States should move on food security

ECONOMIC SURVEY 2003-04/ AGRICULTURE AND RURAL ECONOMY

The Economic Survey has described the present food management system as fiscally unsustainable and has suggested an increased role for state governments and the private sector in food procurement, storage and distribution.

It has outlined several factors that have raised the cost of foodgrain handling, necessitating heavy subsidisation to ensure food security.

These include high minimum support prices (MSPs), high cost of borrowing by the Food Corporation of India (FCI), heavy state taxation on procured grains, highly centralised system of procurement and distribution and management inefficiencies.

Consequently, the costs incurred by the FCI on foodstock management have been rising year after year. High statutory levies on grain purchase, including mandi charges, cess and fees to commission agents not only discourages private trade but also increases FCI's costs.

Such levies are the highest in Punjab, Haryana and Andhra Pradesh -- states that contribute the bulk of the grain to the central grain pool.

Food credit by banks to FCI account for about 5 to 6 per cent of the total bank credit. It is provided by a consortium of 50 commercial banks led by the State Bank of India.

Only recently has FCI been allowed to partly meet its funds requirement through direct market borrowing by issuing government guaranteed bonds. This is likely to help reduce the burden on food subsidy by a minimum of Rs 2,000 crore.

The fiscal implication of the mounting food subsidy, which has grown over 10 times since the early 1990s, is a serious threat to the sustainability of the country's food security system in its present form, the survey has said.

It adds that there is a need to address the issues adversely affecting the efficacy of the food security system.

The survey has also suggested a possible solution to this problem. The Centre should announce only the procurement price (MSP plus 4 per cent) and leave it to the states to notify how the procurement price will be shared between the farmers and the state and local governments.

"The state governments and the private trade need to be induced to enter into foodgrains trade covering procurement, storage and exports, and all barriers to private trade, economic as well as legal, should be removed," the survey says.

Decentralised procurement is intended to benefit both the farmers and the consumers, while reducing the fiscal burden of the government.

Although states feel that they do not have the necessary infrastructure and financial resources to undertake procurement operations, there is no alternative to decentralisation in the long term, the survey has said.