As The Indian Express reported yesterday, the Food Corporation of India (FCI) is proving unsuccessful at selling cheaper wheat through open market sales to small traders, something that would have helped cool down wheat prices. First, this exposes the FCI?s inefficiency in comparison to the private traders. Second, this brings to the fore the larger issues regarding the suitability of using the public distribution system either as a bulwark against inflation or for ensuring greater food security. After all, the FCI is neither able to match the open market prices of wheat nor able to smoothly coordinate the movement of grain from the surplus regions to the deficit areas. Add on the large administrative costs, and the corporation?s operations are exposed as financially unviable. The growing disparities between the allotments and the lifting of the food supplies underline the inability of the public distribution system to match the current needs of the economy.
The numbers show that despite the high increase in the rice and wheat prices in 2009-10, the share of the allocated foodgrains lifted by the states actually came down during the year. For instance, of the 45 million tonnes of wheat and rice that were allocated under the targeted public distribution system in 2009-10?which includes allocations for BPL, APL and AAY categories?the states were only able to lift 30 million tonnes of grains or 65% of the allocation, which was marginally lower than the 67% share lifted in the previous year 2008-09. The inability of the public distribution system to push up even the subsidised food supplies in a period of soaring prices also puts a big question mark on using this system for attaining the target of the proposed National Food Security Act. Plus, consider the large losses from using such an inefficient supply system. To illustrate, the subsidy cost of the Food Security Act is expected to go up from Rs 76,719 crore to Rs 1,07,381 crore if the quantity of grain subsidised per family each month goes up from 25 kg to 35 kg. There are also other larger issues like the leakages from the public distribution system, which have been documented by various official and non-official agencies. To summarise all these points, we need a major rethink of the current policies. This should include considering more innovative delivery mechanisms like food stamps, which can reduce market distortions and also ensure greater value for the money spent.