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Procurement problems

Published : Jun 09, 2001 00:00 IST

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The Central government's moves to create a new model in the management of the food economy by transferring the responsibility for food procurement to the States meet with disapproval.

SINCE Finance Minister Yashwant Sinha pleaded in his last Union Budget speech that food procurement and distribution operations were becoming an unsupportable fiscal burden, the Central government has been chanting the mantra of decentralisation with increasing frequency and fervour. But on its first invocation before a conference of Chief Ministers on May 21, it met with almost unanimous disapproval. The Centre, however, is not about to relent. The proposal to transfer the responsibility for food procurement to States will now be the subject matter for study by a committee of Chief Ministers.

The main impulse for the Central government's quest for a new model in the management of the food economy is the embarrassment of riches it confronts. Miscued market interventions over a number of years, coupled with a parsimonious attitude towards distributing grain to the needy, have led to an explosion in rice and wheat stocks with the Food Corporation of India (FCI). No longer is the food subsidy bill in the Union Budget the direct outcome of the difference between prices at which grain is procured and distributed. By far the greater factor is the carrying cost of the grain, that is, the cost of financing the holding of stocks.

The logical solution to the conundrum then would be to offload stocks through emergency relief works for the needy. An expert group on food stocks management recently submitted an interim report, urging the government to cut the central issue price for foodgrain for the above poverty line (APL) population by up to 20 per cent. This would provide the incentive that consumers otherwise lack to buy food from the public distribution system (PDS). And the evacuation of the granaries of the FCI would trim the food subsidy bill.

The commonsense inherent in this approach, though, seems to elude the Central government. Its attempt now is to shift the onus of procuring and distributing foodgrain to State governments. The Prime Minister told the conference of Chief Ministers: "The foodstock in the central pool at present is valued at Rs.50,000 crores. Instead of providing subsidised foodgrains, financial assistance will be provided to State governments to enable them to procure and distribute foodgrains to the poor at subsidised rates."

Disagreements with the basic philosophy of the approach were being aired ahead of the conference. Punjab Food Minister Madan Mohan Mittal said that the scheme was misconceived, since the FCI was the only agency with the infrastructure to undertake procurement operations.

It is easy to detect the hard political and economic calculus behind these expressions of concern. Over the last three years, the procurement operations of the FCI, at escalating minimum support prices, have been instrumental in pushing up the overall level of foodgrain prices. The volumes of grain procured touched new peaks, leaving little available for the open market. For governments in the surplus-grain States, this has meant easy political dividends under-written by the public exchequer.

Grain prices have surged ahead of general price levels, especially in relation to the generally depressed state of other agricultural produce. But in the last year even grain prices have tended to languish, because of the contraction of demand. This has caused consternation among the politically powerful farmers of Punjab and Haryana. They are, in the circumstances, wary about the proposal to trim the role of the FCI in order to accommodate an untested system of decentralised procurement.

The single biggest factor militating against decentralisation is the concentration of surplus grain in a few pockets. Close to 90 per cent of the FCI's wheat procurement comes from Punjab and Haryana, and over 75 per cent of its rice is obtained from Punjab and Andhra Pradesh. This skewed situation is the unavoidable concomitant of the initial architecture of the Green Revolution and years of investment famine in agriculture in other parts of the country. To expect a decentralised system of procurement to strike roots while this enormous imbalance persists is unrealistic.

A decentralised system of procurement would make sense in States which have pockets of grain surplus even if they suffer a deficit in the aggregate. Madhya Pradesh, Uttar Pradesh and West Bengal would be cases in point. A limited degree of local procurement has been under way in these States over the last two years. But the results have been mixed since various administrative hurdles remain.

Madhya Pradesh Chief Minister Digvijay Singh, for instance, pointed out at the conference that the Centre should release its subsidy for States' procurement operations well before the season. For this it would be necessary to agree on the "economic cost" which would cover both the farmer's inputs and investments and the State government's expenses. West Bengal, represented by its Food Minister, made a case for a universal subsidy rather than one targeted only at the BPL population. And the Uttar Pradesh Chief Minister made a case to continue subsidies for the consumer and improve productivity.

ANDHRA PRADESH Chief Minister N. Chandrababu Naidu argued that the Centre had the controlling authority in all these respects. And since the minimum support price was determined by the Centre, it should take on the onus of grain procurement too. The otherwise globalisation-friendly Chief Minister also made an effort to disown responsibility for some of its more deleterious effects on agriculture. Although agriculture is in the Concurrent List of the Constitution, States were not consulted at the time of accession to the World Trade Organisation (WTO) agreement in 1994, despite its momentous implications for agriculture. The prevalent uncertainty in agriculture, said Chandrababu Naidu, was a direct consequence.

Kerala Chief Minister A.K. Antony made an impassioned plea for retaining the existing system, only modifying it in order to expand its coverage.

The consensus finally was that it was the "social obligation" of the Central government to continue with foodgrain procurement and distribution, since the States had neither the infrastructure nor the financial resources to undertake operations on the required scale.

If an uneasy stalemate was the outcome of the debate on revamping the system of procurement, there was a general consensus on the need for a complete overhaul of the agricultural sector. Regional imbalances, loss of soil fertility, misutilisation of scarce resources and the prolonged investment famine had taken a serious toll. And the rapid integration into the global economy that the WTO agreement foretold, spoke of still tougher challenges ahead. Another committee of Chief Ministers, with the Union Agriculture Minister as convener, was constituted to go into all the issues.

Meanwhile, the standing reproach to the Central and State administrations that is the drought situation in Rajasthan (Frontline, March 30, 2001), receded slightly into the background. A few showers lightened the misery of the worst-hit districts and gave a minor stimulus to employment generation activity. And the Rajasthan government managed to sort out a knotty bureaucratic problem with the Centre that had impeded its efforts to undertake emergency relief works.

A feature of emergency relief works in Rajasthan is that they are undertaken by district level bodies (typically the District Rural Development Agency, or the DRDA) which are totally dependent on funds devolved from the Centre. Administrative infirmities at this level had led to an inability on the part of the DRDAs to pay the FCI for all the grain needed for their works. The State government, with its treasury in a parlous state, was unable to intervene. The tangle was unravelled when the Union Ministry of Rural Development, the nodal Ministry disbursing funds for relief works, agreed to pay the FCI directly for the grain that was being issued to Rajasthan for relief programmes.

It took some very acute manifestations of human suffering for this element of commonsense to dawn on the administration. A survey of the drought affected areas of Rajasthan, conducted by economists Jean Dreze and Pradeep Bhargava and social activist Kavita Srivasta, uncovered a picture of "extreme hardship and deficient relief" in the drought-affected districts of Ajmer, Bikaner, Jaipur, Udaipur and Jaisalmer. The extent and magnitude of distress exceeds that experienced in 1987, when the weather conditions were even worse. The difference lies in the relief measures initiated by the administration. The study points out, for instance, that between January and May 1988 the administration managed to put to work an aggregate number of 1.66 million persons. The corresponding figure this year is a mere 600,000.

The other big difference of course is that foodgrain stocks with the government this year are four times as high as at the corresponding time in 1988. And yet, when it should clearly be putting these riches to work to mitigate human suffering, it seems to suffer a paralysis of the will. Perhaps no greater reproach can be found than this for the directions in which India's economic policy has evolved in this past decade of liberalisation.

(This story was published in the print edition of Frontline magazine dated Jun 09, 2001.)

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