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Government faces policy dilemmas

Ensuring food security entails procuring enough wheat and rice to stock up the PDS– which is the only safety net that ensures that the poor have access to subsidized grain, reports N Chandra Mohan.

business Updated: Apr 15, 2008 01:29 IST
N Chandra Mohan

The UPA government confronts serious policy dilemmas in ensuring food security at the worst possible time internationally. Global food prices have gone through the roof with wheat prices surging since late 2006 and rice prices rising from January 2008. Stocks of food items are also at historic lows. Inflation in food commodities, too, is accelerating in the country – a big worry for a government gearing up for national elections. Clearly, this juncture is hardly the best one to depend on imports to augment shortfalls in domestic availability of food.

Ensuring food security entails procuring enough wheat and rice to stock up the public distribution system (PDS) – which is the only safety net that ensures that the poor have access to subsidized grain. The current rabi (or winter) marketing season is underway in the surplus producing, vanguard agrarian regions of Punjab, Haryana and western Uttar Pradesh. But procurement so far by official agencies is disappointing as wheat farmers are unhappy with the minimum support price of Rs 1,000 a quintal.

These farmers are, of course, perfectly aware that international prices are much higher than domestic prices. With their political clout at the state-level, they are bargaining hard with the UPA government for higher procurement prices of, say, Rs 1,650 per quintal. As rational economic players, the farmers are holding back their stocks of wheat in the expectation of offloading it later on when prices are much higher. Thus, inflationary expectations have already set in. The result can only be a spiral in food prices.

The upshot is a country-versus-town dilemma for policymakers. Giving into farmer demands to appease a powerful, so-called aam admi vote bank only ensures that food prices ratchet upwards. But this erodes standards of living in urban India that has another powerful vote bank — the vocal middle class. The choice is a difficult one — either to protect farmers or to insulate the middle class from inflation. Earlier, farmers were protected from cheaper imports. But now, it is the turn of the middle class to be protected from imports.

With the UPA government panic-stricken about the soaring food prices, it has until now managed to hold out against farmer demands. But for how much longer is the question.

In Madhya Pradesh, reports are in of procurement from neighbouring states like Rajasthan through the promise of higher bonus prices. Even so, indications are of a likely shortfall in wheat procurement of 2 to 3 million tonnes from the target of 15 million tonnes for the PDS. This certainly implies costlier food imports.

This is not the first time that the government has imported grain in the interests of food security. In 2006, it imported 5.5 million tonnes. In 2007, 1.8 million tonnes were purchased from the global market when wheat prices had begun to skyrocket. With a full-blown global food crisis now raging, the big question is how it will succeed in procuring 2-3 million tonnes when global stocks are low. Reportedly, it has already contracted for 1.5 lakh tonnes of wheat in July at a total cost of Rs 1,625 a quintal!

Such recourse only implies a higher food subsidy bill, which can only further strain the finances of a government that is facing populist demands in an election year, including the Sixth Pay Commission award. The decision to form a strategic reserve of 5 million tonnes over and above the buffer stock requirements to combat emergency situations has to be seen in this perspective. Ensuring food security at a time of global crisis when the nation is not self-sufficient in food is indeed the biggest challenge for government policy.