How did the Food Corporation of India come about holding such massive stocks of rice and wheat? As of June 2020, the FCI had 832.69 lakh tonnes of rice and wheat in stock. This is considerably more than what the FCI needs to maintain, as both operational as well as strategic stock — 210.40 lakh tonnes as of 1 April every year, which goes up to 411.20 lakh tonnes as of 1 July.
The current stock of rice and wheat is the highest that the FCI has maintained since 2005. The last time the stocks were near such high levels was in June 2012, when the total amount of rice and wheat in the godowns of the FCI was 823.17 lakh tonnes.
Procurement of rice and wheat by the FCI and other state agencies on behalf of the government has gone up over the years. In June 2016, the total stock of rice and wheat with the FCI stood at 534.29 lakh tonnes. This increased to 555.40 lakh tonnes in June 2017, 680.25 lakh tonnes in June 2018, 741.41 lakh tonnes in June 2019, and now 832.69 lakh tonnes in June 2020.
The FCI and other state procurement agencies buy rice and wheat directly from the farmers all over India at a minimum support price (MSP) announced by the central government. While the government announces an MSP for 23 different crops, it primarily buys rice and wheat. It has started buying some pulses lately as well.
Rice and wheat are bought mainly to be distributed at a highly subsidised price through the public distribution system (PDS), more popularly known as ration shops, to meet the requirements of food security.
A legacy of excess buying
Given the fact that stocks of rice and wheat have gone up over the years, it is clear that the government has been buying more from farmers than what it requires to meet the needs of food security.
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This excess procurement is an excellent example of bad economics that all Indian governments, and not just the current one led by Prime Minister Narendra Modi, have practised. However, the excess procurement has helped the government distribute free rice, wheat and pulses in these tough times of a pandemic. Recently, the Modi government extended the free distribution of ration under the Pradhan Mantri Garib Kalyan Anna Yojana until November 2020.
Sceptics may see this as a move to influence the voters in the Bihar state assembly election scheduled later this year, and that might be the case, but distributing rice and wheat for free in these tough times is a good idea.
So, does that mean that the government was right in all the excess procurement over the past few years? Not really. In economics, there are seen effects and then there are unseen effects. The seen effect here is that the Modi government ended up storing much more rice and wheat than what was required and then was able to distribute those once the coronavirus pandemic struck.
The unseen effect here is that the government ended up spending a lot of money in buying rice and wheat, which it couldn’t use elsewhere. That money could have been easily spent on public health infrastructure, which India so badly lacks.
Moreover, between April and November 2020, a total of 320 lakh tonnes of rice and wheat will be distributed for free through the public distribution system. Despite this, the FCI will continue to have excess stock of rice and wheat. Hence, it makes sense to continue the free distribution beyond November. The FCI typically tends to divert old stock for other purposes such as ethanol production and feed. It is better to distribute the excess stock among the people in need than use it for other purposes.
Fix the lacunae
India’s excess procurement policy needs a relook. It incentivises farmers to produce more rice and wheat than what the country requires. As the Economic Survey of 2015-16 had pointed out: “Public procurement at MSP has disproportionately focused on wheat, rice and… perhaps even at the expense of other crops such as pulses and oilseeds. This has resulted in buffer stocks of paddy and wheat to be above the required norms, but also caused frequent price spikes in pulses and edible oils.”
Another thing the government must look into is the disproportionate focus on certain states when it comes to excess procurement. More than 95 per cent of paddy farmers In Punjab and close to 70 per cent in Haryana are covered under procurement operations. This encourages them to grow rice in what is largely a semi-arid area, resulting in depletion of groundwater levels.
In comparison, only 3.6 per cent of paddy farmers in Uttar Pradesh, 7.3 per cent in West Bengal and 1.7 per cent in Bihar, the other major rice-producing states, are covered under procurement operations. This is like the government promoting inequality across different states and it needs to end. The procurement operations in other states must improve.
But all these measures can be effective only under a robust agricultural marketing system, which India currently lacks.
Vivek Kaul is the author of Bad Money. Views are personal.
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