High procurement good strategy or bad arithmetic?
About two months ago New Delhi was involved in a fire-fighting exercise on the food front, particularly on the wheat front. It put embargo on rail transport for private trade, scrapped the futures trade, told private traders to keep away from procurement, etc. Now there is smugness and the Ministry of Consumer Affairs is shouting from the rooftops that there is a "record" procurement of 21 million tonnes and the Food Corporation of India (fci) godowns are overflowing with wheat. As against the buffer norm of 15 million tonnes, New Delhi is holding more than 6 million tonnes of wheat in excess, of which over 4 million tonnes was the opening stock when procurement commenced. With the harvest estimate of more than 76 million tonnes, New Delhi is bound to feel euphoric until one examines the fine print.
Look at these figures.The cost of storing food grain in the fci godown is Rs 2,400 per tonne a year. For each month of storage the cost is pushed up by Rs 200 a tonne. In other words, a tonne of stored wheat would cost Rs 12,400 (at Rs 10,000 a tonne procurement price), plus a local tax of Rs 1,000 paid at the time of procurement. For 21 million tonnes of wheat that might remain in the fci godowns for a year, New Delhi will have to cough up an astronomical figure of Rs 10,080 crore just for storage. If agriculture minister Sharad Pawar adopts the same strategy for rice as well (though the total procurement is not yet known, going by the Indian Meteorology Department's predictions, we can expect a good monsoon, hence a bumper rice crop), there will be a real big hole in the national kitty just from storing the procured wheat and rice. The logical conclusion would be that the nation's food subsidy bill will go through the roof. The subsidy bill had already ballooned to Rs 25,425 crore for 2007-08 (a 6.75 per cent increase over the previous year).
There is another scare. There is intense pressure to enhance the procurement price of rice for parity with wheat, especially with elections staring in the face of the United Progressive alliance (upa). To succumb to this populist pressure will ruin the economy. Already farmers' loan waiver has been scaled up. Enhancing the minimum support price (msp) for rice is another carrot that can be dangled at the huge farmers' vote bank. I am not arguing that New Delhi should not pay enough to our toiling farmers. But higher msp--especially if it is unrelated to incremental production costs--will end up being counterproductive, as it is bound to push up open market prices and, inevitably, inflation. Ultimately, the consumer will end up paying more for food.
Against this background, the upa, or more likely Sharad Pawar, will not be in a position to stem the temptation to "export". That's what the nda regime did six years ago. The nation exported close to 25 million tonnes of wheat at prices below what was sold to the below poverty line (bpl) segment of the population because the exchequer was being drained on account of storage costs. And not because the country produced surplus food. Like now, a limitless procurement policy was in place, never mind those in interior India starved and died in thousands.
It is the same situation today; leave alone the poor, even the middle class finds food a lot more expensive than earlier. It looks as though this could be the scenario that the upa is heading for, courtesy "Pawar strategy", in an election year.
The best course for New Delhi is to stop this mindless procurement and let the private trade take over. But who is listening? This is an election year and one needs to play to the galleries. Never mind the economy. Inflation, especially food-related inflation, is already going through the roof.
The author is an agricultural scientist of international repute, based in Kerala
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