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 Development is the Key
 
Is the food security programme workable?
Business Standard, India Wednesday, November 03, 2010


The scheme has serious fiscal implications for the country. In many other nations, either the producer is subsidised or the consumer; in India both the inputs and outputs of selected crops get the benefit. In the West, one has seen the trend of rising incomes and output without a corresponding growth in employment. We have the Indian version of rising incomes and employment without output growth!, writes S Seshan in Business Standard.

The government seems to have realised at last that, besides the people living Below Poverty Line (BPL), there is a vast population of near-poor and neo-poor who need the state’s attention in food security. The National Advisory Council (NAC) has expanded the concept of BPL beneficiaries, virtually doubling their number to 75 per cent of the population, designating them “priority households” and making them eligible to receive 35 kg of subsidised foodgrain (Rs 1 per kg for millet, Rs 2 for wheat and Rs 3 for rice) every month. The remaining 25 per cent – described as “general households” – will be entitled to 20 kg of foodgrain per household at a price pegged at 50 per cent of the Minimum Support Price (MSP). The scheme is imaginative and, if implemented well, should help in ensuring food security. This, however, is not a new idea. This writer has been arguing for quite some time that the current inflation is inertial and is stuck at an equilibrium of high food prices. It could be moved down if the government administers a shock to the system by selling its vast stocks of foodgrain at prices substantially lower than those in the markets after working out the cost-benefit, keeping in view the grains rotting in the godowns and the maintenance charges.

But the government scheme is an exaggerated version of what this writer recommended. It has some serious implications for the country’s fiscal health. The MSP goes up year after year. In many other countries, either the producer is subsidised or the consumer. In our country, both the inputs and outputs of selected crops get the benefit. The fertiliser subsidy may also be expected to go up given the power of the farm lobby. If the government sells foodgrain at very low prices to a massive population, the market will crash. The farmer would prefer to sell all his stocks to the Food Corporation of India (FCI).

...

Before the next general election, it is likely that the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), which is now in operation in the entire country and has contributed to demand inflation, will see further liberalisation. Now the guarantee is for work for 100 days in a year. The parties in power are likely to promise an extension of the benefit throughout the year. In the West, one has seen the trend of rising incomes and output without a corresponding growth in employment. We have the Indian version of rising incomes and employment without output growth!

...

What is needed for food security is a massive effort to raise agricultural production, in general, accompanied by a strategic sale of buffer stocks at a discounted price without disrupting the market mechanism. The sale price of buffer stocks should be at a discount to the market price and not the MSP.

This article was published in the Business Standard on Wednesday, November 03, 2010. Please read the original article here.
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