The Modi government’s efforts to fight inflation by releasing additional amounts of grain to states under the targeted public distribution system (TPDS) is threatening to unravel, as states are ill-equipped to handle extra allocations. While there are few takers among the states for the extra rice allocated under TPDS, the offloading of wheat stocks with the Food Corporation of India (FCI) to bulk buyers has taken off.
Analysts say this indicates that open-market sales are a better way to reduce price pressures than releasing extra stocks through TPDS.
Finance minister Arun Jaitley had in June announced a series of measures, including allocation of additional rice of 5 million tonne to the above poverty line (APL) and below poverty line (BPL) families, to combat food inflation.
Sources told FE that so far only 2.3 lakh tonne of the allocated rice has been lifted, with many states where the number of poor are high, including Uttar Pradesh, Bihar, Telengana and Odisha, drawing a blank.
States are ill-equipped to handle even TPDS grain allocated to them and so, there was no appetite among states to lift the extra rice allocated, they pointed out.
A few states have lifted some quantities of the additional allocated rice so far. These include Assam (56,000 tonne), Andhra Pradesh (41,375 tonne), West Bengal (39,372 tonne), Tamil Nadu (33,860 tonne) and Kerala (34,665 tonne). Given that these states have a relatively more efficient PDS system, it is clear that releasing more rice to states with poor storage and delivery infrastructure wouldn’t serve the purposes of fighting inflation or addressing hunger.
“States usually take possession of grain from the FCI on a monthly basis for the TPDS, as they lack long-term storage facilities. So they find it difficult to lift the extra grain,” a food ministry official told FE.
As reported last month, many state governments had failed to take delivery of foodgrain allocated under TPDS even last fiscal. In FY14, for instance, the offtake of rice by states for APL people was 93% of the allotment, while in case of Antodaya Anna Yojana (AAY), only 77% of the grain allocated was lifted by the states.
About 8 crore families are deemed APL, while 6 crore families that are BPL get subsidised foodgrain under TPDS. The AAY scheme is meant for 2.5 crore families.
Signalling that bolstered open market sales, indeed, work, more than 2.4 lakh tonnes of wheat has already been sold to private bulk buyers from FCI’s stocks under open-market sale scheme (OMSS) in the three weekly auctions held so far. Sources said bids received for wheat sale exceed the reserved price of R1,500 per quintal, plus freight cost to consuming locations. “The demand for wheat under OMSS is expected to rise to around 2-3 lakh tonnes monthly by October 2014,” an FCI official said.
The FCI had wheat stocks of around 38 mt at the start of August, while the grain stock is more than double under the strategic reserve and buffer stocks norms. At present, wheat is sold under OMSS through weekly e-auctions to bulk buyers at 20 locations, while traders can buy wheat on ‘dedicated movement basis’ from the depots of state government-owned agencies of Punjab, Haryana and Madhya Pradesh. The auction is being done on NCDEX. This move is expected to keep wheat prices under control in the festive months. FCI had sold 5.8 million tonnes of wheat under OMSS to bulk buyers last fiscal.
Sandip Das | The Financial Express