PDS/ Ration/ Food Security

PDS/ Ration/ Food Security


As per the Economic Survey 2015-16, Ministry of Finance, Volume 1 and Volume 2 :

• During 2014-15, while procurement of foodgrains (rice and wheat) increased from 56.9 million tonnes to 60.2 million tonnes, offtake of foodgrains (rice and wheat) from the PDS decreased from 59.8 million tonnes to 55.9 million tonnes. Despite increased availability in the PDS and prevalence of high inflation in foodgrains, dependence on the PDS is reducing, suggesting that there may be issues of availability, timely availability and quality of the PDS foodgrains.

• Food subsidy in India has increased by more than 4 times from Rs. 23,071 crore in 2005-06 to Rs. 1,05,509.41 crore in 2015-16. PDS costs are high and increasing with leakages, high administrative costs, corruption and mismanagement. The costs including opportunity costs of resources diverted for subsidy are high in terms of the public investments in agriculture which are foregone and which can improve productivity.

• The economic cost of foodgrains to the Food Corporation of India (FCI) comprises pooled cost of grain, procurement incidentals and distribution cost.

• The pooled cost of grain (MSP and bonus) accounts for two-thirds of the economic cost of wheat and rice.

• The procurement incidentals (i.e costs related to mandi charges and taxes, cost of gunny bags, arhatiya commission, mandi labour, forwarding charges, internal movement, storage charges, interest, administrative charges and others) constitute around 16-17 percent of total economic costs for both rice and wheat.

• There has been a rise in the share of distribution cost in total economic cost for rice and wheat in the recent years.

• According to the Commission for Agricultural Costs and Prices (CACP) report, the increasing economic costs of handling foodgrains through procurement, distribution and storage, large procurement in recent years and the widening gap between the economic cost of foodgrains and the central issue price have been the major factors leading to the ballooning food subsidy.

• The Economic Survey 2015-16 informs that there has been a steady increase in the Minimum Support Price (MSP) of crops over the years since 2011-12.

• Between 2015-16 and 2014-15, the MSP for paddy (common) and paddy (Grade A) increased by 3.7 percent and 3.6 percent, respectively. Between 2015-16 and 2014-15, the MSP for wheat increased by 5.2 percent.

• The Economic Survey 2015-16 has suggested that there is a case for replacing the present system of MSP/procurement based PDS with DBT and freeing the market of all controls on domestic movement and import. The entire activity of changes in the policy parameters vitiates the concept of a market and needs to be discontinued to enhance productivity in agriculture, says the Survey.

• Most states have now digitised their PDS. Agents along a commodity’s supply chain can obstruct the spread of JAM (Jan Dhan, Aadhaar and Mobile Phones) if their interests are threatened. The limited progress in getting Fair Price Shops in the Public Distribution System (PDS) to adopt Point-of-Sale (POS) machines for biometric authentication is suggestive of such resistance. Profits are required for FPS, fertiliser retail outlets and other distributors to remain viable, and ought to be seen as a feature, not a bug, in subsidy design. Rents must be shared for reform to proceed, and thus distributors need incentives before they invest in JAM infrastructure. The hold-up power of groups within the subsidy system is an example of the Indian’s economy exit problem.

• Beneficiaries verify their identities through scanning their thumbprint on a POS machine while buying the subsidised product—say kerosene at the PDS shop. This is being successfully attempt by Krishna district in Andhra Pradesh, with significant leakage reductions.

• Despite financial inclusion scores being low, if Fair Price Shops are equipped with POS machines beneficiaries can simply authenticate their identities while taking their rations as under the current system. BAPU—Biometrically Authenticated Physical Uptake preparedness is much better than for Rural DBT preparedness. The average state preparedness is 12 percent, but there are some states – like Andhra Pradesh (96 percent), Chhattisgarh (42 percent) and Madhya Pradesh (27 percent) – that with some policy push could be well-prepared for BAPU in the near future.

• Kerosene makes up about 1 per cent of the consumption basket of the poor; however about 50 per cent of the Kerosene given under PDS is consumed by the well-off and the rest by the bottom 3 deciles, showing that half of the subsidy benefit goes to the well-off section.

• Future prices are guaranteed by the government through the MSP. But while the government announces MSP for 23 crops, effective MSP-linked procurement occurs mainly for wheat, rice and cotton. While there is no government procurement per se in sugarcane, a crop with assured irrigation, mills are legally obligated to buy cane from farmers at prices fixed by government, an effective MSP-like engagement. But even for these crops MSP is restricted to a subset of farmers in a few states. This can be clearly observed in large gaps in the percentage of farmers who are even aware of the MSP policy.

• In Punjab and Haryana, almost all paddy and wheat farmers are aware of the MSP policy. However, very few farmers who grow pulses are aware of an MSP for pulses. Even for paddy and wheat where active procurement occurs, there is a substantial variation across states – with only half or less paddy and wheat farmers reporting awareness of MSP, especially in states such as, Gujarat, Maharashtra, Rajasthan, Andhra Pradesh and Jharkhand. This points to the possibility that procurement in these states may be happening in some districts and not in others.

• Public procurement at MSP has disproportionately focused on wheat, rice and sugarcane and perhaps even at the expense of other crops such as pulses and oilseeds. This has resulted in buffer stocks of paddy and wheat to be above the required norms, but also caused frequent price spikes in pulses and edible oils, despite substantial imports of these commodities.

• The absence of MSP procurement for most crops in most states implies either that farmers are selling their products to private intermediaries above the MSP or the converse, i.e., farmers have little option but to sell their produce at prices below the MSP, resulting in a regional bias in farm incomes. There is a general sense that the latter is a more prevalent phenomenon, highlighting the need for reorienting agriculture price policies, such that MSPs are matched by public procurement efforts towards crops that better reflect the country’s natural resource scarcities.

• One way of rationalizing MSP policy is to make these price signals reflect social rather than just private returns of production. The social returns to pulse production is higher than the private returns, because it not only uses less water and fertiliser but fixes atmospheric nitrogen naturally and helps keep the soil porous and well aerated because of its deep and extensive root systems. These positive social benefits should be incorporated into MSP estimates, says the Economic Survey 2015-16.

• Farmers could also be assured a floor price for their crops through a “Price Deficiency Payment” (Niti Aayog, 2015). Under this system if the price in an Agriculture Produce Market Committee (APMC) mandi fell below the MSP then the farmer would be entitled to a maximum of, say, 50 percent of the difference between the MSP and the market price. This subsidy could be paid to the farmer via Direct Benefits Transfer (DBT). Such a system would keep the quantum of the subsidy bill in check and also be consistent with India’s obligations to the WTO.

• The weaknesses of state agriculture universities (SAU) imply that extension systems critical for the diffusion of new agricultural innovations and practices, or even dissemination of information about public programs such as MSP, are unable to achieve their intended objectives.




Related Articles

 

Write Comments

Your email address will not be published. Required fields are marked *

*

Video Archives

Archives

share on Facebook
Twitter
RSS
Feedback
Read Later