This year’s paddy procurement season has started with foodgrain stocks being more than double the buffer stock norms. An increase in grain stocks will put a strain on the already-scarce warehousing space, with consequences for safe storage and usability. Thus, excess holding of grains ought to be avoided. Maintaining a stockpile of nearly 55 million tonnes, with average economic cost of wheat and rice being Rs 18,000 per tonne, would mean locking up resources worth Rs 1,00,000 crore. Worse, it would push up the food subsidy bill to over Rs 90,000 crore this year. This is a clear sign of flawed food policy and bad economics: repeated annual hikes in minimum support prices (MSPs), nearly doubling them between 2004 and now; and open-ended official procurement, resulting in mopping up of over 90 per cent of post-harvest market arrivals in the major procuring areas. All this has given the government virtual monopoly over the food business, marginalising private trade. Worse, it has tended to distort cropping pattern in favour of cereals at the cost of pulses, oilseeds, vegetables and fruit, which are in short supply and are sustaining high food inflation. Such policies could perhaps be defended if the benefits were available uniformly to growers of all crops and in all states.
Unfortunately, that is not the case. Price support and procurement operations focus on a section of wheat and rice growers in a handful of states. Moreover, poor logistics prevent movement of grains procured from the food-surplus areas to the food-deficit regions. This is causing excess accumulation of food stocks in producing areas. If this trend continues, India’s granaries would become a graveyard of grains. Apart from this, the government till recently has been disinclined to explore ways to offload grains other than through the targeted public distribution system and some welfare schemes. Its belated move to sell foodgrain in the open market on its own terms and conditions found few takers. Resuming grain exports, banned in 2007, was delayed unduly. With international prices softening, in response to better harvests in several traditional food-exporting countries, the margins from the export of wheat and non-basmati rice have shrunk.
So the government needs to urgently revisit its outdated food supply-and-demand management policies. The pricing, procurement, stockholding and distribution policy need an overhaul. Addressing these aspects individually may not work. It could even disturb the inter-connected segments of the complex food management chain. The time has come to put an end to the government’s monopoly in the grain trade and food procurement, given that the government has become the biggest foodgrain hoarder. All limits on stockholding, movement and external trade of foodgrain should be lifted so that private trade can play its role in purchasing grains from producers, storing them and delivering them to consumers in a competitive market. This will help reduce the government’s fiscal burden and bring down food prices.
