Food Security Act-A "Tuglakian" venture?

India is a country of entitlements of different categories to various people and government is happy splurging public money to cater to these claimants whether they really deserve them or not. Latest addition to the entitlement landscape in the country is doling out almost free food grains to 67% of the population from the granaries of the government. The so called Food Security Act which confers on the designated population the "right" to receive practically free food grains like rice, wheat or coarse grains was hastily thought of by the previous government without much thought to the heavy burden put on future governments to harness sufficient resources to meet these commitments. Interestingly the government provided an escape clause in the Act if it is unable to procure adequate grains for supplying to almost 800 million people who were designated to receive the entitlement, though God knows what criteria were used to identify the beneficiaries. In lieu of supplying grains at the rate of 5 kg per person government intends to compensate the beneficiaries with cash transfer from the public exchequer at a certain calculated rate. Here is a gist of the scheme under which cash compensation is paid. 

"If a beneficiary under the National Food Security Act does not get his or her entitlement, then he/she would get an allowance of 1.25 times the difference between the government's Minimum Support Price (MSP) for that grain and the prescribed rate under the law. This is according to the recent rules framed by the Centre in this regard. The current MSP of wheat is Rs 1,450 a quintal and so, an individual beneficiary will get Rs 80.60 a month for not getting the entitled five kg. The allowance will have to deposited in the bank account or given to him. "Suppose a beneficiary has not received three kg of wheat in a month due to non-availability at the ration shop. The state government will have to ensure he or she gets the allowance as laid down in the rules," a senior official said. The Act, passed in the tenure of the earlier government, gives a legal entitlement for cheap grain to almost 67 per cent of the population. All entitled beneficiaries will get in a month as much as five kg of wheat, rice or coarse cereals at Rs 3 a kg for rice, Rs 2 a kg for wheat and Rs 1 a kg for coarse cereals. Once implemented, the Act is expected to cost the exchequer about Rs 130,000 crore a year. Around 11 states and union territories have implemented the Act and others are in the process of doing so. The Centre has extended the deadline several times. The Centre has said a nodal officer will have to verify at the end of each month the amount of grain available in the ration shops, the status of supply to entitled beneficiaries and the reason why grain could not be supplied. "The food security allowance in lieu of grains will have to given to the beneficiary by the end of the third week of the month for which grains could not be supplied to him." However, a beneficiary will be eligible for the allowance only if he visits the ration to claim the entitlement."

It is a tragedy that under the so called food security program, the right to receive heavily subsidized cereals is conferred only to some while other citizens are deprived of the same. Is it not a type of discrimination where some are given the benefits while others are denied it? Legally is it tenable? It is another matter that many citizens would voluntarily give up this right because of their conscience not to put unnecessary burden on the exchequer and avoid wasting public money. It is possible that most of the people who receive these grains have the wherewithal to pay for the grains at rates used to be charges under the earlier Public Distribution System. With the MNREGA scheme guaranteeing job for 150 days at the rate of Rs 150 per day there may be very little justification to provide grains at throw away prices. If the nation is serious in providing succor to really poor people, the government must create a data base identifying such people through scientific surveys. Probably there might not me more than 10-15% of the population in the country who deserve such helping hand from the government in providing basic foods at affordable prices. .It is nothing but suicidal for the present day government to commit precious resources of such a magnitude, estimated at almost Rs 130 billion every year which could have been better invested on the creaking infrastructure in the country!

V.H.POTTY
http://vhpotty.blogspot.com
http://foodtechupdates.blogspot.com

A food policy worthy for the archives!-India's food woes

Recent clashes between India and rest of the world at the Bali meeting of WTO helped us to get an insight into the problems India has been facing in the food front because of lack of objective changes in the country's food policy during the last 5 decades. According to many impartial observers the stand of India in the above meeting was not rational and it does not recognize its own deficiencies vis-a-vis policies and practices involved in food production, procurement, storage, distribution and price subsidization. It is a late realization that our existing policies need to be moth balled because they are out of sync with what is happening else where in the world, that a revamp was considered by the new government at Delhi. The panel vested with this responsibility did a commendable job within a short period of time. India's "committee culture" which has the incredulous capacity to delay taking decisions in any field, did not come in the way of completing the report in record time and  the recommendations made by them deserve speedy implementation with high priority. Here is a take on this report which provides interesting reading.

"The report makes five sensible and practical suggestions. First, get the FCI out of the business of procurement in grain-surplus states like Punjab, Haryana, Madhya Pradesh, Chhattisgarh, Andhra Pradesh and Odisha, and shift its focus to eastern Uttar Pradesh, Bihar, Assam and West Bengal. The FCI can purchase grain above its NFSA needs from surplus states, but the actual purchasing should be handled by the states themselves. Getting the FCI out of direct procurement is a good idea and it's not clear why pushing it into procurement in the eastern states is desirable. It would be better to build procurement capacity in eastern states and help fuel another green revolution. Second, the report pushes for a national warehousing system under a PPP model to reduce wasteful storage and transport costs. Farmers can deposit their produce at these warehouses and receive up to 80 per cent of the MSP value of this produce from banks — and then sell it later at market prices. This will be a major improvement as it would reduce storage costs and wastage. Third, the panel suggests that state bonuses be the responsibility of the states and levies be made uniform at 3 per cent. This would help avoid the costs of huge bonuses paid by the states and financed by the levies they charge the FCI to procure from their farmers. Fourth, the panel moots shifting to cash payments for inputs like fertilisers and rationalising the price of urea so that the NPK mix, which has been distorted by urea pricing, is reversed. Smuggling to neighbouring countries and other distortions caused by urea pricing would also be removed. Huge productive investments in the fertiliser sector are needed but have been held back by the absurd pricing system, which has made India even more dependent on fertiliser imports. Fifth, the panel suggests amending the NFSA and reducing the subsidised population to 40 per cent instead of the current 67 per cent. It also suggests BPL consumers get more subsidised grain — 7 kg vs 5 kg — but that the issue price be linked to MSPs, except for the very poor. Further, in cities that have a population of more than one million, fair price shops should be replaced by DBTs. If implemented, these recommendations would provide more food for the poorest population, reduce FCI costs, bring private trade back into the system and give poor urban consumers greater choice in their food basket. It will hurt labour unions that are gaming the FCI system and states that use bonuses as a political handout, which they get the Centre to pay for through levies. This would hugely reduce the massive leakages and corruption in the food chain. If India can implement these reforms in the coming years, it would also avoid unnecessary battles at the WTO. It's time to begin reforming a system that may have served us well 50 years ago but is now benefiting a few at a huge cost."

Subsidy is not a bad word when it comes to upliftment of poor people from their poverty ridden life but when such subsidies are doled out mindlessly as a part of the vote bank politics, it becomes a scandal bordering on crime and shame. It is beyond any body's comprehension as to why government must subsidize well to do citizens even for buying a cooking gas cylinder or for that matter why should subsidized food grains be given under the APL card system to people who have sufficient income to buy the same from the open market? One of the most brilliant suggestions coming from the above panel is to reduce the population coverage under the NFSA from 67% to 40% saving enormously on the total outgo on this count. Similarly the country should have a reliable data base on its citizens vis-a-vis income details, in stead the politicians trying to conduct surveys on caste and religion! To start with, all government employees, those owning a mobile phone, two wheelers, four wheelers, houses, paying IT regularly, registered business men, air travelers, higher class train travelers, etc must be taken out of the list of people eligible for receiving government subsidy. Whether the present government has the courage to do it is another matter. Unless this is done, we as a nation is going to be left behind in the global race to attain economic strength and status.

V.H.POTTY
http://vhpotty.blogspot.com
http://foodtechupdates.blogspot.com

Food subsidies in India-New suggestions to make them more rationale

The so called Food Security Act is an anachronism as it was based on a populist policy with the sole aim of collecting votes during election time from an electorate thought to be obliged to the political party that piloted the bill. The then government forgot that it was pledging future earnings of the country in perpetuating this dole out year after year working out to more than 1 lakh crore rupees an year! Revisiting this Act by the new government raised some hope that the senseless commitment of future generations to sustain the program might turn out to be a millstone around the neck of the nation. The Shantakumat committee set up to review the Act has submitted its recommendations recently wasting minimum time as is usually the case with government set up commissions. A perusal of the report gives hope that there would be drastic revision of the Act soon if government is serious about its intentions. A gist of the report is reproduced below which gives an insight into the thoughts of the experts who did a commendable job in record time. 

The government should reduce coverage under the National Food Security Act (NFSA) to 40% of the population from 67% and defer implementation of the scheme in states which have not complied with the rollout conditions, a panel appointed by Prime Minister Narendra Modi has recommended. The panel headed by former food minister Shanta Kumar submitted the report to the PM on Wednesday. Reforming the subsidy regime is a key plan of Modi's economic reforms. It has recommended far reaching changes in the functioning of the state-run Food Corporation of India (FCI) and the minimum support price (MSP) regime. It has suggested that the food grain under NFSA for those under the below poverty line should be raised to 7kg per person from the current norm of 5 kg. It has also called for moving to a direct cast transfer regime for food subsidy and estimates that the savings on food subsidy could be as much as Rs 30,000 crore per year. "Move to cash transfer and start with 53 million-plus cities. The states which are deficit in grains should be given the option of either grain or cash," said a source. The panel has also suggested that fertilizer subsidy should be paid to farmers directly on per hectare basis which comes to around Rs 7,000 per hectare. "This will result in saving nearly Rs 10,000 to Rs 15,000 crore annually in fertilizer subsidy," the source said. There should be a liquidation policy which will kick in immediately when the stocks go beyond the buffer stock limit. At present, FCI sells in open market or exports after approval cabinet which some experts say raises its carrying cost. "FCI should get a free hand," the source said. The panel has recommended that the name of FCI be changed. "The new of FCI will be akin to an Agency for Innovations in Food Management System with a primary focus to create competition in every segment of food grain supply chain, some procurement to stocking to movement and finally distribution in public distribution system so that the overall costs of the system are substantially reduced, leakages plugged and it serves large no of consumers and farmers," the source said. The panel has said that FCI should move its procurement move to eastern states. "If any state is giving bonus, the payment for the extra procurement should be borne by that state and not FCI," the source said. It has also suggested that there should be an upper limit on taxes imposed by states for procurement. For example, Punjab has 14.5% tax while Gujarat has less than 2%. "The upper limit should be 4%," the source said. The FCI should revamp its grain handling and stocking operations, the committee has recommended. It should move to bulk handling and mechanize the operations to reduce its dependence on so called "labour gangs." Temporary storage should be done away with gradually with no grain stock remaining for more than three months. The agency should run "grain trains" for moving food grains. The stocking operations should be handed over to the Central Warehousing Corporation, state warehousing corporations. The private sector should also be encouraged to build silos. All existing silos of FCI should be revamped, the panel has recommended. The country needs 10 million tones capacity of storage."Government needs to revisit its MSP policy. Currently, MSPs are announced for 23 commodities, but effectively price support operates primarily in what and rice and that too in selected states," the source said.

Suggestions like reducing the coverage to include only deserving population, reforming Food Corporation of India, reducing taxes on grains, moving to cash transfer mode for delivery, increasing the quantum receivable by a person by 40%, revising the norms for distribution of fertilizer subsidy to farmers, changing the minimum support price system etc will have far reaching benefits if implemented sincerely. There is one area where the Panel did not seem to have bestowed its attention and that pertains to integrating food security with nutrition security. Instead of a cereal only policy under NFSA, probably pulses at least could have been included in the benefit basket. The Andhra Pradesh model implemented recently under a new scheme provides 9 commodities including pulses, oil, salt etc though the coverage is comparatively small targeting certain poor segments of the population. Probably as a socially responsible country India must aim to improve the nutritional status of the poor people through supply of such a balanced food basket. 

V.H.POTTY
http://vhpotty.blogspot.com
http://foodtechupdates.blogspot.com

TO BE OR NOT TO BE!-THE POLICY PARALYSIS ON WHEAT

Is it not a fact that on every issue that confronts the nation there are at least two opinions and in a democracy there there can be as many views as the population itself? Latest issue that is inviting rave views concerns the bumper production of food grains being claimed by the government and what should be done with it because the grain storage capacity cannot accommodate the entire grains procured by the government agencies at an MSP considered high by many economic pundits. Added to this there are proposals to increase the MSP further to play to the farm lobby interest. Extent of wastage due to rotting of wheat which are stored in Godowns and open space under the CAP system is no body's business with even the Supreme Court castigating the government for its shirking of the responsibility to feed the nation qualitatively and quantitatively. The paradox and irony of the situation are graphically illustrated by a recent report which is highlighted below.

"Why are we paying Rs 20 for a kilo of atta when India has gathered a historic wheat harvest of 90 million tonne, enough to comfortably feed us all? Why is bread going out of the reach of lakhs of school kids, when grain is rotting in government godowns? Why is the Manmohan Singh government willing to subsidize wheat exporters but not ready to sell more in ration shops? There is only one answer to these troubling questions: it's no accident, it is policy. It starts with the government's inability to say stop. Government supplies wheat to ration shops and welfare feeding programmes through the Food Corporation of India. This year, after keeping aside buffer and strategic reserves, the FCI can be comfortably off with 35 million tonne. On April 1, when the new wheat marketing season began, government started with 20 million tonne left over from last year. And it has bought 10 million tonnes more since then. In other words, government can shortly exit the market. FCI has enough space to store this wheat safely. Thefood subsidy bill would be manageable. And there would be ample wheat left with farmers for food companies to buy. With a minimum support price of Rs 12.80 per kilo, atta would not cost us more than Rs 16. But this scenario doesn't reckon with politics. The government does not dare stop buying as long as even one farmer in Punjab and Haryana wishes to sell. The political reprisal would be swift and deadly. Till two years ago, there was a natural limit to government purchases because FCI was largely absent in other wheat-growing states. Then, under pressure from other chief ministers desperate to replicate Punjab's political success with wheat, government allowed states to buy on FCI's behalf. This opened the floodgates. Madhya Pradesh and Rajasthan began offering farmers the MSP plus Rs 1 per kilo extra, creating a stampede of sellers. Bihar, Gujarat, and Maharashtra are also buying enthusiastically". 

While large farmers are cozying up to the government to reap big profit from their large holdings, it is the small and marginal farmer with a tendency to commit suicide because of the inequities that stare at them are adversely affected, no matter how high the MSP is! How about the consumer who is sidelined in this raging debate and what are his thoughts? Desperation, frustration and helplessness are his fate! Why not government sit up and take note of the daily sufferings inflicted on him by the policy paralysis that is evident for the aam aadmi of this country? It is true that there is no magic bullet to save the country from chaos brought upon by the present power class which seems to be more obsessed in staying in power "at any cost". But displaying statesmanship and ability to recognize the sensitivity and sufferings of the people should be the hallmark of good governance and lot of the problem that face the country can be sorted out through sincere consultation and cooperation among the political class. Any body at Delhi listening?

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

INCREASING MSP FOR FOOD CROPS-GOVERNMENT DILEMMA!

Only recently that economic pundits in India were worried about the increasing disparity in grain prices between that rule within the country and that prevalent in global markets. The uncertainty regarding the decision to be taken by the Indian government as to what to do with the bumper crops expected this year is vitiating the situation further. While government does not have adequate grain storage capacity to store all the food procured, export is likely to be uneconomical, especially wheat, if one goes by the prices obtaining in international market. One of the reasons attributed to this "catch-24" situation is the relatively high prices being paid to the farmers who find it profitable to sell their "fruits of labor" to the government rather than to private traders. If the recommendations of the CACP, which are under the consideration of the government, are accepted there is bound to be a cascading effect on domestic food prices with potential for civil unrest by a population already burdened with high food inflation. Here is a take on this critical issue which raises more questions than answers regarding the direction in which the country is moving. 

"There is unease in the government, especially in the finance ministry, on the implications of the 15-53 per cent rise proposed by the Commission on Agricultural Costs and Prices (CACP) in the Minimum Support Price (MSP) for kharif crops.  However, the CACP has defended its recommendations as just enough to ensure a reasonable return to farmers and for food security. The Cabinet is likely to take a decision on the MSP next week, to give enough time to farmers on planning their sowing decisions. Official sources were doubtful if an increase could be sustained beyond 10-25 per cent, barring one or two crops where production needs to be enhanced or farmers had faced big losses due to unfavourable weather conditions, as in groundnut. Besides, the Prime Minister's Office has ruled out any possibility of a bonus in addition to the MSP. Officials say a bonus is to be considered if the MSP does not take into account any sudden increase in cost of production or any external factor not factored in. There is no case for an additional, said officials. It is learnt the ministries of finance and food have questioned the recommended increases of the CACP, citing high inflation and food prices as a cause of worry"

CACP is, of course, a knowledgeable body and may not like any questions raised against its calculations and estimates. But if these new MSP figures are worked out on the economics of running a farm of one acre of land or such small land holdings, so common in India, it may be a skewed projection. Government must take into consideration the non-viability of farms below a certain size and if feasible evolve a program that will compensate poor farmers in stead of raising MSP to alarming levels which will only enrich the pockets of large farmers running big farms. It is true that the task of a government in balancing the interests of farmers and consumers is an unenviable one and offering advice ad libitum may be easy for critics. Still all hues of opinion must be listened to before taking a realistic decision equitable to all.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

   

FLEECING THE FARMERS-A NATIONAL SHAME!

Ever since independence, conscious attempts were being made to improve the status of agricultural farmers so that this segment of the population which supports the food needs of more than a billion population to day can lead a reasonable quality of life. Farm income is crucial to achieve such a goal and if what is happening to day is any indication, Indian farmers are destined to be perpetually poor. Empty words and insincere efforts are not going to make any impact as reflected by the countless suicides reported amongst the farmers due to unbearable debt burden and low farm income.

"At Ghazipur, the wholesale commission rate (what farmers pay just to enter the gates) is 10 per cent. "Ten per cent is a ridiculous commission for a five-minute job! It should be less than one per cent," Gulati says. He says the middlemen and retailers add 30-50 per cent to the retail prices of vegetables. This, he says, can be lowered to 3 per cent if middlemen and agents are eliminated or streamlined. Gulati also recommends encouraging direct procurement by retail on a larger scale (when there are no agents, no commissions have to be paid)".

The Minimum Support Price (MSP) scheme is indeed a welcome move but it applies to only some farm produce, bulk of the others being not covered. This is especially true regarding fruits and vegetables where wide difference exists between farmer price and consumer price as reported above. Reducing commission may improve the situation but the hardened middlemen will find some other means to extort the hapless farmer depriving him of what is legitimately due to him. The "Safal" experiment of NDDB must be reinforced and repeated all over the country if the current distortion is to be set right.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

APPLE, PORK AND CHERRY-FARM TO THE SCHOOL!

Capitalistic system of governance is supposed to leave the business to businessmen, confining itself to the sacred function of ensuring consumer protection from economic and safety considerations. In India during Nehruvian days government entered the business in a large way and practically every industrial sector was dominated by public enterprises with government investment. It was only recently that government changed its policies vis-à-vis industry and allowed private sector to flourish. But entrepreneurship development requires constant government support and it is the duty of the government to come to the aid of industry when ever there is an economic downturn or demand slump. Look at a country like the US, the very epitome of capitalistic economy, where government provides prop for the private industry through public purchase programs in a large way.

"In his appearance at the National Association of Farm Broadcasters convention in Kansas City, Vilsack announced the agency's intention to purchase $82.6 million in pork, cherry, plum and apple products for federal food nutrition assistance programs."Today's actions will help stabilize prices and markets, stimulate the economy, and provide high-quality food to Americans in need of USDA's nutrition assistance programs," Vilsack said in a news release. The USDA intends to purchase $50 million in pork, $12 million in tart cherries, $1.8 million in dried plums and $18.6 million in apples and apple products.The purchases support the school lunch and breakfast programs, the summer food service program, the Food Distribution Program on Indian Reservations, the Commodity Supplemental Food Program and The Emergency Food Assistance Program. In addition, the agency makes emergency food purchases for distribution to victims of natural disasters".

The PPP model of industrial development involves, governments participation in some form but leaves the day to day management in the hands of the private partner. In India PPP model is just being tried in several sectors and how it will shape up remains to be seen. One of the most potential areas for government support in the country is in the applied nutrition program for which a budget provision of about Rs 8000 crore has been made. It is true the government has several farmer support programs and the MSP scheme is intended to prevent distress sale of farm produce though this is limited to durable crops. With renewed emphasis on Fruit and vegetables and the operation of the Horticulture Mission, GOI may consider procuring these nutritious commodities for channeling into the mass feeding programs, benefiting both the growers and the poor beneficiaries of the program.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com