Pressure is mounting on the government even from within to fix a much higher minimum support price (MSP) for paddy during July – June 2015-16 agriculture crop season than the amount recommended by the Commission on Agriculture Cost and Prices (CACP).
The CACP had recommended a modest increase of 4% which translates to about Rs 50 per quintal over existing price of Rs 1360 per quintal for common variety of paddy. On the other hand, some sections within government are gunning for a hike of double this amount or Rs 100 per quintal.
Meanwhile, farmers organizations e.g. Bharat Krishak Samaj (BKS) have resurrected demand for bonus over and above MSP that some states viz., Chattisgarh, Madhya Pradesh etc were giving to farmers and was disbanded last year on directions from centre.
These are retrograde moves. These are not only in gross violation of the governance code set by the prime minister which is policy driven leaving no room whatsoever for discretion, but also tantamount to halting the process of reform in the food sector.
Modi – dispensation had recognized pitfalls of excessive intervention by the state in food supply chain that involved ‘un-limited’ procurement from farmers, at ever rising prices (based mostly on political considerations), maintenance of excessive stocks hitting levels 2-3 times the buffer norms, selling food through targeted public distribution system (TPDS) to millions of non-poor households (apart from poor) at artificially low prices and reimbursement of cost to state agencies towards handling, stocking and distribution on ‘actual’ devoid of any norms in regard to cost and efficiency
The extant arrangements are not helping millions of surplus producing small farmers as procurement is mostly confined to richer/better-off farmers who also happen to forge clout with state administration and the bureaucracy. The latter are also the prime beneficiaries of increases in MSP even as small farmers had to remain content with much lower price realization selling their produce to private trade under duress.
These hit millions of marginal/subsistence farmers even harder as they do not produce enough to meet even their own consumption requirements and therefore depend on purchase from market at higher prices which follow ever increasing MSP. The condition of millions of landless is even more pitiable as they have no produce of their own and depend on market for all their requirements.
The option of sourcing their needs from TPDS where food is available at government controlled low prices is also very limited. As it is, entitlement per person is 5 kg per month which barely covers 50% of the requirement [10 kg per month estimated by NSSO (National Sample Survey Organization)]. The actual access is even less due to large-scale leakage from the system which on an average is about 50% and may even go up to 70% in some states.
The fate of millions of other poor consumers engaged in non-agriculture occupations viz., industries, services and a host of other business establishments etc is no different as they too are forced to buy bulk of their food requirements from the market place thereby subjecting them to exploitation by traders.
With a major slice of food production cornered by Food Corporation of India (FCI) and other state agencies, quantity available for sale in the market place is less which creates a huge imbalance between demand and supply. This in turn, leads to increase in food prices and a variety of other food-based products.
The biggest pitfall of the extant dispensation is ballooning subsidy which rises in proportion to increase in MSP, quantum of procurement and cost of handling and storage. Further, the clamour of politicians for low price to consumers [under Food Security Act (FSA), these are currently at ridiculously low of Rs 1/2/3 per kg for coarse cereals, wheat & rice] ensures that subsidy is pushed up to un-sustainable levels.
Clearly, the existing system penalizes all stakeholders viz., millions of poor farmers, landless workers, poor consumers and tax payer (having to pay for high food subsidy bill). The only gainers are rich/better-off farmers having clout with the establishment, corrupt bureaucrats/ politicians and dubious traders.
The proof of pudding is in eating. The very fact that vast majority of farmers remain impoverished, thousands leaving agriculture every day and several of them commit suicide daily is ample proof that existing policies have rendered this sector highly un-remunerative. The extant system has expanded leaps and bounds ostensibly to bring succor to millions of poor yet, they are the ones who have remained at the receiving end.
Modi – government started by making some good moves viz., putting a cap on purchases by FCI by restricting these to a level required for TPDS, slow down pace of increase in MSP, putting a stop to practice of giving bonus, asking states like Punjab to reduce Mandi tax and granting flexibility to FCI to dispose off surplus stocks without having to wait for cabinet nod.
However, these are disjointed and un-coordinated actions in piecemeal fashion and fall much short of a major overhaul needed to correct maladies afflicting the food chain. That apart, barring the flexible policy on dealing with stocks that has led to positive outcome (current stock at about 40 million tons is 33% less than it was 2 years ago), in other areas, progress is slow.
Now, with voices for steep increase in MSP and revival of bonus becoming louder (prime trigger for this is impending election in Bihar later this year) and if Modiji acquiesces to such quick fix, this will set the clock back giving a serious jolt to whatever little bit of push to reforms agenda made possible after his taking charge.
Meanwhile, earlier this year, Shanta Kumar committee recommended a package which could be a big impetus to reform. In particular, recommendation to reduce coverage under FSA from extant 67% to 40%, increase in entitlement of very poor from 5 kg under FSA to 7 kg and requiring all others to pay 50% of MSP were aimed at weeding out better-off/rich while granting more relief to poor. Moreover, reduction in coverage would have yielded over Rs 50,000 crores saving in food subsidy. Yet, food ministry developed cold feet over implementation of the committee’s recommendations.
There are other facts to suggest that Modi – government has no plans at least in the near future, to abandon the FSA with all its present negative features. Or else, it would have brought necessary amendments to the Act. For identification of beneficiaries – an exercise several states are yet to complete – they continue to work on premise of 67% coverage that includes a lot of non-poor. If, Modiji intent was to restrict food subsidy only to the poor then, the centre would have issued necessary instructions to states. That has not been done.
Direct transfer of subsidy to bank accounts of beneficiaries is a revolutionary idea. It is intended to cut cost, improve efficiency, eliminate leakages and restrict subsidy payments to the most deserving/poor. All of this will result in substantial saving in subsidy. The money thus saved can be put to better use viz., irrigation, roads, research, extension and other development works. Yet, the food minister is not serious about this idea. He has only talked of running the scheme on a pilot basis in a few union territories!
Clearly, India’s food reforms train has got stuck in ‘twilight’ zone! Modiji will have to get hyper-active to pull it out un-restrained by political compulsions. He should go for a big blast removing all controls on food supply, prices and distribution with full-scale private involvement. Let there be competition is all segments viz., purchase from farmers, handling, distribution and retail sales so that both farmers and consumers benefit.
For meeting the food requirements of poor or reaching out supplies to inaccessible areas or emergency needs (when production falls dramatically due to drought), FCI and other state agencies can always make necessary interventions on behalf of government. They can do it even under market driven framework and need not have to be monopoly buyers – as is the practice under extant dispensation causing all sorts of distortions.
As regards giving subsidy, this should be given directly to poor JAM [Jan Dhan Yojna (JDY), Aadhaar and mobile numbers] platform. They should have full freedom to use this subsidy to buy food from a shop/outlet of his choice, be it a government authorized fair price shop (FPS) or a private outlet (the subsidy entitlement must not be linked to purchase only from FPS).
Implementation of this package will bring relief to millions of poor in all categories viz., small and marginal farmers, landless labour, poor in non-farm sector, eliminate leakages and corruption, reduce subsidy thereby helping fiscal consolidation, boost investment in rural infrastructure and bring relief to public at large due to competition leading to low inflation and better quality products.
Given the huge benefits to millions of poor and economy, prime minister should crack the whip now undeterred by perceived immediate losses, if that be so.