Financial Daily from THE HINDU group of publications
Monday, Oct 21, 2002
Sen Committee report Food security and its design
RECENT events have brought into focus the criticality of issues related to food management in the country. Two bizarre episodes took place recently the Chief Ministers of two States courted arrest in protest against the fixation of lower minimum support prices for rice. The issue of minimum support price is definitely vital, both for farmers and consumers. But the poll-related politics of the Chief Ministers' opposition to the decision not to raise the minimum support price is glaring.
Importantly, these protests ignore the clear logic of the report of the Committee on Long-Term Foodgrains Policy, headed by Dr Abhijit Sen, which recommended a lower minimum support price. In its view, the current minimum support prices lead to high food-stocks, which have exorbitant holding costs. The Centre is spending on this item more than it spends on agriculture, rural development, irrigation and flood control, taken together.
The illogic of offering high minimum support prices aggravates the current fiscal imbalance of Governments, both at the States and at the Centre. While the Committee supports the current policy of open-ended procurement, it argues that it should be at reasonable minimum support prices. While India still needs to make sustained efforts to maintain its self-sufficiency in cereals, the Committee does not agree with the suggestion that India can as well depend on imports when in need.
India accounts for 15% of the total world consumption of cereals and any domestic `imbalance will impinge heavily on world prices. True, today, the richer countries of the world are heavily subsidising grain production. But, as the Committee points out, this situation can suddenly change and the richer countries may push up prices once they get an opportunity.
India has still a low calorie intake compared to other countries. The objective of self-sufficiency for India is therefore worthwhile. The nation can ill-afford to give up its emphasis on continued increase in food production. Ensuring reasonable and stable pan-national prices through minimum support price operation will have to remain an important element of the food security system.
In the Committee's view, State intervention in food management is an inevitable consequence of the present domestic and global scenario. Open-ended purchase at minimum support prices will have to continue. This is particularly important because most Indian States are individually in deficit. Only five States have produced surplus rice and wheat over consumption in 1999-2000.
The remaining States are deficit of more than one-third of consumption. These deficits are likely to enlarge in southern and western regions of India during the next decade. In these circumstances, it is important to continue the current system, which enables smooth procurement and transport of cereals from the surplus States to deficit States at affordable prices and at the same time encourages production incentives.
The Committee is not in favour of the alternative suggestion of leaving the food security management to private trade. In the current situation, private trade cannot take over, with any degree of reliability, the task of maintaining buffer stocks and supplying to deficit regions. Whether private trade will be more efficient and economical than the Food Corporation of India (FCI), given the constraints and the obligations placed on it, is also in doubt.
The Committee is, therefore, against the suggestions to dismantle the FCI or even to unbundle it. While the Committee is of the view that the FCI is an essential element in the food strategy, nonetheless it admits the need for increasing its operational efficiency. FCI can definitely improve its functioning in respect of cost control. The poor reputation of the FCI for quality also needs to be addressed. The Committee suggests various methods of improvement in this regard.
The crux of the Committee's recommendation is, however, about minimum support price. In its view, the weakness of the current system is that the minimum support prices have been kept too high, especially in the latter half of 1990s, while the off-take has remained poor for reasons of poor income growth. The Committee suggests addressing these two problems by drastically reducing the minimum support prices and increasing incomes in the rural areas through various employment generation measures, for which the abundant food-stocks can be an instrument.
While the recommendations of the Committee in regard to drastic changes in the pattern of fixing the minimum support prices are economically sound, political acceptability will depend very much on the Centre's effective communication of the economic implications to the States' political leadership. In the current fractured state of the polity, this seems to be a tall order.
In this context, it is worthwhile reflecting on the robustness of the original design of the present food security system, which has delivered the goods while remaining unchanged for nearly thirty-five years. The present system was evolved during the serious food crisis of 1965. The architects of the Green Revolution deserve credit for the success of the current security system, which has kept India insulated from serious food shortages and price variation.
The FCI, together with the Commission on Agricultural Prices, represented the twin pillars of the policy of remunerative prices and support price operations designed to enable the farmers to take up their investments in new technology. While reforming the system in the light of experience, we must nonetheless pay a tribute to the remarkable vision of the innovators of the Green Revolution.
While the Committee on Long-term Foodgrains Policy is strong in its support of its main element of open-ended requirement policy, it stresses the need for calibrating the minimum support prices so that stocks do not get built up too rapidly. Increasing off-take is also an important consideration. For this, the Committee has suggested a number of measures, including expansion of foodgrain-based programme of employment, particularly concentrating on the poor and destitute.
The Committee has also come down heavily on the targeted public distribution system with its separate pricing for the "above poverty line" consumers, which has distorted the patterns of consumption and reduced the viability of fair price shops. The Committee's recommendations deserve to be heeded, especially insofar as the differential pricing for the same commodity leads scope for leakage and corruption.
While the Committee's detailed recommendations on procurement are broadly on desirable lines, I wonder whether some of them would not require reconsideration. Particularly, the recommendation that the States and the Centre should not resort to "levy" as a means of procuring rice from mills. Most States have found it convenient and, in the absence of a better alternative, the States will find it difficult to give up the levy system in favour of custom milling. Even in the interim report, the Committee had come out strongly in favour of decentralised procurement in their own areas. The Committee admits that, for various reasons, the States are not too enthusiastic about decentralisation. One obvious reason is a fear that the Centre may introduce decentralisation as a way to reduce its fiscal liability on subsidies.
The Committee recommends a strong Central commitment to maintain the level of subsidies in the event of decentralisation. The Committee also suggests that the Centre should guarantee the availability of bank credit even in cases where the States take up procurement. While this is a sensible recommendation, it has to be subject to the caveat that the States should not divert the food credit for other purposes.
The Committee makes the sensible recommendation that the Centre should consider favourably the proposal of the Punjab Government to undertake a programme for diversion of land from paddy to other crops. This is both economical and environmentally desirable.
The package of subsidies for such conversion will be well worth the while considering the serious problem of environmental degradation consequent on over-use of land and water for rice in Punjab. To what extent the subsidies given for this purpose will be monitored is a question the Centre has to tackle.
The Committee's immediate emphasis is on the reduction of minimum support prices. The Centre needs to educate its constituents and the State Governments on the strong economic rationale and the long-term advantages of implementing the Committee's recommendations.
The sustainability of India's foodgrain policy depends on how quickly and competently the Centre deals with the various suggestions made by the Sen Committee. No doubt, it is politically an extremely challenging task. But it cannot be shirked, except at heavy cost, both in economical and financial terms.
The Abhijit Sen Committee deserves to be congratulated for a set of far-reaching recommendations on the complex problems of India's foodgrain management. The least the Government can do is to give the recommendations a fair chance by effective implementation.
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