Prepare for a food crisis - The public distribution system is a hotbed of corruption

http://www.telegraphindia.com/1151208/jsp/opinion/story_57185.jsp#.VmZbsvmUdO0

Writing on the wall - Ashok V. Desai

The southwest monsoon started with a bang; the showers on the first day brought 30 per cent more rain than normal. The bounty continued for a while: there was another burst of rain in the fourth week of June. Things were all right till the end of July; rains were not too far below the seasonal average.

And then the monsoon took flight. The deficit grew week by week. By the end of September, rainfall was 14 per cent below normal. The only region in which the deficit is not significant is eastern and northeastern India, where it is 8 per cent. This part of India generally gets more rain even in bad years than its crops require. The shortfall is 17 per cent in northwest India; that too may not matter much because the rainfall was normal till August, by which time the crops would have grown sufficiently not to suffer too much. Besides, the main crop in northwest India is the rabi crop; it does not matter too much if the kharif crop fails.

The deficit in central India is almost as much - 16 per cent. There it is more serious because central India is important for its production of pulses and oilseeds, especially soybean. While soybean gives cooking oil, its cake is exported to China, which uses it to feed its pigs, whose meat is very popular there. And the panic that set in in October when dal price jumped to Rs 200 a kilogram was well founded: traders watched rainfall, feared that the pulse crop was going to be poor, and bid up prices.

An earlier Bharatiya Janata Party government had got into trouble because the onion crop failed; its price in north India tripled within a month in October 1998. The disappearance ofsirke wale pyaaz - little onions soaked in vinegar - which Punjabis prize with their meals made the Vajpayee government extremely unpopular. The BJP was voted out of Delhi; Sheila Dikshit captured it, and held it for 15 years. This time, the BJP has been repulsed in Bihar. That has not been attributed to the price of dal; the love affair between Nitish and Lalu was perhaps more important. There are no elections in store for many months now; next May and June will see five - in West Bengal, Assam, Tamil Nadu, Kerala and Pondicherry. Will the dal effect last till then? Perhaps not. For gram, the most important pulse, is a rabi crop; and it does not require much rain. But dal prices are unlikely to come down.

The rainfall deficit is reflected in the water stocks. Water inventory in 91 reservoirs monitored by the central water commission was the highest in the last ten years at the end of July; but by 1 October, it had come down to 76 per cent of last ten years' average. That is important because the rabi crop depends to a considerable extent on irrigation from stored water.

The poor monsoon must reflect on agricultural output. In its first advance estimate, the ministry of agriculture estimated the kharif foodgrain production at 124 million tons - 6 million tons less than last year, and lower than in any of the last three years. Cereal output is estimated at 118 million tons, 5 million tons below the last three years' average; output of pulses is placed at 5.6 million tons, half a million tons below the three-year average. The output of nine major oil seeds is expected to be 199 million tons, 8 per cent less than last four years' average. In view of the rain deficit, I think these forecasts are optimistic.

Food Corporation of India used to declare its stocks with a delay of a month or two; now it has become less forthcoming. The last stock figures it has revealed are for June. Then it had 56 million tons; but 40 million tons of that was wheat, which no one wants to eat more of. Rice stocks were 16 million tons -lower than in the previous two years. FCI was also holding 9.2 million tons of paddy which, if milled, should give another 6 million tons, making a total of 22 million tons - roughly three months' consumption. The gap between the rabi crop, which comes in April or May, and the kharif crop, is four or five months. So the stocks are not enough to see the country through next summer.

These are stocks with the government. An unknown quantity of stocks is also held by farmers and traders. They do so, not to feed the country, but to make a profit; they look forward to high prices. And when prices rise, the government panics. It starts raiding traders under the powers it gave itself ages ago, during World War II, and fining and jailing them. That gives them an excellent incentive to hide stocks. It also makes them cautious about selling stocks too openly. So private inventories could perhaps see the country through the rice scarcity of summer 2016; but scarcity may also bring forth a lot of government stupidity and consequent market instability.

Could the government avoid the crisis? It could ask south Indians to eat wheat. It has a precedent: when she heard that the poor could not get enough bread to eat, Marie Antoinette said, " Qu'ils mangent de la brioche" (Let them eat a superior bread made with eggs and butter). Because of her expensive habits, she came to be known as Madame Deficit. She was guillotined in 1794. The government forced wheat on south Indians in the 1950s when the country was not growing enough grains and the Americans were giving us wheat free. That did not make it popular then, and will not today.

That leaves the option of imports. They would have to cover at least a couple of months' consumption, which is 15 million tons. Thailand has 5-6 million tons in stock, but it would not be prepared to sell all of it. China is the only country with sufficient stocks - close to 50 million tons. The prime minister has been energetically making friends abroad. He should start talking to Xi Jinping, the Chinese president whom he took to Sabarmati and seated in a Gujarati swing. He could also try talking to General Prayut Chan-o-cha, the military ruler of Thailand, though he alone cannot solve India's rice problem. But even together, they will probably not offer enough.

So the rice situation is difficult. It is part of a bigger problem: the elaborate system of procurement, distribution, support prices, food subsidies, has outlived its utility and has become a hotbed of corruption. Yet, foodgrains cannot be left entirely to the market: the government cannot afford shortages, and India is too big to depend on international trade. We need to move towards market pricing, zero tariffs and same foodgrain prices for all; the poor should be given cash subsidies. We have been moving slowly in that direction, and meanwhile running an impossibly complex system. It is time to do some fresh thinking - and meanwhile, get direct subsidies to the poor working, and at the same time, dismantle the public distribution system.