From UPSC perspective, the following things are important :
Prelims level : Buffer stock limits
Mains level : Paper 3-PDS, food subsidy
At a time when the economy is going through the crisis, anything that could provide revenue to the government will be a real godsend. This article suggests two such areas to tap into. It also examines the effects of recently issued 3 ordinances related to agriculture.
Rs. 1,50,000 crore: Value of excessive grain stock
- There is one area which the government can tap to raise more than Rs 1,00,000 crore.
- As on June 1, FCI had unprecedented grain stocks of 97 million metric tonnes (MMT) in the Central Pool (see Figure).
- Even on July 1, when the procurement of rabi ends, FCI is likely to have grain stocks of about 91-92 MMT.
- This will be against a buffer stock norm of 41.12 MMT that are required for the Public Distribution system (PDS), and some strategic reserves.
- So, compared to this norm, on July 1, FCI will have “excess stocks” of at least 50 MMT.
- Even if one takes a conservative and lower ballpark figure of Rs 30,000/tonne as the combined economic cost of rice and wheat, the value of this “excessive stock”, beyond the buffer norm, is Rs 1,50,000 crore.
- This is unproductive capital locked-up in the Central pool of FCI.
- Unlock this by liquidating “excess stocks” through open market operations.
- It will not recover its full economic cost, as they are much higher than the prevailing market prices, but by not liquidating it.
- But FCI will keep incurring unnecessary interest costs of about Rs 8,000-10,000 crore per annum.
- This is simply not a good food policy.
How will amendment to ECA 1955 will help
- Amendment of the Essential Commodities Act, via the ordinance route, can instil confidence in the private sector for building large scale storage.
- Now, stocking limits will not be imposed on the private sector, except under exceptional circumstances.
- The government, however, delete the clause of “extraordinary price rise”.
- Removing it will lead to private sector building large and modern storage facilities (silos).
- It will propel investments in building more efficient food supply lines.
- The only condition could be to register large storage facilities under the Warehousing Development and Regulatory Authority (WDRA) to know how much stock is there with the private sector, and where.
How will amendment to APMC Act will help
- The ordinance on APMC creates multiple channels for farmers to sell their produce outside the APMC mandi system.
- It also helps towards an unrestricted all India market for agri-produce.
- Of course, it will be resisted by many states that are taking undue advantage of the APMC mandis’ virtual monopoly power.
- But if the central ordinance is implemented in its true spirit, it will be a game-changer.
How will the ordinance on contract farming will help
- It aims to encourage contract farming.
- The basic idea behind this is that farmers’ sowing decisions should be made in view of the expected prices of those crops at the time of harvest.
- It is forward looking and more aligned to the likely demand and supply situation.
- The current practice, where farmers’ sowing decisions are more influenced by last year’s price, often leads to the problem of boom and bust.
- Although honouring an assured price remains a challenge when actual market conditions differ widely at the time of the harvest.
Relook at food subsidy is needed
- In the Union budget of 2020-21, a sum of Rs 1,15,570 crore has been provisioned for food subsidy.
- This number is highly misleading as FCI has been asked to borrow from the National Small Savings Fund (NSSF).
- As on March 31, 2020, borrowings from the NSSF were Rs 2,54,600 crore, on which FCI pays an interest rate of 8.4 to 8.8 per cent per annum.
- So, the real food subsidy bill for 2020-21 amounts to Rs 3,70,170 crore.
- The Economic Survey has suggested- 1) reducing the coverage under PDS; 2) linking issue price to at least half of the procurement price; 3) move gradually towards cash transfers.
- These steps will save a minimum of Rs 50,000 crore annually.
Consider the question “There was a mention of reforms related to agri-sector in the recently announced stimulus package. Examine the issues with segments of agri-sector which necessitated these reforms.”
Liquidating the excess grain stock and rationalising the PDS could provide the government with much needed resources at a time when it needs it the most. Also, reforms in the related to agriculture could remove the stumbling blocks in the way towards the prosperity of farmers.