Food subsidy issue

G. Srinivasan

The Narendra Modi Government  is bending backwards to  proclaim that it has been farmer-friendly even as the elements ditched it when there was a back-to-back drought for two years immediately after its ascension to power in 2014. This was followed by a benign monsoon in 2016-17 with relatively well spread geographically when farm produce prices plunged to the dismay of growers who had to indulge in fire-sale lest they should burn their fingers too badly. News of agrarian distress, sporadic suicide of farmers across the nation and persistent plea for farm loan waivers characterized the nation’s bucolic segment in recent months so much so that starting from the Prime Minister Modi who announced farm loan waiver in the run-up to the UP assembly polls early this year, there was a spate of farm-friendly programmes to lift the spirit of rural people.
More recently, the Minister of State for Commerce and Industry Nirmala Sitharaman penned her thoughts on safeguarding the interests of farmers in a newspaper article. She contended that providing food to the poor or targeted group at subsidized prices is fully WTO-compatible. She even went to the extent of claiming that the major part of the subsidy for the distribution of foodgrains (90.81 per cent for rice and 91.70 per cent for wheat) is borne by the Government of India. Even as India has earned a reprieve in the WTO by way of peace clause for public stockholdings of foodgrains to be distributed at subsidized price for millions of its poor citizen, the government of India is also claiming that its subsidy on foodgrains has been progressively coming down.
A latest report on the Food Corporation of India (FCI) tabled in Parliament in the monsoon session of Parliament has laid bare the various shortcomings and disabilities with which the major food procurement and distribution behemoth is beset with. FCI for instance requires “ a considerable amount of working capital to carry out its activities”, the CAG report said enumerating that during 2011-12 to 2015-16(the period spans the last two years of the UPA and the first two years of the NDA governments) the main activities of food grains procurement, distribution and other administrative costs amounted to 1,05,333 crore of rupees, 1,23,687 crore of rupees, 1,28,024 crore of rupees, 1,34,235 crore of rupees and 1,42,487 crore of rupees respectively.
Stating that the primary source of funds for FCI is the food subsidy released by GoI on account of the consumer subsidy (wheat, rice), subsidy on coarse grain and carrying cost of buffer stocks (buffer stock held by FCI and reimbursement of carryover charges to State government/Agencies), the report pinpointed that the subsidy released every year by the GoI was “lower than the subsidy claimed by FCI”. Thus, while the Ministry of Finance (MoF) is to release 95 per cent of the estimated food subsidy to FCI during the relevant financial year, the balance five per cent is to be released after submission of accounts of FCI to the Parliament. However, the CAG said the GoI had released only 67 per cent of subsidy on an average over the last five years due to which the FCI had to resort to other costlier means of finance viz., cash credit, short-term loans etc.,
CAG further noted that though FCI from time to time pleaded for additional funds from the Ministry the request was either kept in abeyance with no reply or only part amount was received. FCI had also requested the Ministry to permit it to raise funds from financial institutes like National Bank for Agriculture and Rural Development (NABARD). But the response from the Ministry was still awaited. As a result, the outstanding subsidy pertaining to previous years increased from   15,668.87 crore of rupees in 2011-12 to 58,659.19 crore in 2015-16. This was on account of short release of subsidy by the GoI in each of the years necessitating FCI to raise funds through interest-bearing loans and bonds. The short release of subsidy burden led to extra interest burden of 35,701.81 crore of rupees on FCI and an increase in food subsidy by an equal sum.
In a classic case of Stockholm syndrome where the victim sympathizes with the tormentor, the FCI said that release of lump-sum advance subsidy was largely dependent on many factors such as revenue collection of the GoI, cash liquidity position, budgetary provisions by the MoF and other financial commitments! CAG said FCI justification of short-release of subsidy shows that short allocation of funds by the MoF towards food subsidy is due to competing financial priorities of GoI. This compels FCI to seek financing from external sources (towards working capital ) thus aggravating the interest burden, which gets added to the existing subsidy  claims, thereby increasing the claimable subsidy which is again followed by further short receipt of subsidy from the Ministry. “This vicious cycle eventually leads to an increase in the overall food subsidy burden of the GoI which at least to the extent of interest paid for external financing was avoidable if timely subsidy claims were released by the Ministry”, the CAG noted with due concern.
In effect, this exposes the Government of India’s various ministries operating in a silo mental bloc sans a holistic approach to make efficacious use of extant resources for optimal benefits to the stakeholders. If the government through its Commerce Department seeks to perpetuate food subsidy to vulnerable sections of society, it cannot simultaneously short-change the FCI in doing its thankless task. It is time the various forward-looking suggestions by the Shanta Kumar Committee on FCI reforms was undertaken with the urgency they deserve so that the piquant situation with which India is placed to defend its food subsidy and public stock holdings is precluded. (IPA)

Sunday, 3 September, 2017