Instead of using its grain stocks to feed the poor and hungry during the coronavirus-lockdown crisis, the Indian government is letting this food rot in its godowns. The government does not have proper storage facilities for stocking such a large amount of excess grain. Since much of this grain has been stored in sub-optimal conditions for long, a significant part of it has been damaged.
In just four months, between January 1 and May 1, the stock of rice and wheat that was not “readily issuable”, which included partially spoilt as well as damaged grain, increased from 7.2 lakh tonnes to 71.8 lakh tonnes. This is more than the amount of grain that has been distributed through PM Garib Kalyan Ann Yojana in April and May to deal with the crisis of livelihoods and food insecurity created by the Covid- 19 lockdown.
Over the last three years, the Food Corporation of India has been sitting on a massive, excess stock of foodgrain. Before we discuss how the government has failed to use these stocks to effectively deal with the present economic crisis, and to understand the political economy of the National Democratic Alliance government’s food policies, it is necessary to discuss how the government came to be holding such a large amount of grain.
Stocks held by the Food Corporation include grain required to meet operational requirements of government programmes such as the public distribution system as well as grain held as a strategic reserve to meet exigencies or any shortfalls in production (and procurement). The stocking norms of the government specify the quantity of grain that the Food Corporation should hold at different points of time in a year.
However, over the last three years, the Food Corporation has steadily accumulated more and more excess stocks than it needs to hold as per the norms. As shown in Figure 7, the amount of surplus stocks held by the Food Corporation has steadily increased after October 2018 and, by May 1, 2020, the government has 878 lakh tonnes of grain (including unmilled paddy), which was 668 lakh tonnes in excess of the stocking norms.
Why has the Food Corporation been holding such a large surplus of grain?
This is because the Central government has been unwilling to expand the coverage of the schemes such as the public distribution system (currently run under the provisions of the National Food Security Act) through which subsidised food and foodgrain are provided.
When the government offtakes the grain from the Food Corporation, it reimburses the corporation at the economic cost of this grain, which includes the cost of procurement as well as storage and handling costs. However, since the present government is firmly wedded to the neoliberal dogma of fiscal prudence, it has chosen not to lift the grain to keep its fiscal deficit low.
In the past, even when the governments did not lift all the surplus food stocks that the Food Corporation had, they covered most of the corporation’s costs. However, under the Bharatiya Janata Party government, this was changed. In the last few years, less than 60% of the Food Corporation’s food subsidy expenditure was covered by the government.
While the finance ministers window-dressed their own budgets and showed low fiscal deficit, the Food Corporation was made to show losses in its books and cover them through borrowings. This window dressing has resulted in burdening the Food Corporation, an organisation of strategic importance (as has become clear in the present crisis), with over Rs 2.36 lakh crore debt (as of December 31).
Over this period, instead of lifting the surplus grain that was being procured, and using it to expand the public distribution, the government forced the Food Corporation to sell the surplus grain through the Open Market Sales Scheme, often at a loss (that is, at a price less than the economic cost to the Food Corporation). The Open Market Sales Scheme was created in the mid-1990s for the government to be able to intervene to moderate sharp rises in price of foodgrain in the open market.
On the one hand, it has been used since the early 2000s to sell surplus grain to traders and exporters at subsidised prices. On the other, state governments that have extended the coverage of the public distribution system beyond the mandate of the National Food Security Act and need grain for other state-level welfare schemes also buy the extra grain at full economic cost through the Open Market Sales Scheme.
In most years over the last two and a half decades that the Open Market Sales Scheme has existed, the government has not been very successful in shedding a significant amount of excess stocks using the Open Market Sales Scheme. This is because the existence of large surplus stocks on the one hand raises the economic cost of grain for the Food Corporation (because the Food Corporation has to spend on its storage and maintenance and therefore the economic cost rises over time) and on the other it works to depress the open market prices (because of the fear that the release of such a large amount of grain can cause a glut in the market).
In 2019-’20, the Food Corporation managed to sell only about 14.5 lakh tonnes of wheat through the Open Market Sales Scheme until December 2019. Given the large amount of stocks and an urgency to clear the godowns for rabi procurement, the government directed the Food Corporation to reduce the price of grain in the Open Market Sales Scheme and sell it at a loss.
Consequently, the Food Corporation was able to sell an additional 21.8 lakh tonnes between January and March, taking the total sale of wheat in 2019-20 to 36.3 lakh tonnes. Of this, about 23% was sold to state governments for use in state-level schemes. The total Open Market Sales Scheme sale of rice during 2019-’20 was 16 lakh tonnes, of which 98% was to state governments and about 10% was after the imposition of the lockdown in March.
As a result of this unwillingness to distribute the grain among the poor and its inability to sell more than a limited quantity of the grain in the open market even at a loss, on April 1, the government was sitting on 823 lakh tonnes of grain, including 252 lakh tonnes of unmilled paddy, in its warehouses. This was almost four times the amount required as per buffer stocking norms of the government (210 lakh tonnes on April 1).
The government does not have proper storage facilities for stocking such a large amount of excess grain. Since much of this excess grain has been stored in suboptimal conditions for long, a significant part of it has been damaged. As of May 1, 60.5 lakh tonnes of wheat and 11.3 lakh tonnes of rice held by government was not “readily issuable” (Table 5, above). This included grain that was sub-standard, partially spoilt (what the Food Corporation considers as partially salvagable) or completely damaged (nonissuable).
The grain that was not “readily issuable” constituted about 11% of total stock of rice and wheat held by public agencies. In just four months, between January 1 and May 1, the stock of rice and wheat that was not “readily issuable” increased from 7.2 lakh tonnes to 71.8 lakh tonnes.
Strategic use of the excess public stocks during the Covid-19 crisis
Notwithstanding the reason why the government was hoarding of such a large stock of grain, the grain could still have been used strategically during the lockdown to alleviate distress and prevent exacerbation of food insecurity. This should have been a particularly attractive option to the government because, rather than increasing the fiscal burden, free distribution of this grain or using the grain for food-for-work programmes (or payment of wages in grain in schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme) would have reduced the fiscal burden of maintaining the large stocks.
However, the government has been extremely miserly in releasing the grain for distribution among the poor. On March 26, the Finance Minister announced that, under PM Garib Kalyan Ann Yojana or PMGKAY, “80 crore individuals, i.e, roughly two-thirds of India’s population” “would be provided double of their current entitlement over next three months” and that “this additionally would be free of cost”.
It is obvious that, if the entitlements of the two-thirds of India’s population (which is the population covered under National Food Security Act) were to be doubled, the government should have distributed as much grain through PMGKAY as it does under the National Food Security Act.
However, Table 6 shows that while the government distributes about 43 lakh tonnes of grain every month under the National Food Security Act, the total distribution of grain under PMGKAY was only 26 lakh tonnes in April and 29 lakh tonnes in May. In other words, the distribution under PMGKAY was far short of what was needed to double the distribution of grain through National Food Security Act.
It is noteworthy that, in a period when people have been dying of hunger and demands for providing ration have been made from across the country, the government has increased the amount of grain it is hoarding in its godowns. In the PMGKAY, one of the most important components of the relief package announced by the government, only 55.5 lakh tonnes of grain were distributed until May 22.
Taking distribution of grain under both the PMGKAY and the National Food Security Act, in April and May (until May 22), only 132.7 lakh tonnes of grain (40.9 lakh tonnes of wheat and 91.7 lakh tonnes of rice) were distributed by the government.
On the other hand, the government procured (until May 15) 283 lakh tonnes more of wheat. The total food stock of grain hoarded by the Food Corporation on May 1 was 55 lakh tonnes more than the grain the Food Corporation had on April 1. Not only was the grain provided through PMGKAY was far less than what was promised, a complete lack of planning and haphazard decision-making also resulted in delays and large-scale exclusion in distribution of the grain. In several states, particularly in the month of April, households only received the usual amount of grain and no additional free grain was provided by the ration shops.
There is some evidence that a significant amount of grain released through PMGKAY has not reached the beneficiaries. Several reports in the India’s Villages during the Covid-19 Pandemic series recorded that, although households had received their usual ration, they had not received the extra grain that was supposed to have been provided. A survey conducted by the Dalberg Global Development Advisors in the second week of April found that 43% of households with Antyodaya or Below Poverty Line cards had not received free rations.
A survey of 1,737 rural households in three states conducted by Mobile Vaani, a community radio service, found that 89% of respondents in Bihar, 63% in Jharkhand and 69% in Madhya Pradesh had not received free rations (through PMGKAY or state-level schemes).
Nothing reflects the insensitivity of the current government towards the misery that has been inflicted upon people more than the fact that during this period, instead of emptying its granaries, the Central government has increased the amount of grain it is hoarding.
In the present situation, distributing the grain among the poor is the win-win strategy. It would help feed the hungry, would strengthen demand in the economy, and would lessen the burden of maintaining these stocks on the Food Corporation. The government needs to immediately universalise the public distribution system, allow state governments to distribute grain freely and provide it free for running community kitchens to ensure that nobody is short of food.
Excerpted with permission from the monograph, COVID19 Lockdown: Impact on Agriculture and Rural Economy, published by the Society for Social and Economic Research, New Delhi.
Read the Food Corporation of India’s reaction to this article and the response of the authors here.
