodaya category should keep getting the maximum food subsidy, for others, the issue price should be fixed at, say, 50 per cent of the procurement price.
Second, limit subsidised grain distribution under NFSA to 40 per cent of the population rather than the current 67 per cent.
Third, limit the procurement of rice particularly in the north-western states of Punjab and Haryana where the groundwater table is depleting fast, and invite private sector participation in grain management.
Conclusion:
We need bold moves to reform our grain management system. There is no need to set up another expert committee for this.
If the government can implement just these above points, it can save another Rs 50,000 crore annually.
On top of this, it will help the government to reduce its fiscal deficit. And if it liquidates stocks fast, it can contain inflation too.
