Speeding up the process of reforming the agricultural sector has proved to be
the priority for this year’s Union Budget. The government argues that through
the budget, the food economy will experience some managerial changes in light
of recent increased production. Importantly, the provision of food subsidies was
also laid out.
Despite that grain production has actually decreased this current year, to
199m tonnes from 208.9m tonnes in 1999-2000, government policy is based around
the fact that "domestic production has reached a level which is much more
than what the market or Public Distribution System (PDS) [established to promote
food security] can absorb."
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Food management policy must therefore address the issue of surplus, as India
currently holds grain stocks amounting to around 45m tonnes. To deal with this,
the budget detailed "an enlarged role to the State Governments in both
procurement and distribution of food grains for PDS in their respective States,"
a measure that simultaneously limits the role and size of the Food Corporation
of India (FCI), a body designed to procure and distribute food to needy states
but labelled inefficient.
The government has received some criticism for this move. Notably Professor
Suryanarayana, from the Indira Gandhi Institute of Development Research,
argues that giving individual states an increased role will result "in
unnecessary duplication, wastage of capital, human resources and even grain."
There also exists a "lopsided strategy on procurement-cum-distribution
– that is, the priority accorded to stock accumulation over that of depletion,"
according to Suryanarayana. This has meant that procurement prices have increased
faster than the inflation rate, despite government efforts to align PDS prices
with FCI costs. Furthermore, Suryanarayana argues that the government "is
silent on the pricing strategy for procurement of grain" and "the
budget seems to lack an understanding of real issues and a long-term perspective."
Beyond management, possibly the most important news for the food economy revolves
around the provision for subsidies and their implications. The food subsidy
essentially pays for the operation of the PDS and the costs involved in maintaining
a buffer stock of grain as security, and has necessarily risen with the increasing
costs and stockpiles.
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By GlobalDataIn the budget, the food subsidy was put at Rs 8,210 crores, but a revised estimate
of Rs 12,125 crores has been given in light of a rise in inventory carrying
cost and the costs involved in the "Antyodaya Anna Yojana" project,
launched last December 2000 to identify 10m "poorest of the poor"
families and supply each with 25 kg of grain monthly at heavily subsidised prices.
By increasing the subsidy by Rs 1,550 crores, the government aims to pay for
the Antyodaya Anna Yojana for a full year. ??? has questioned however whether
the increased subsidy will be adequate to meet the costs
Government intervention and regulation has been praised however for keeping
Indian grain prices relatively stable despite the volatile nature of the prices
on the international arena. Critics of the new budget are asking however if
the alignment of domestic prices with global prices will actually contribute
to price instability, and if unregulated liberalisation will mean than the economy
will become less efficient.
