Hard to stomach
We need a comprehensive Food Security Act to address the gross mismanagement of our food economy, writes Biraj Patnaik.india Updated: Apr 08, 2010 20:06 IST
As the nation debates the National Food Security Act (NFSA) and its implications on food security for the country, it is pertinent to pause for a moment and ponder some of the structural reasons for the mismanagement of the food economy of the country. Forget the past or the future or even the present set of policies being pursued. The UPA-II is pushing the nation inexorably towards a regime of greater food insecurity. The mismanagement straddles all the arenas of the food economy including financing, storage and allocation of foodgrains.
Take the Union Budget this year. In a skilful display of fiscal chicanery, Finance Minister Pranab Mukherjee ensured that the Union Budget allocated only Rs 55,578 crore for the food subsidy — a figure that is, in fact, less than last year’s allocation of Rs 56,002 crore!
What makes this budget allocation alarming is the fact that both the Ministry of Finance and the Ministry of Food, Public Distribution and Consumer Affairs know fully well that the actual expenditure that will be incurred this year on account of the food subsidy will be much higher at around Rs 72,000 crore. The food subsidy has two elements to it — one based on consumer offtake and, the other, the cost of maintaining the buffer stocks. So, it’s possible to accurately project in advance the budget required for any particular year.
The Food Ministry had, therefore, budgeted its expenditure based on the spending of the previous financial year. For the last financial year, the Government of India allocated Rs 14,000 crore less than the expenditure incurred by the ministry. This year, the ministry is likely facing a deficit of a similar quantum. Since the funds are not going to be made available, the Food Ministry will neither reimburse the Food Corporation of India (FCI), nor the state governments, the full complement of the funds they use up for procurement this year.
The result? The FCI will borrow the money from banks at near-commercial interest rates of 11.25 per cent and the State Food Corporations (SFCs), whose loans are not backed by sovereign guarantee, will pay interest rates that are even higher. Some state governments will choose not to provide budgetary support to bear the additional interest burden; the SFCs will be insolvent and will end up paying even higher interest rates to the banks.
The fact that the banking system charges extortionate rates for food procurement is itself a travesty. It is 5 per cent higher than what the same banking system would charge a consumer for purchasing a super-luxury condo in a gated community in Gurgaon. This is compounded by the graver injustice on those state governments who participate in the decentralised procurement scheme to help provide farmers with a minimum support price and bail out the Government of India by procuring food stocks for the central pool.
Uttar Pradesh (with an un-reimbursed balance of close to Rs 1,600 crore) has already shown its unwillingness to participate in the decentralised procurement scheme and Chhattisgarh (the Central Food Ministry owes it Rs 600 crore for last year’s procurement) has threatened to follow suit. This will severely affect the procurement process and thereby the food security situation in the country. Postponing expenditures to contain fiscal deficits is one of the oldest tricks in the book. To do this at the cost of food security, in a country where nearly half the children under the age of six are malnourished, is downright perverse.
The nation has, in recent weeks, been shocked to see photographs from across the country of food stocks rotting in the open even as reports of chronic hunger and starvation pour in. In Rajasthan, FCI godowns are being used to store liquor while food stocks rot outside. Even more shocking is the fact that the FCI systematically dismantled its own storage infrastructure by ‘de-hiring’ 170 lakh metric tonnes of storage space in the three years during 2006-2009. This was ostensibly done to ‘rationalise’ the storage infrastructure but, in reality, is a classic example of poor planning.
Consider this: if you were constructing a road, you would factor in peak traffic that is likely to use the road 20 years hence, and not the traffic that uses it today during non-peak hours. While dismantling its own infrastructure, the FCI did exactly the reverse by using projections of the lowest levels of procurement. The likely outcome? Foodgrains will continue to rot in the open while millions sleep hungry.
What will further exacerbate this situation is the fact that the rabi harvest is round the corner and the government is still struggling to store foodgrains procured two years ago. The most logical way of dealing with this situation would be to immediately release the foodgrains into the Public Distribution System so that the poor can afford it. This would also contain inflation. The Empowered Group of Ministers, headed by the Finance Minister, did exactly the opposite and decided against the Food Ministry’s proposal to release 5 lakh metric tonnes every month to state governments for use by families holding Above Poverty Line cards who are equally badly hit by food inflation.
The ostensible reason? It’s likely to extend the food subsidy by Rs 5,000 crore. The short-sightedness of this policy becomes apparent when you consider the fact that the storage cost for this quantum of foodgrains is likely to be in excess of Rs 2,000 crore while a significant amount will go waste as well.
The state governments’ alternatives to deal with this situation are even more frightening. Maharashtra and Andhra Pradesh are providing subsidised foodgrains to distilleries to produce liquor. Is there any more evidence needed to prove the dictum that power not only corrupts, but also intoxicates?
Not many summers ago, in 2001, India was giving exporters a higher rate of subsidy than it was providing to the poor to ship out excess grain. That year also saw the landmark Right to Food case being filed in the Supreme Court that virtually led to the courts taking over the food schemes. Will we see a repeat this year or will the political class do better this time around and legislate a National Food Security Act that comprehensively reforms our food economy? The jury is still out on this one.
Biraj Patnaik is the Principal Advisor to the Supreme Court Commissioners in the Right to Food case
The views expressed by the author are personal