The agriculture sector has not really been the focus of this year’s Union Budget. And much has been written about the cut in allocations to various schemes of the sector. Three schemes for inflation management have seen drastic cuts and only token allocations have been made for them.
This comes at a time when several developed economies are facing high food inflation. In November 2022, the inflation of food-at-home (grocery store or supermarket food purchases) in the US was 12 per cent. Germany’s food inflation in the same month was 21.1 per cent. India has been relatively more successful in tackling consumer food inflation, which stood at 5.7 per cent in December last year.
From crores to a lakh
One of the schemes which saw cuts was the Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM-AASHA). Launched in 2018, it was projected as an important tool to ensure remunerative prices to farmers for crops other than wheat and rice. The Price Deficiency Payment Scheme (PDPS) and pilots of the Private Procurement & Stockist Scheme (PPSS) were to be funded out of this.
Its allocation for FY24 is just Rs 1 lakh, a significant drop from the Rs 1 crore allocated last year. Should we then assume that PDPS as an alternative to physical procurement has been given up?
This year’s budget allocation for the Price Stabilisation Fund (PSF) under the Department of Consumer Affairs (DoCA) is also a token amount of Rs 1 lakh.
Last year’s allocation for the fund was Rs 1,500 crore but it seems that nothing has been spent out of this. It is unclear why the government does not see the need to use PSF to intervene in the market to cool down the prices of certain food items.
PSF was set up in 2015-16 during the Modi government’s first term. The fund allowed a government agency to purchase a food item for which the government foresaw a possibility of high inflation and then sell it at a reasonable rate when the prices rise.
For example, NAFED (National Agricultural Cooperative Marketing Federation of India) purchased Rabi onions from the open market in March-April of 2016-17 and sold them in July-October, when the onion prices in the market rose.
Under PSF, government agencies can even purchase a food item at a price higher than the MSP (Minimum Support Price). And the same can be sold with a reasonable markup or even at a subsidy if the market prices are much higher in the off-season.
Thus, using the PSF, the government can manage a small buffer stock of those commodities for which there is no MSP, for example, milk powder, and commonly used edible oil like refined palm oil.
In the past, some states have used the PDS (Public Distribution System, ration shops) to distribute certain food items, other than wheat and rice, at rates lower than the market. The Union government has directly sold pulses and edible oils through Mother Dairy booths and outlets of government-owned consumer stores.
Currently, wheat flour is being sold at Rs 29.50 per kg at NAFED, National Cooperative Consumers’ Federation of India (NCCF) and Kendriya Bhandar outlets. The price in the open market is about Rs 40 per kg.
The allocation for the Market Intervention Scheme (MIS) and Price Support Scheme (PSS) of the Department of Agriculture and Farmers’ Welfare has also been reduced. The Budget Estimate (BE) for FY23 was Rs 1,500 crore. For FY24, the Budget allocation has been reduced to Rs 1 lakh.
The reduced allocation may imply that government agencies will not procure and sell any pulse, oilseeds or cotton if their prices fall below MSP during FY24.
Even though there is only a token allocation for PSS and PSF, the Budget does provide Rs 800 crore to the Department of Agriculture for the subsidised distribution of pulses. A subsidy of Rs 15 per kg is to be provided to state governments for selling pulses under PDS, PM-Poshan (earlier mid-day meal scheme) or the ICDS (Integrated Child Development Services). This may help in selling the stock of chana (chickpeas) lying with NAFED which was procured under PSS and PSF in the last two years.
Commodities other than wheat and rice are procured under PSS in order to provide support to farmers by protecting the MSP. In the case of horticultural commodities, the government used MIS to purchase produce in case the prices fell down to highly un-remunerative levels. For example, apples have been purchased by NAFED in Jammu & Kashmir.
In the last few years, the Union government has successfully used PSF and PSS for selling certain items at moderate prices.
Thus these decisions are not quite in sync with free food grain distribution under PDS, now named the Pradhan Mantri Garib Kalyan Yojana (PMGKAY).
Also Read: Modi govt can’t replace PMGKAY with free food under PDS. It’s politics trumping good economics
Resources of FCI
Another entry in the budget documents is in the statement of resources of public enterprises. In FY23, the Food Corporation of India (FCI) is projected to borrow Rs 15,000 crore from other sources. For 2023-24, this amount has been increased to Rs 1.05 lakh crore.
The exact reason for this seven-fold increase is not quite clear. There are two possibilities.
First, it could be a short-term loan to meet the gap in the working capital of FCI. It is possible that the government is expecting a much higher level of procurement of wheat and rice for which the existing cash credit limit sanctioned by the consortium of banks may not be enough.
The second possibility is that the government may resume additional allocation of food grains (as was the case under Pradhan Mantri Garib Kalyan Yojana up to December 2022) which will increase the food subsidy. In that event, the budgetary allocation toward food subsidy may fall short. FCI may then raise up to Rs 1.05 lakh crore from the National Small Savings Fund (NSSF).
It may be recalled that in FY21, the Union government cleaned up the budget and cleared the pending subsidy dues of FCI. An amount of Rs 541,330.14 crore was given to FCI and the outstanding dues of Rs 339,236 crore taken from the National Small Savings Fund (NSSF) were repaid. It will be a pity if food subsidy becomes an off-budget item again.
One hopes that management of food inflation in 2023-24 will not suffer due to reduced allocations under schemes which have been used in the past to check inflationary trends.
Siraj Hussain is a former Union Agriculture Secretary. Views are personal.
(Edited by Theres Sudeep)