The Economics of Foodgrain Management in India By Kaushik Basu, chief economic adviser, government of India, ministry of finance
The government has been pulled up by the Supreme Court for allowing foodgrain to rot in its godowns while the poor go hungry. The judges have ordered the food to be distributed free. In response, the Prime Minister has said it’s impossible to supply free food to the 37% of the population below the “poverty line”. Who’s right, the politicians or the judges? Kaushik Basu, chief economic adviser at the finance ministry, has in this paper said that it’s perfectly possible to feed everyone in the country and the problem is the faulty food procurement and distribution system.
But first, here are some facts. On 1 April, the stock of wheat and rice with the government was 202% of the minimum needed under the buffer stock norms, at a time when price rise was forcing the poor to cut back on food. Basu points out scathingly: “If the reserves are never to be used, they may as well not be there.” Not that the government hadn’t tried releasing foodgrain—in December, when inflation was at 20%, it decided to release some stock, but at a price higher than that at which it had obtained them, plus a mark-up for transportation and storage costs. Basu drily notes, “There are no surprises in the fact that there was no demand for the wheat thus put on sale; the sales in Delhi were actually zero. Evidently, the strategy used for releasing foodgrain has scope for improvement.” He argues that if the grain is priced so high that it finds no takers, it’s equivalent to selling it at zero price—the fiscal deficit goes up even more. Here’s the author at his acerbic best: “In the case of India, the release has fallen well short of procurement. The statement by a senior member of this government that, when it comes to hoarding, it is the government of India that leads the pack is not off the mark.”
Full report here Mint