💥Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

GS Paper: PDS, Buffer Stock & Food Security

  • A smarter supply line

    Context

    The government must ensure that people don’t go hungry and take measures to make sure that people don’t crowd a few outlets, increasing the chances of the virus spreading.

    Need for the package to compensate losses

    • Welfare package: The government has announced relief measures. Last week, the Finance Minister announced a welfare package of Rs 1.7 lakh crore.
    • This is too small to cope with the onslaught of the virus.
    • How much a comprehensive package would cost? A package to compensate all losses, including business losses, should amount to at least Rs 5 to 6 lakh crore, if not more.
    • How will the government find funds for this package?
    • Funds accrued as a result of oil price crash: The windfall gains that have accrued to it as a result of the crash in crude oil prices could come in handy.
    • Diver all the subsidies and development funds: The government could divert all subsidies and some development funds to fund this package and ask the country’s corporate leaders to help with funds.
    • Issue clarion call for voluntary donation: The prime minister could even issue a clarion call to those with a fixed income (say above Rs 50,000/month) to voluntarily donate at least 10 per cent of their salaries to fund the battle against the virus.

    Focus on supply lines of food and ways to achieve it

    • Why good food supply line matters? The government must do to ensure that people don’t go hungry and the measures it must take to make sure people don’t crowd a few outlets, increasing the chances of the virus spreading.
    • The government has announced that the beneficiaries of the public distribution system can avail three months’ ration at one go.
    • The challenge of delivery: The challenge is to ensure that fair price shops deliver the provisions in an orderly manner and their supply lines remain intact.
    • Home delivery option: Home (street) delivery of these provisions, to avoid crowding, is a good option.
    • Roping in civil society: This is also an occasion to rope in civil society. NGOs, resident welfare associations, religious organisations and paramilitary forces can be engaged for orderly and safe distribution of food — both pre-cooked and fresh.
    • NGOs with experience in food preparation and distribution, such as Akshaya Patra, could guide local authorities.
    • People involved in this endeavour should be provided with safety gears.
    • The challenge of supplying perishables:  These perishables-like fruits, vegetables and milk- must be sold in a packaged form in mobile vans. The weekly markets need to be temporarily suspended lest they spread the virus.
    • Vegetable vendors can work with civil society organisations as well as e-commerce players to do this job in a safe manner.
    • Retail distribution lines: Retail distribution lines need to be seamlessly linked to wholesale supply lines.
    • Buffer stocks: The government godowns are overflowing with wheat and rice — about 77 million metric tonnes (MMT) on March 1, against a buffer stock norm of 21.4 MMT on April 1.
    • How to manage rabi season procurement? Procurement operations for rabi crops are around the corner.
    • Training and safety measures: The FCI and other procuring agencies need to be trained about safety measures and supplied safety gear.
    • Providing incentives to farmers for staggered selling: Farmers could be given Rs 50/quintal per month as an incentive to stagger bringing their produce to the market — say after May 10.
    • They will also need to be screened, given training and equipped with safety gear.

    Challenge of mandi operations for fresh produce in large mandis

    • This pertains to mandi operations for fresh produce in large APMC mandis like Azadpur in Delhi and Vashi near Mumbai.
    • These mandis are usually overflowing with fruits and vegetables and the labour force at these centres usually handles the produce without safety gears.
    • The challenge of screening and providing safety kits to these workers is doubly daunting. The country is not fully prepared in this respect.
    • The safety of workers in mandis — and other workers who handle agricultural produce — should be accorded as much priority as the safety of frontline health warriors.
    • Suspend the APMC Act: We should also use this opportunity to suspend the APMC Act and encourage NGOs, civil society and corporate houses to directly procure from farmers.

    Issue of poultry and maize farmers

    • Sharp fall in poultry items: In such times, prices of essential food items are known to shoot up. But in India, prices of food items like chicken meat and eggs have registered a sharp fall.
    • In Delhi’s Gazipur Mandi, for example, the price of broiler chicken has fallen from Rs 55/kg in January 2020 to Rs 24/kg in March.
    • This has also pushed the maize prices down as poultry is largely fed packaged maize.
    • The government may have to think of compensating poultry and maize farmers in due course.

    Conclusion

    When things settle, it will be worth knowing how the virus spread from Wuhan to Iran, Italy, Washington, India and other parts of the world. Which organisation or nation failed to blow the whistle and alert the world in time? Was it China’s failure? Or that of WHO? Or was it the failure of all governments around the world to respond quickly to the outbreak? We need better global governance for pandemics to avert the next crisis.

  • Ahead: bumper crop, multiple challenges

    This is perhaps the first time ever that India is facing a national disaster or a war-like situation amidst plentiful supplies of food even as a bumper Rabi crop beckons.

    Bumper yield in crisis

    • Farmers are currently about to harvest —if they haven’t already.
    • Given the surplus and extended monsoon rains, which helped recharge ground water and fill up reservoirs, superabundant produce is round the corner.
    • This comes even as there is demand destruction from the shutting down of HORECA (hotels, restaurants and catering) and other institutional segment businesses following the nationwide lockdown.
    • It raises the possibility of a crisis similar to the one three years ago that followed demonetization. But the scale, it is feared, could be bigger.
    • The post-demonetization rabi crop, also a bumper one, was at least harvested and marketed even if it didn’t fetch a good price.

    The real challenge

    • The food and civil supplies departments in states will ultimately ensure that the terminal markets in these centres major cities receive their required daily flow of produce anyhow.
    • The problem will be in the remote towns and the rural hinterlands that are serviced through upcountry APMCs.
    • The grocers there are at the greatest risk of running out of stocks if the lockdown continues without inter-state movement restrictions in agricultural commodities being removed.

    How to transport produce

    • This time, there are doubts being raised even on that.
    • The simple reason for it is: Will farmers, labourers and machines (combines, threshers and tractor trolleys) be able to move freely to harvest the produce and take it to the mandis?
    • The UP government has issued a direction to all district administrations and law-enforcement authorities to exempt all services, including labour, that are involved in agricultural production, processing and marketing from the current lockdown provisions.
    • Other states, too, may follow. But the question remains of the directives being implemented on the ground.

    Will there be workers?

    • At the second stage comes the mandis, where marketing of the crop would happen.
    • Here again, there is a possibility of shortage of labour (the people who do unloading, cleaning, bagging and reloading of the grain that is auctioned or sold) and even gunny bags.
    • Further, it would be necessary to prevent crowding, and maintain social distancing.

    Possible alternatives

    • One way out could be to allow entry only to a limited number of farmers, who may be issued SMS alerts informing them about the date and time to bring their crop.
    • Each farmer can also be given a maximum quantity — say, one tractor-trolley load of 30-40 quintals — that may be brought in a single day.
    • The permission for the next trolley load will be only after other farmers have got their turn to sell.
    • All this will obviously delay the process of marketing, raising the prospect of panic sales.
    • This could be avoided if the government were to give a clear-cut assurance — at least in respect of crop where there is MSP-based procurement — that it will continue buying till the last grain is offered.

    Safer places than APMC

    • Besides, the marketing of produce needn’t be limited to the APMC (agricultural produce market committee) mandi yard.
    • Any flour or dal mill, and even primary school premises can be designated as an APMC marketing area.
    • The objective should be to ensure that the farmer’s produce gets marketed without resulting in overcrowding.

    Way forward

    • The risk of shortages today is really not in the metros or state capitals.
    • Once marketing is done, the crop has to move beyond the mandi.
    • This is probably the right time to dismantle all inter-state and intra-state movement restrictions in farm produce.
    • Free movement is necessary for the context of both a bumper crop and the ongoing lockdown.

  • Growth and the farmer

    Context

    Last month, Montek Singh Ahluwalia’s book, Backstage: The Story Behind India’s High Growth Years, was released. Which tilt in favour of consumer in food policy reduces incentives for farmers, makes it difficult to unlock resources for growth.

    What is covered in the book

    • Besides some very interesting episodes pertaining to author’s personal and professional life, the book is full of useful insights into policy debates and their complexities.
    • At many places, it provides evidence of the impact of these policies.
    • This can be extremely useful as we try to rejuvenate the country’s sluggish economy and abolish poverty.

    Inclusive growth and agriculture

    • Growth in agriculture must for inclusive growth: During the UPA period, from 2004-05 to 2013-14, it was believed that inclusive growth is not feasible unless agriculture grows at about 4 per cent per year while the overall economy grows at about 8 per cent annually.
    • The reason was simple: More than half of the working force at that time was engaged in agriculture and much of their income was derived from agriculture.
      • But many political heavyweights, did not believe that agri-growth could reduce poverty fast enough.
    • Main instrument of agricultural strategy: The main instrument of agricultural strategy was the Rashtriya Krishi Vikas Yojana (RKVY), which gave more leverage to states to allocate resources within agriculture-related schemes.

    What was the impact of strategy?

    • Agri-growth increased: The agricultural strategy, along with other infrastructure investments in rural areas, had a beneficial impact on agri-growth.
      • Agri-growth increased from 2.9 per cent during the Vajpayee period (1998-99 to 2003-04) to 3.1 per cent during the UPA-1 period (2004-05 to 2008-09) and further to 4.3 per cent during UPA-2 (2009-10 to 2013-14).
      • The agri-GDP growth during UPA-2 was driven not as much by RKVY as it was by high agri-prices in the wake of the global economic crisis of 2007-08.
    • Impact on poverty reduction: Agri-GDP growth had a significant impact on poverty reduction, whichever way it was measured — the Lakdawala poverty line or Tendulkar poverty line, which is higher.
      • At what rate poverty reduced? The rate of decline in poverty (headcount ratio), about 0.8 per cent per year during 1993-94 to 2004-05, accelerated to 2.1 per cent per year, and for the first time, the absolute number of the poor declined by a whopping 138 million during 2004-05 to 2013-14.
      • Interestingly, this holds even on the basis of the international poverty line of $1.9 per capita per day (on 2011 purchasing power parity, PPP, also see graphs).

    Right to food and debate around it

    • Scepticism over the success of agriculture support to food subsidy: Instead of celebrating this success of the growth strategy in alleviation of poverty, several NGOs and even Congress stalwarts remained sceptical.
      • They advocated food subsidy under the Right to Food Campaign.
      • National Advisory Council (NAC) came up with a proposal to subsidise 90 per cent of people by giving them rice and wheat at Rs 3/kg and Rs 2/kg.

    What were the arguments put forward by Montek Singh Ahluwalia?

    • Burden on exchequer: He tried to convince them that this was likely to create an unsustainable burden on the exchequer.
    • India could end up importing food: He also argued that India could end up importing grains to the tune of 13-15 million tonnes per year.
    • Cap the population coverage at 40%: He favoured a cap at 40 per cent of the population to be covered under the Food Security Act as the poverty ratio (HCR) in 2011-12 was 22 per cent.
    • Smart card to beneficiaries: He also favoured providing smart cards to the beneficiaries so that they could opt for buying more nutritious food rather than just relying on rice and wheat.
    • Chance for diversification of agriculture: Smart card with beneficiaries would have also allowed diversification of agriculture and augmented farmers’ incomes.
      • But he could not win over the NAC — although the coverage for food subsidy was reduced from the original proposal of 90 per cent to 67 per cent of the population.
    • Against the ban on agri. export: Montek also argued against export bans on agricultural commodities as these impacted farmers’ incomes adversely.
      • Government siding with consumers: But the government of the day often ended up taking the consumer’s side, as that was considered pro-poor.
      • This reduced the incentives for farmers, who then had to be compensated by increasing input subsidies.

    What are the result of this strategy adopted by the government?

    • Negative PSE: No wonder, years later, when we estimated the producer support estimates (PSEs), as per the OECD methodology — used by countries that produce more than 70 per cent of the global agri-output — we found a deeply negative PSE.
      • What negative PSE indicates? This indicates implicit taxation of agriculture through trade and marketing policies, even when one has accounted for large input subsidies going to farmers (see graph on PSE).
    • Consumer bias in the system: Today, the food subsidy is the biggest item in the Union budget’s agri-food space. In the current budget, it is provisioned at Rs 1,15,570 crore.
      • Borrowing by FCI not factored in: But this factor hides more than it reveals. Lately, the government has been asking the Food Corporation of India (FCI) to borrow from myriad sources, and not fully funding the food subsidy, which should logically be a budgetary item.
      • The outstanding dues of the FCI are more than the provisioned subsidy, and if one adds these dues to the budgeted food subsidy, the effective amount of food subsidy comes to Rs 3,57,688 crore.
      • This displays the consumer bias in the system.

    Conclusion

    • Restrict the population coverage of food subsidy: The Economic Survey of 2019-20 makes a case for restricting food subsidy to 20 per cent of the population — the headcount poverty in 2015 as per the World Bank’s $1.9/per capita per day (PPP) definition was only 13.4 per cent.
      • For the others, the issue prices of rice and wheat need to be linked to at least 50 per cent of the procurement price or, even better, 50 per cent of the FCI’s economic cost.
    • Unless we make progress on this front, it is difficult to unlock resources for the growth of agriculture, which slumped from 4.3 per cent during UPA-2 to 3.1 per cent during Modi 1.0.

  • [op-ed snap] A farm wish list for the budget

    Context

    As finance minister presents the budget the FM need to ensure transparency and to fully account for the food subsidy.

    The excess buffer stock and need to reform

    • A buffer stock norm and actual stock: A buffer stock norm is at 21.4 million tonnes (mt).
      • Actual stock far exceeds the norm: The actual stocks of grains with the central pool stood at 75.5 mt.
      • Which is 3.5 times what the government needs to hold.
    • The economic cost of the excess stock: At its economic cost, the value of the excess stocks with the government stands at Rs 1.6 lakh crore.
      • Potential for revenue: There is no better place to find revenue for the FM than to liquidate these stocks.
      • Need for the reform in grain management system: Unless the grain management system is reformed, the inefficiency of the grain management system will keep on increasing and the nation will suffer.

    Food subsidy reforms

    • Link food prices to procurement price: It is the time to revise the central issue of price and link it to the procurement price-say at half the procurement price.
      • Limit the population coverage: There is a need to limit this highly subsidised food of Rs 3/kg for rice and Rs 2/kg of wheat to say 40 per cent of the population.
      • Move to DBT: The real fundamental reform would be to move towards direct cash transfers for the intended beneficiaries of food subsidy.

    Fertiliser subsidy reforms

    • Imbalance in the subsidisation: The real problem of this sector is the imbalance in the policy of fertiliser subsidisation.
      • While urea (N) is subsidised to the extent of 75 per cent of its cost, phosphatic (P) and potassic (K) fertilisers are subsidised only to the tune of about 25 per cent of their cost.
    • Consequences of this imbalance: The result is the highly imbalanced use of N, P and K on farmers’ fields. Which results in
      • Giving a very low fertiliser-to-grain response ratio.
      • Degrading the soil.
      • Degrading underground water.
      • Degrading the environment with excessive nitrogen use.
      • Discouragement to natural farming: The current fertiliser subsidy discourages those who want to pursue natural farming as they don’t get subsidy anywhere near the amount chemical-based fertilisers do.
    • Reforms: There are two ways in which the fertiliser subsidy regime can be reformed.
      • Bring nitrogenous fertiliser under NBS: The solution to the imbalance in use is to bring nitrogenous fertilisers under the Nutrient Based Subsidy (NBS) scheme.
      • Cash transfer based on per hectare basis: The second option is to move towards direct cash transfers for fertilisers on a per hectare basis, with some adjustment for irrigated tracts.
      • 50,000 Crore saving: The above-mentioned reforms could result in the saving of Rs. 50,000 crores to the public exchequer.

    Way forward

    • Investing the savings where it matters the most: The savings from the reforms could be invested in-
      • Better water management, especially drip irrigation.
      • Infrastructure for agri-markets.
      • Solar trees: The investments could also be made in setting up the solar trees in the farm to harvest solar power on farmer’s fields with buyback agreements for surplus production.

  • [op-ed snap]Lifting growth, containing inflation

    Context

    There is a large scope for  the improvement in the efficiency of grain management system under the National Food Security Act (NFSA).

    Declining Agri-sector growth rate

    • India’s growth rate plummeted to 4.5 per cent in the second quarter of this fiscal.
    • The quarterly growth in GDPA (agri-GDP) is hovering at around 2 percent, it is a cause for great concern.
    • Agriculture still engages about 44 per cent of India’s workforce, which has serious consequences for the overall economy of the country.

    The bleak picture of the economy

    • Recently inflation has started to surge after a long time.
    • Inflation is led by the different components of the food segment- cereals, pulses, and vegetables.
    • There is a challenge of containing inflation and increasing the demand at the same time.
    • At the same time, there is also the challenge of maintaining the fiscal deficit by 3.3 %.
    • Recently Finance minister has launched an investment package of 102 lakh crores.
    • So, there is a need to take a look at the inefficiencies in food grain management.

    Inefficiencies in NFSA

    • It supplies a certain quantity of wheat and rice to 67 percent population.
    • It gives wheat at Rs. 2/kg and rice at Rs. 3/kg.
    • While the cost of these grains to FCI is at Rs. 25/kg and Rs. 35/kg respectively.
    • This led to the provision of Rs 1.84 lakh crores for food subsidy.
    • The buffer stocks with the FCI is far more than double the buffer stock norms as on January 1 every year.
    • This excess stock is the result of an inefficient strategy for food management.
    • The strategy where the procurement of these grains is open-ended while the disbursement is restricted.
    • The money locked in these excess stock is about 1 lakh crores.
    • If the rabi season procurement is good FCI may run out of storage space to accommodate.

    Suggestions for improvement

    • The open market operation should be increased.
    • Even if the government liquidate half of the excess stock it would fetch Rs.50,000 crores.
    • The Shanta Kumar panel had submitted the blueprint for the improvement in the grain management system.
    • Only three reiterations are needed.
    • First-while the Antyodaya category should keep getting the maximum food subsidy, the issue price should be fixed at 50% of the procurement for the rest.
    • Second- restrict the percentage of population covered under the scheme to 40 % from the present 67%
    • Third-stop the procurement of rice in the north-western states of Punjab and Haryana where the water table is depleting.

    Conclusion

    • If the government implements these three points it can save the country another Rs. 50,000 crores annually. On top of this, it will help the government to reduce its fiscal deficit.