Food Procurement and Distribution – PDS & NFSA, Shanta Kumar Committee, FCI restructuring, Buffer stock, etc.

[op-ed of the day] Food for Expediency

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- PDS and issue of excess food stock with FCI.

Context

A substantial rise in consumer food price inflation to 14.12% in December 2019, the highest ever in the past six years, has driven the retail price inflation in this country.

Discrepancies in the fiscal deficit

  • Policy dilemma for the RBI: Though the CPI was at 14.12% in December but with the core inflation rate still not overshooting the Reserve Bank of India’s (RBI) medium-term target of 4(+/- 2)%.
    • Speculations hover as to whether the RBI monetary policy committee will go for another rate cut in the coming month.
    • This is a policy dilemma for the central bank
    • Why is the dilemma? The dilemma is because the moot issues regarding the government’s key economic estimates, such as the fiscal deficit, largely remain unresolved.
  • Discrepancies flagged by the CAG: The CAG has stated that the current figures on deficit have been kept at a 1.5% to 2% low by not including the government’s off-budget borrowings from public accounts, such as the National Small Savings Fund (NSSF).
    • According to media reports, such off-budget expenditure of the current government stands at ₹1.5 lakh crore in 2019–20.
    • The major portion of off budged expenditure on food subsidy: About three-fourths of the incremental off-budget expenditure is on account of under-recoveries in food subsidies of the Food Corporation of India (FCI).
  • Low allocation but high expenditure on food subsidy: For instance, the 2019–20 Union Budget had provisioned food subsidy at₹1.84 lakh crore.
    • While the overdue of the FCI is already at₹1.86 lakh crore.
    • For these burgeoning overdue, FCI’s ­off-budget borrowings from the NSSF have been on the rise.

Excessive stock by the government and rising inflation

  • Issue of supply management: The issues of agricultural supply management are relegated to the background by the standard causality argument of “crop damages” caused by excessive rains and that the inflation will ease out once the new harvest comes in.
    • This argument can hold some water for horticulture crops like onions that saw an almost 200% rise in price in November and December.
    • Unable to explain inflation in wheat and other cereals: This argument may not find traction in explaining the price inflation of wheat and other cereals.
  • holding the excessive cereal stock: With the government currently stocking much higher quantities of cereals at the FCI than the buffer norms.
    • 45.8 million tonnes of wheat as against the buffer norm of 27.5 million tonnes and nearly double the amount of rice vis-à-vis the buffer norm of 13.5 million tonnes.
    • India is now a cereal surplus economy.
    • Why then the inflation in cereal prices? Is this artificially created by the government through its irrational stocking practice?
    • Some fundamental concerns are triggered at this juncture.
  • Concerns with excess stocks
    • First-Higher stock means higher subsidy bill-With the economic costs of the FCI being 12 times or more than the allocation cost of the grains through the public distribution system-higher stocks would imply higher subsidy bills.
    • SecondNo benefit of the stock: In tandem with the first, ad hoc releasing of the stocks will not bring about any major changes in the situation.
    • ThirdHiding fiscal deficit from the public: In this context, off-budget borrowing can serve various politically expedient purposes.
    • It has enabled the government to showcase a consistently low share (below 1%) of subsidies in national income.
    • Thereby diverted the public attention from two critical facts: the FCI’s tipping financials and the country’s (grossly) underestimated fiscal deficit.

Conclusion

The government must recall that the “illusion” of this acceptable limit of inflation potentially rests upon the savings of the common consumers, which is being unduly misemployed by the government.

 

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