Ashok Gulati, the chairman of the Commission for Agriculture Costs and Prices (CACP), has blamed the current food management policy for a paradox of high cereal inflation and bulging food stocks in government godowns. This, he said is being done by increasing money supply into the economy through excess procurement of foodgrains without corresponding supply of these grains in the market.
In a paper on Buffer Stocking Policy in the wake of NFSB:Concepts, Empirics, and Policy Implications, the noted agriculture economist suggested to the government to liquidate its excess stocks in foodgrains to make food management in the country viable.
Gulati claimed that his idea, if implemented, would help bring down cereal inflation as well as narrow fiscal deficit. In case, companies are allowed to export 102 million tonnes of foodgrains, it may also bring down the country's ballooning current account deficit (CAD), he said.
Gulati, along with co-author CACP joint director Surbhi Jain, pointed out that there are excess stocks with the central agencies even if desirable buffer stocks needed to be held in light of National Food Security Bill (NFSB) are taken into account.
The authors calculated that as against the desirable stocks, the likely stocks held with FCI would be in excess of around 30-40 million tonnes as on July one, 2013. The value locked in these “excess stocks”, evaluated at their economic cost, ranges from Rs 70,000 crore to Rs 92,000 crore. The economic cost of wheat is estimated at Rs 20,100 a tonne and of rice around Rs 26,430 a tonne for 2013-14.
"This infusion of excess money into the economy without corresponding flow of goods is evident in the paradox of rising prices of rice & wheat amidst overflowing stocks in government godowns," the authors said.
The paper suggested that the states where public distribution systems have been integrated with ‘Aadhaar’ and the probability of leakages in the distribution system reduced significantly may be allowed to lift 36 months of their offtake requirements at a discounted price.
The discount, the authors suggested would be equal to the cost of carrying by the Food Corporation of India (FCI). These states in turn can ask the consumers to lift their
36 months quota at a time with a discount on the PDS price. The benefit is that the consumers under existing PDS can get larger quantities at the beginning itself, releasing some storage space for FCI.
However, the authors pointed out flip side of the recommendation as well-- food scam. "The danger is that if the PDS is leaky, the offtakes can come back to the procurement centre as the MSP would be much higher than the PDS price, and this can lead to another food scam."
The other option, suggested by the authors is open market sale scheme (OMSS) at the last year’s minimum support price, besides a maximum of 5 per cent taxes, cesses etc.
"At these rates, wheat price will be Rs 13,500 per tonne and rice price will be Rs 19,000 per tonne, say ex-Punjab," they said.
The losses incurred would be administrative expenses in procurement and statutory levies (which are in the nature of centre-state fund transfers), but this would still save the large costs of carrying excess stocks as well as the capital that is locked in these stocks.
If these stocks are liquidated, then the value encashed can help in bridging the fiscal deficit and also improve the flow of rice & wheat in the economy where cereal inflation is still hovering in double digits.
"Unloading about 810 mt of wheat and rice in the domestic market (OMSS) can surely tame and bring down cereal inflation," the authors exuded confidence.
Despite the wholesale price index inflation coming down to 41-month low of 4.89 per cent in April, cereal inflation was as high as 15.63 per cent. Also, headline number for consumer price inflation came down to single digit at 9.39 per cent in April, but cereal inflation stood at 16.65 per cent.
The paper also recommended the third option to allow the PSUs and private sector to export another 102 million tonees or so at an ex-Punjab price of Rs 13,500 a tonne for wheat and Rs 19,000 per tonne for rice. This would help tide over the current account deficit as well as the deficit financing at home, the authors said.
The current price being offered for wheat export ex-Punjab is Rs 14,840 a tonne, which includes statutory levies that FCI has paid during the procurement process. But this is not attracting much private sector participation, and the PSUs themselves cannot export either, as the global wheat prices are showing a declining trend.
"If early action is not taken, and we feel India is already late in this by at least 45 months, then the chances are that India will have to carry this “excess” level of stocks for the next two years, unnecessarily costing the economy heavily without any purpose and that too at a time when CAD and fiscal deficit are already very stretched."
The paper said the availability of these surplus stocks also opens up an opportunity for India to be generous to regional and global needs.
"India could contribute 23 mt for a South Asian Foodgrain reserve, an idea which was floated after the 2007-08 food price crisis. There could also be a window to use these surplus stocks for extending humanitarian aid to Afghanistan and some other African countries through the World Food Programme (WFP) or through bilateral cooperation," the paper said.
This can bring rich dividends to help the poor of the world, and also political goodwill for India, which is aspiring to be a global player, the authors claimed, clarifying that these are their views and not of CACP. End