Need procurement reforms

Need to reform grains procurement policy, FCI in a bind over excess holdings

Export is obviously no route to liquidate the excess stock since WTO norms against market-distortion would kick in.

Thanks to the government’s policy of open-ended procurement at MSP, the Food Corporation of India (FCI) suffers from a problem of excess. This has been apparent for long now; the FCI website shows that in October FCI was holding 86 million tonnes of grains (including unmilled paddy) against a buffer requirement (October 1) of 30 million tonnes. Last year’s procurement led to FCI holding a record quantity of grains in June-July thus year.

Against a 65 million tonne annual requirement of foodgrains for distribution under the National Food Security Act, such massive procurement, it has been pointed out ad nauseam by this newspaper, is not only wasteful (given the lack of storage capacity) but also risks making India’s procurement for food security seem market-distortionary. A report by Business Standard suggests that the FCI is well aware of the problem and is examining ways to handle it; a “micro-analysis of state-wise requirements and buffer norms” is being done.

Against the procurement of grains, the needle on offtake hasn’t moved much over the past 5-6 years, except last year. To offset some of the pain from pandemic-lockdown induced income losses, the government gave beneficiaries a fixed quantity of extra grains, over the NFSA entitlement, under the Garib Kalyan Anna Yojana—this raised the offtake from 65 million tonnes annually to 93 million tonnes.

This, of course, is an extraordinary measure, unless the Centre decides to extend it indefinitely, or ‘in perpetuity’. If the pain from job-losses in the unorganised sector is prolonged, the government may still be able to justify such a move, but that doesn’t seem likely. Even though the FCI has been conducting open market auctions for part of its excess holdings, this is hardly enough to take care of the problem; even if it realises a target that is close to twice the sale achieved last year, it would have shed only a fourth of the current surplus at the end of this fiscal year.

Export is obviously no route to liquidate the excess stock since WTO norms against market-distortion would kick in. Short of giving the grains away, there seems to be little that can be done—unless, of course, a policy correction is made. The government can keep procuring to keep a handful of farmers in two/three states happy— in the light of the farm-reform laws and the farm agitation continuing since, this seems almost a political inevitability, and perhaps donate surpluses to food programmes locally and overseas. Or it can dilute the MSP’s allure and move to end open procurement.

Paddy/rice seems the main culprit—especially procurement from Punjab—with untold economic and environmental consequences. To that end, agri-economist Ashok Gulati and his ICRIER colleague Ranjana Roy, have just pointed out in these pages that the Centre and Punjab must work together to incentivise the state’s farmers to switch from paddy to maize and even fruit and vegetables.

Another way to minimise the pain would be to limit open-ended procurement, say, by capping procurement as per size of individual land-holding, accounting all the while for both farmers trying to game the system and for productivity of a particular geography. This newspaper has also argued for moving to a pure cost-support regime; this will need significant political will given rich and influential farmers’ addiction to price-support. But, without reforms, FCI’s burden will only grow.

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