Opinion Food insecurity
Modi report does well to suggest FCI revamp. In the long run, direct benefit transfers are the way forward.
Modi report does well to suggest FCI revamp. In the long run, direct benefit transfers are the way forward.
Given the forecasts of less-than-normal monsoons and the spike in consumer price index inflation in April, the incoming government has a daunting task on its hands. By all accounts, the BJP top brass seems to understand that supply-side solutions will have to be set in motion if inflation is to be controlled. Reportedly, prime minister designate Narendra Modi has an action plan ready in the form of a report that the working group on consumer affairs, which he headed in his capacity as Gujarat chief minister, submitted to Prime Minister Manmohan Singh in 2011.
While the report details several actionable points, including reforming the APMC acts, promoting organised retail and developing agri-marketing infrastructure, the UPA government didn’t have much success in effecting any of the major recommendations. For the new government, the suggested restructuring of the Food Corporation of India is a good place to begin.
Given that the FCI has more than double the stocks it needs, the government should immediately offload 10-15 million tonnes of grain in order to dent cereal inflation. Since this was 13.3 per cent in 2013-14, if it is reduced to zero by offloading FCI stocks, CPI inflation could come down by 1.9 percentage points.
Such a move will also prevent the unconscionable wastage of foodgrain because it is eaten by rats or rots due to poor storage conditions. This, along with ceasing the FCI’s open-ended procurement, will save enough money for it to be reinvested in, say, revamping the irrigation network — supply response is much weaker in states where volatility is high, which in turn depends on irrigation infrastructure — or providing capital subsidies for back-end infrastructure, both of which will help tame price rise.
But while reforming the FCI is fine for the near term, the long-run goal should be to make it irrelevant. As far as price support for farmers is concerned, we would do well to graduate to an area-subsidy regime like the US and Europe. The incoming government should also try to revive direct benefit transfers using the Aadhaar platform. The savings this would entail are enormous. The 60 million tonnes of wheat and rice that are procured by the FCI annually cost it Rs 1.5 lakh crore.
In contrast, if each of India’s 250 million poor individuals were given a direct transfer of Rs 100 per month — a Rs 20 per kg subsidy for 5 kg of grain — the government could save Rs 1.2 lakh crore. This is the cost of keeping the FCI up and running, which the government should attempt to save.
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