1. Editorial: If it’s not Bihar, it’ll be UP

Editorial: If it’s not Bihar, it’ll be UP

That’s the lesson from the Dreze-Gulati faceoff

By: | Published: February 5, 2015 3:41 AM

With the High Level Committee (HLC) on restructuring FCI pointing to a 47% leakage in the 55 million tonnes of grain distributed through ration shops, the only viable solution is to shut down the PDS as the HLC has recommended be done over a period of time. Not surprisingly, many have argued that, in states that have restructured their ration shop operations—such as Chhattisgarh—there has been a dramatic drop in leakages. In other words, don’t scrap the PDS, just reform it. A report by Jean Dreze and Reetika Khera points to what it says is a serious flaw in the HLC calculations, first presented by ICRIER’s Ashok Gulati and Shweta Saini—Gulati is a member of the HLC. According to Dreze-Khera, after taking the per capita consumption of ration-shop wheat and rice from the NSS for 2011-12, Gulati-Saini multiply this by the number of ration-card holders in each state whereas the correct way to do it is to multiply it by the total population. Once Dreze-Khera do this exercise, they find a sharp drop in leakages, from 54% in FY05 to 42% in FY12 at the all-India level and from 90.9% to 24.4% in Bihar and from 51.8% to 9.3% in Chhattisgarh, both states that have worked on fixing their PDS.

Our page 1 graphic has more details on the two methodologies, but the short point is that, with almost as many ration-card holders as there are people in the country at the all-India level, there isn’t much of a difference between what Gulati-Saini and Dreze-Khera are saying even if you use the latter’s methodology—the former has a 46-47% level of leakage while the latter have a 42% leakage. A leakage of that level needs to be fixed, and the direct benefit transfers HLC talks about is a good way to do it. There is a dramatic difference at the level of states like Bihar and Chhattisgarh, but as Gulati-Saini point out, if the Dreze-Khera methodology is adopted, this increases leakages equally dramatically in states like Uttar Pradesh. Normally, any study of leakages has to take into account the ‘top-up’ that states do on top of what the central government releases—while Dreze-Khera have done this, since Gulati-Saini have not, it is not possible to compare their results, though that could alter the leakages figure in a big way for states like Chhattisgarh which does a significant ‘top-up’.

There are equally other important reasons for dismantling the PDS even if it is working in select states as Dreze-Khera argue. For one, if cash transfers are made, FCI can do with a 5-10 million tonne buffer as HLC recommends instead of an average of 54 million tonnes—going up to over 80 million tonnes at one point in FY13. This alone will free up R1 lakh crore of funds for the finance ministry to invest in critical infrastructure and other spending. With FCI procuring way above what it needs, the result is large losses due to the lack of enough covered storage. Equally important, with FCI driving away traders from wheat and rice markets, this drives up prices in the open market. With FCI’s economic cost going up to R2,200 per quintal for wheat it buys at R1,400, this means if the poor have to buy grain from the open market, as they do, they could be worse off than in a no-FCI situation. Also, with the FCI system driven by high MSPs, this forces farmers into growing primarily wheat and rice which causes short supplies and higher inflation in vegetables/fruits and also results in lowered water tables in states like Haryana and Punjab. It is important to keep in mind the HLC recommendations are part of a larger agriculture reform strategy.

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