The Anna Bhagya scheme of the newly elected Karnataka government is facing a serious challenge. Through this scheme, the state government has promised to provide 5 kg of rice free to the people below the poverty line. The Karnataka government relied on the Open Market Sale Scheme (OMSS) of the central government for the supply of rice. Under this scheme, the Food Corporation of India (FCI) sells foodgrains to state governments as well as to private traders. State governments then use this supply for the implementation of subsidised or free food schemes such as the Anna Bhagya scheme.
Under the OMSS, the FCI sells grains to state governments at a fixed price that is higher than the MSP at which the FCI procures grains from farmers. Thus the central government recovers at least part of its procurement and storage cost. But the private traders have to participate in the bidding process.
However, unexpectedly, the central government announced major changes to this scheme. It decided not to sell rice to state governments through OMSS. The sale to private traders continues. The Karnataka government considers this decision politically motivated and meant to hamper the implementation of the Anna Bhagya scheme. The Centre claims its aim is to control prices in the open market and hence, it would sell only to private traders.
If this decision is politically motivated, as the Karnataka government claims, it is certainly objectionable. But how do we judge that? The timing of the Centre’s decision raises questions. But that too is mere speculation.
The Minister of Consumer Affairs and PDS has suggested the Karnataka government procure the required grains from the open market instead. But it is not clear why the two situations are not equivalent: The Centre sells rice directly to state governments or continues selling it only in the open market and the state government procures it from there. Both situations are the same as far as the effect on market prices is concerned. The official reason given for changing the policy is thus not convincing.
Some deeper questions also need to be raised here.
The central government has the legal authority to decide what to do with the grains it purchases. However, it is important to ponder the ethical dimension of its decision. The Centre is the biggest player in the country’s food trade market and its substantial stock of grains has a major impact on open market prices. Market prices are hardly competitive when the central government dominates the grain market. (For example, the stock of rice that the FCI carried on June 1, 2023, is as high as three times the buffer stock norm for July 1). Thus expecting the state governments to procure grains from the open market is ethically problematic.
In its defence, the Centre would likely say that its market intervention is to stabilise prices. But has it succeeded in doing this? How efficient is its operation?
An efficient agency entrusted with the job of price stabilisation would carry a fluctuating buffer stock. It would sell more than it procures when the prices move up beyond a certain level and would buy more than it sells when the prices dwindle. But we don’t see this happening. The FCI has always carried stocks well above the buffer stock norms. The question, therefore, is: Why should the state governments pay for the inefficiency of the central government?
The issue, therefore, is only of financial implications. The Karnataka government will have to take on a higher financial burden if it is denied grains through the OMSS.
Cooperative federalism demands freedom for state governments to design their own food security system. And as long as the Centre remains the biggest player in the grain market, it has a moral responsibility to ensure this.
Murugkar writes on economic and social issues
