The World Bank has said that South Asia's foodgrain stock management, especially in India, needs to improve to tackle inflation.
In its focus on food inflation in South Asia, the bank said that high stocks have led to high wastage due to inadequate storage capacity and technology. According to World Bank's estimates, the Food Corporation of India lost 10-16 million tonnes of grains in 2000.
“The FCI's inefficiencies not only lead to high losses of the grains it handles, they also drive up the costs of food handling. Comparisons show that the FCI's handling and storage costs are significantly higher than those of the private sector. The increase in procurement has led to a significant increase in the fiscal costs of the system,” the report said.
The FCI procures nearly one-third of wheat, rice produced in the country, besides coarse grains at the minimum support price fixed by the Government. The stocks are then transported to deficit States and sold through the public distribution system at a subsidised rate.
It said demand for food is undergoing structural shifts as incomes rise. Growth in consumption of pulses, fruits, meat, eggs, and dairy items is more than double the consumption growth in cereals. Inflation in these items has been higher than in cereals.
“Public intervention in agricultural marketing in India and Pakistan has high fiscal costs and narrowly supports cereal production, while high food inflation and continuing high rates of food insecurity are linked to an inadequate supply response in non-cereal food products,” the report said.
Input subsidies contributed to the overuse of water resources, high losses of electricity utilities, and deteriorating soil conditions because of skewed application of fertiliser.
It said expenses on these were not contributing to productivity and they could instead be used as
investments in agricultural research, education, and rural roads are amongst the most effective
public spending items in promoting agricultural growth and reducing poverty.
Food and fertiliser subsidies have increased to over 1.5 per cent of the GDP since 2008-09 from around one per cent in the 1990s.
Annals of public procurement
Outlays on food subsidies are far higher than public investment in agriculture and outlays for extension services, which could increase agricultural production and lead to lower prices over time.
In India and to a lesser degree in Pakistan, large-scale public procurement hampered the private sector not only by pre-emption, but also by taxes and rules for moving grains across state borders, and caps on storage of grains designed to facilitate public procurement.
The bank found fault with mandatory Jute Packaging Act, frequent changes in the Essential Commodities Act, low private investment in grain marketing, insufficient investment in supply chain and marketing rules.
The bank proposed five policy options to tackle inflation including in foodgrain storage management. It called for demand management policies in South Asia earlier than in advanced countries because of the high share of food items in consumer baskets with priority for fiscal consolidation.
Over the longer term, it called for policies aimed at increasing agricultural output and productivity to alleviate pressures on food prices, including focus on technology, improved water management, rural infrastructure, agricultural diversification, and private sector investment in marketing and the agro industry.
It said governments should exploit the efficiency gains they could achieve (in terms of protecting and improving nutritional status) through provision of more nutritious foods (e.g. foods fortified with essential vitamins and minerals) and by increasing beneficiary knowledge on how to maximise household resources for nutritional impact.
It asked governments to explore developments of market-based tools and assistance for managing risks, particularly those that affect the government's budget.