Figure watch: Food subsidy must eat less

What economics says is imperative, politics often finds impossible. The Economic Survey reinstates the need to revamp the food management and security framework, mooted half-heartedly by the poll-bound NDA government, to drastically trim the food subsidy bill and make the system market friendly.

A comfortable supply situation and remarkable price stability for foodgrains has reinforced the need for the food security system, the Survey emphasises, echoing the NCMP’s commitment. But the UPA isn’t blind to the food subsidy bill, which has grown 10 times since the early 90s to reach Rs 27, 746 crore (Interim BE, February 2004-05).

To trim that bill and shape up the system, a slew of new reform initiatives have already been put in motion. Among them, cutting down the FCI’s economic cost on foodgrains expeditiously by cutting its high borrowing costs and letting it float bonds to borrow from the market.

One crucial decision is that of procuring just enough foodgrain to cover PDS and buffer stocking norms. The stock with FCI in April 2004, for instance, was just 20 million tonnes against the prescribed norm of 15.8 million tonnes and as compared to 32.8 million tonnes in April 2003. Carrying costs account for 25% of the subsidy bill.

The Survey lists restraint in MSP hikes and the need to link MSP to demand, rather than to cost alone among the top good initiatives to be carried forward. Urgent if not overnight rationalisation of the state levies for procurement is called for since this makes it highly non-competitive for the private sector whose participation in all aspects of grain trade is elicited in the long run.

To rationalise high state levies on procurement, the UPA is mulling the announcement of a procurement price inclusive of 4% of levies instead of the MSP, the Survey points out.

Two other new developments in the year also point to focus in the future: four states evinced interest in decentralised procurement, and the FCI procured two million tonnes of foodgrain in 2002-03 from non-traditional states.