Ashok Gulati, chairman of the Commission for Agricultural Costs and Prices, talks to Sanjeeb Mukherjee about the challenges facing the government’s aam aadmi schemes and the paddy procurement crisis
Are the fears of a slowdown in rural demand well founded?
Rural demand is likely to slow down. The late rains are likely to affect productivity and thereby farmers’ incomes, unless price increases offset productivity losses. The likelihood is that there will be lower demand for modern inputs (seeds, fertilisers, pesticides, etc.) and if incomes suffer, the demand for durables may be affected.
How will the Food Security Act affect food prices? What could be the pitfalls in its implementation?
The Act’s main objective is to make affordable basic staples (wheat and rice) available to a larger chunk of population. Wheat at Rs 2/kg and rice at Rs 3/kg, perhaps, would be the lowest price anywhere in the world. The cost of wheat to Food Corporation of India would come to around Rs 19/kg and for rice, it would be above Rs 22/kg. To the exchequer, it may involve a food subsidy of almost Rs 120,000 crore, without counting the investment in agriculture to stabilise production, in storage, and in the railways. If one counts the investments needed to do all this in a satisfactory and sustainable manner, the bill will touch Rs 200,000 crore a year!
The real challenge for the government is to make sure that it reaches the intended beneficiaries. And for that a lot has to be done at the state level so that the public distribution system runs efficiently and without leakages. The current state of affairs is not very encouraging in most states. Surveys suggest a leakage of more than 40 per cent. The other big challenge is that in a drought year, as in 2002 when grain production dropped by 38 million tonnes, how would the government ensure food to the registered beneficiaries? Should the government always keep a buffer of, say, 80 million tonnes (as on July each year)? My opinion is that we should try at least at hundred major places to work through food coupons in urban areas to start with, and then gradually extend the reach through UID. That route is likely to be less expensive and with much less leakages, and in line with the best international practices.
What have been the gains and losses of NREGS?
It has so far been a mixed bag. It can come very handy in years of drought like this one. But it also suffers from leakages and not very useful asset creation. There was a talk of dovetailing it with agro-operations to contain rising labour costs, but that seems to have fizzled out. Agricultural wages are increasing on average by 20 per cent per annum in nominal terms for the last three years, and by 9 per cent in real terms.
The government is saddled with huge food grain inventory in excess of 70 million tonnes. What could be the best alternative to clear it?
Unless we clear substantial chunk of stocks quickly in the next two months, we risk a major crisis in paddy procurement to an extent that the system may simply cave in. That would be most unfortunate. There are at least two opportunities: (1) unload quickly at least 5 million tonnes of wheat in the open market operations in the domestic market at a price not below the procurement price of Rs 1,285/quintal; (2) export another 5 million tonnes of wheat at any price above Rs 1,285/quintal. This would save the government thousands of crores in storage costs. It will also help in cooling down the wheat prices. This window to export or offload in the domestic market will not remain open for long. We have just two months or else the food grain system will suffer and may trip by the year end. Better to wake up and act now!