The Union Government needs to revamp the system of foodgrain distribution in order to tackle crisis of the kind we have seen with the rise in pulse prices
Chief Economic Advisor Arvind Subramanian recently said that a multi-pronged approach is needed for the development of the economy. Soon after that, prices of pulses rocketed, even though the Government knew before the monsoons in July that there had been a sharp shortfall in production The Government did not import pulses which is seen as deliberate in many quarters. The Government seizes stocks from traders but is then forced to sell the seized stocks, ironically, through the same traders. If there were more sales channels the Government would have greater options. This could well be a prong for the Government to encourage greater competition.
At present, the Canteen Services Department of the Armed Forces is a sales channel which acts as a buyers’ cooperative, servicing more than two million serving personnel and reservists with families and more than three million retirees along with their families. The CSD in recent years has started buying pulses and processed foodgrains from traders and producers which it is able to sell at 10 per cent to 15 per cent lower prices than the market rate due to bulk purchases and for not having to pay for retail space. Also, unofficially the CSD serves a larger clientele as friends and relatives of CSD cardholders also obtain the stores goods. The CSD could be facilitated to make post-harvest purchases to become larger re-sellers.
The milk cooperatives are sellers’ cooperatives, but with changes in their mandate they could well serve simultaneously as buyers’ cooperatives. At the bottom of this pyramid is often a poor farmer or landless family, so targeting this channel will also serve equity considerations. BASIX, a microfinance provider, found it profitable to start the sales of solar lamps, mobiles and other products to the poor, mainly farmers. It then built its channel to provide Government services. Even Amazon uses its network to distribute goods. Channels could be seen as multipurpose carriers and duplex.
Warehouse shortage has been plaguing Government efforts in this sector. The thrust has been to store rice and wheat. However by keeping a buffer of just about one million tonnes of pulses, the Government can modify prices. It needs to measure the storage trade-off between storage of foodgrains, pulses as also all other agricultural commodities like onions.
To increase warehouse space, it needs to look at unconventional spaces such as Indian Railways, which owns the largest amount of land which is well-connected with towns, cities and the entire country. PPP should be allowed on that land as also the possibility of sales points. Similarly the Indian Army boasts of the largest number of golf courses in the country and other commercial activities through its entities. It could well build warehouses and contribute to the food security of the nation.
Security for the farmers in the form of minimum support price for pulses hovers above `40 per kilo, but retail sale prices are above `90. So, if the Government has more channels and takes a long-term commercial view, it can afford to ratchet up MSP above `50. At present, it debates a measly four rupees per kilo increase in procurement prices because it is not a market-oriented operation. Strong signals about the MSP have been the most positive incentives to farmers over the past four years, and further support will enable for a better Make in India programme.
Food security is targeted for the poor but the public distribution system is on its way out, with cash entitlement being planned to replace the current regime. Most families do get their food entitlement but at huge cost to the Government which habitually mismanages the effort. Now the poor will receive cash but have to buy from the same trading channels which are increasing prices by choking supplies. This PDS can be converted to a buyers’ cooperative. If ration card holders are offered a variety of goods they could also act as sellers. Here the urban ration card holder could be targeted with assurances of quality. This urban dweller is better positioned to become a micro-seller and would have to arrange for storage and small capital.
The Government needs to come out with an approach countering syndicates of traders and officials who disaffect Government decision-making. Designing solutions to counter deliberately planned upsurges in prices is an alternative to a periodic farce.