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A new menu

Shanta Kumar panel report shows the way for reforming an outdated food policy.

FCI, Food Corporation of India While the world has changed, our food policy is stuck in a 50-year-old mindset.

ONE of the late R.K. Laxman’s best cartoons from the mid-1960’s portrays a smiling food minister looking out of a window at a heavy monsoon downpour saying, “This year we can tell the Americans to go to hell.” Fifty years ago, a good monsoon meant that that year, India was not dependent on food aid and wouldn’t have to go hat in hand to the Americans for food under the PL-480 programme. What a different world we are in today. Our agriculture is not as vulnerable to the monsoon and we have mountains of grain —  we maintain costly buffer stocks of more than twice our needs.

But while the world has changed, our food policy is stuck in a 50-year-old mindset. Back in the day, we set up the Food Corporation of India (FCI) to procure grain from farmers at prices set by the Commission for Agricultural Costs and Prices in order to encourage production, subsidised agricultural inputs such as fertiliser, pesticide, water and electricity, and provided cheap food to consumers through fair price shops. This helped India get rid of its dependence on food aid, made it self-sufficient in grain production and brought about a Green Revolution. But today, our needs are different and the world has moved on.

Yet we continue with that same policy, in an extremely inefficient manner and at a very high cost. This was brought home by the report of a special panel on the FCI, headed by former Food Minister Shanta Kumar. The report recommends sensible, practical, partial reforms and should be adopted. The proposed reforms would make our food policy more consistent with the rest of the world and avoid unnecessary wrangles at the WTO.

After the Bali meeting, India had three options: continue with the current system but try to reduce leakages through e-monitoring, undertake comprehensive reforms by shifting entirely to direct benefit transfers (DBTs) and shrink the FCI into a tiny buffer stock-holding agency, or effect partial reforms by introducing DBTs in major urban areas and allowing private traders to purchase and supply grain to the FCI for the remaining requirements. The panel has opted for partial reform but has gone further by suggesting revisions to the National Food Security Act (NFSA).

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The report makes five sensible and practical suggestions. First, get the FCI out of the business of procurement in grain-surplus states like Punjab, Haryana, Madhya Pradesh, Chhattisgarh, Andhra Pradesh and Odisha, and shift its focus to eastern Uttar Pradesh, Bihar, Assam and West Bengal. The FCI can purchase grain above its NFSA needs from surplus states, but the actual purchasing should be handled by the states themselves. Getting the FCI out of direct procurement is a good idea and it’s not clear why pushing it into procurement in the eastern states is desirable. It would be better to build procurement capacity in eastern states and help fuel another green revolution.
Second, the report pushes for a national warehousing system under a PPP model to reduce wasteful storage and transport costs. Farmers can deposit their produce at these warehouses and receive up to 80 per cent of the MSP value of this produce from banks — and then sell it later at market prices. This will be a major improvement as it would reduce storage costs and wastage.

Third, the panel suggests that state bonuses be the responsibility of the states and levies be made uniform at 3 per cent. This would help avoid the costs of huge bonuses paid by the states and financed by the levies they charge the FCI to procure from their farmers.

Fourth, the panel moots shifting to cash payments for inputs like fertilisers and rationalising the price of urea so that the NPK mix, which has been distorted by urea pricing, is reversed. Smuggling to neighbouring countries and other distortions caused by urea pricing would also be removed. Huge productive investments in the fertiliser sector are needed but have been held back by the absurd pricing system, which has made India even more dependent on fertiliser imports.


Fifth, the panel suggests amending the NFSA and reducing the subsidised population to 40 per cent instead of the current 67 per cent. It also suggests BPL consumers get more subsidised grain — 7 kg vs 5 kg — but that the issue price be linked to MSPs, except for the very poor. Further, in cities that have a population of more than one million, fair price shops should be replaced by DBTs.

If implemented, these recommendations would provide more food for the poorest population, reduce FCI costs, bring private trade back into the system and give poor urban consumers greater choice in their food basket. It will hurt labour unions that are gaming the FCI system and states that use bonuses as a political handout, which they get the Centre to pay for through levies. This would hugely reduce the massive leakages and corruption in the food chain.
If India can implement these reforms in the coming years, it would also avoid unnecessary battles at the WTO. It’s time to begin reforming a system that may have served us well 50 years ago but is now benefiting a few at a huge cost.

The writer is visiting scholar, Elliott School for International Affairs, George Washington University

First published on: 09-02-2015 at 12:14:13 am
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