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The missing grain

Published : Oct 24, 2003 00:00 IST

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By selling and exporting huge food stocks at unremunerative prices or allowing them to rot in FCI godowns, the government has committed a crime against millions of people who are in dire need of food and jobs.

FOR the past year or more, Indian policymakers have used the large stockholding of foodgrain by the Food Corporation of India (FCI) as evidence of the efficacy of official economic policies and proof that India has become a surplus producer of foodgrain. But, of course, anyone with some knowledge of history will realise that such a perception is not justified. Apparent foodgrain "surpluses" and exports of food are not always signs of domestic self-sufficiency and market saturation.

India was a net exporter of foodgrain even in the late 19th century under colonial rule when much of its population was denied access to adequate food. The food surpluses that were exported at that time resulted not from excess production, but from distribution patterns that denied large parts of the population even food for subsistence. Unfortunately, the situation in recent times may not have been so very different. How else can we explain the amazing fact that per capita calorie consumption has actually declined in India, especially among the bottom 40 per cent of the population (by consumption expenditure groups) in this supposed period of plenty?

The large foodgrain stocks did not come cheap for the India economy. They were expensive to hold, because simply the carrying cost of these was estimated to be around Rs.2 a kilogram. The total carrying cost of foodgrain stocks exceeded Rs.14,000 crores in the last fiscal year.

But more than the financial cost, of course, these surplus stocks amounted to a tremendous waste of resources. Many observers have pointed to the obscenity of holding such large surplus stocks at a time when there are hundreds of millions of people below the official poverty line, and even more - around half the rural population - whose estimated calorie consumption in 1999-2000 was less than the minimum that is supposed to be required for physical subsistence.

Of course, these stocks also represented a tremendous opportunity. If some of these stocks had been used in a massive food-for-work public works programme to generate and maintain infrastructure, it would have had many positive effects upon the Indian economy. It would not only have reduced the unnecessary cost of holding foodgrain by the FCI but also provided more food to poorer households, especially people in the rural areas, whose food consumption has fallen because of the rise in the relative price of food in the past decade. It would simultaneously have increased employment generation (especially in the rural areas) and created much needed infrastructure.

Since the economy has been in recession over the past few years, such expenditure and the income released by it would also have had very positive linkage and multiplier effects, generating more employment and more economic activity especially in the rural economy which is now in a state of crisis. So, while these stocks were costly to hold, they provided a tremendous opportunity for policymakers to correct some of the major imbalances in the Indian economy, to improve distribution, provide more employment and even generate more infrastructure in the rural areas.

But now it turns out that the opportunity that was provided by these food stocks has passed by, since they have been very rapidly run down. The official estimate of total food stocks held by the FCI at the beginning of August this year was just above 30 million tonnes, which means that they had been run down to less than half their value a year previously.

The latest (informal) estimates suggest that by the beginning of September total food stocks were even lower, at only 22 million tonnes. Even more shocking, total rice stocks are now supposed to be only around 5 million tonnes, which is even less than the buffer stock norm of 8 million tonnes for rice.

HOW did this happen? Where did all these foodgrain stocks go? Were they used productively in food for work and other employment schemes? Were they provided to the poor at subsidised prices? We are talking of nearly 50 million tonnes of foodgrain, which is not exactly a small amount, and the use of which could have made a huge difference not only to consumption but also to the Indian economy as a whole.

In the 16 months from April 2002 to the end of July 2003 the total amount of offtake of foodgrain has been the largest ever since food procurement and distribution was first put in place, at a total of 67 million tonnes.

Around 26 million tonnes (14 million tonnes of rice and 12 million tonnes of wheat) can be accounted for by offtake from the public distribution system (PDS), which over these 16 months was certainly more than the average in the past few years. This was probably because the drought conditions in the previous year forced many rural households to turn to the PDS as their own crop output was reduced. However, despite the apparent huge surpluses, far less was spent on all the various government schemes, which include rural employment schemes, nutrition programmes, mid-day meals in schools, and so on.

But a significant portion of these stocks was actually exported, at hugely subsidised rates, or sold in the open market. The export price was as low as the price paid by Below Poverty Line (BPL) households. When the World Trade Organisation objected that this amounted to an export subsidy which is not allowed, the Indian government responded by converting the difference into a transport subsidy for exporters, who were still allowed to sell abroad at these amazingly low rates. So while hundreds of millions of our people continued effectively to starve, the Central Government sent around 17 million tonnes of food at abysmally low rates out of the country.

Another six million tonnes were sold to private traders, also at relatively low prices. If these are taken together, 23 million tonnes were effectively wasted over 16 months, by not using them in productive employment or welfare schemes. If these food stocks had been actually used for government schemes, the total volume of all such schemes could have been doubled. Total employment schemes could have been increased more than tenfold, with huge positive implications for the currently desperate situation of rural employment. Alternatively, all the schoolchildren in the country could have been provided mid-day meals in school through a centrally organised scheme. The range of potential possibilities is huge - unfortunately, that possibility no longer exists, since these stocks have simply been sold at unremunerative prices, mostly exported.

The appalling fact is that even the export revenues from such unwarranted and unjustified exports of foodgrain have not been used productively. Instead, they have added to the large build-up of foreign exchange reserves held by the Reserve Bank of India. Foreign exchange reserves now amount to more than $85 billion, and they have increased by $21 billion in just the past year. This means that this money is simply not being spent usefully within the country, but is being stored at very low rates of interest in banks abroad. The immense waste that this implies for the Indian economy and the Indian people cannot be understated.

Even worse, it turns out that at least three million tonnes of these food stocks are apparently "unaccounted for", that is, stolen or rotted because of inadequate storage conditions. To add to the insult of subsidised export when so many of our own people are in dire need of food, we have the further injury of around 30 lakh tonnes simply missing from the FCI godowns!

This cannot be described only as a crime of omission, since the Central government has actively bestirred itself to export this grain rather than to make productive use of it within the country in a way that would benefit the poor. Surely, the sheer enormity of this crime of commission is something for which this government must be called to account.

(This story was published in the print edition of Frontline magazine dated Oct 24, 2003.)

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