Against inflation

Government's positive changes to foodgrain policy

The new National Democratic Alliance (NDA) government has implemented some well-judged, if incremental, reforms in the food sector. This includes a cap on the quantity of grain that can be acquired from states, something that should dissuade them from offering bonuses over and above existing minimum support prices (MSPs). Some states, notably Madhya Pradesh and Chhattisgarh, have routinely been declaring handsome bonuses on top of the MSP to maximise grain procurement on behalf of the Centre. This helps them enhance their revenues through mandi charges and local taxes - and aids them in cornering more central resources by passing on the procured grains to the Food Corporation of India. In the bargain, they also get considerable political mileage by appeasing farmers. By curbing this practice, the Centre has not only staved off needless accretion of foodgrain to its kitty, but has also worked to reduce the expenditure on food subsidy.

Another change is the reduction of accumulated food inventory by offloading grains in the domestic market and through export. The government sold close to 10 million tonnes of foodgrain in the open market. Food stocks were 48 million tonnes as on October 1, against 55 million tonnes at around the same time last year. As a result, the government may manage to keep the food subsidy bill within the budgeted amount - Rs 1.15 lakh crore. However, the current stock holding is still almost double the buffer required to be retained for food security; so it could be scaled down further. That would also help India to stay clear of the objections being raised at the World Trade Organization about its food-stocking policies. It is worth noting that some of these instructions, including the one concerning shedding of extra grains in the central coffers, have reportedly emanated from the Prime Minister's Office, rather than from the food department, which explains their meticulous implementation regardless of resistance from states.

These changes have been planned from well before the NDA government came to power. Even the government's own food policy think tank, the Commission for Agricultural Costs and Prices, advocated them. However, the embattled United Progressive Alliance government could muster neither the political courage nor the political capital to carry them out. Another important reason was the imminent implementation of the National Food Security Act, under which subsidised foodgrain is to be supplied to nearly two-thirds of the country's population. The NDA, on the other hand, will benefit from some sort of a reprieve on this front, since it is now known that less than a dozen states are ready to roll out the food security programme. Others have asked for more time to identify subsidy recipients and improve the local public distribution system.

Some welcome consequences of these measures are already noticeable. The increase in grain supply following the release of long-held stocks to the free market has contributed to stability in cereal prices and the moderation in food inflation. However, these changes need to be made part of genuine structural reforms in the food management policy if their positive impact is to endure beyond the short term.