Governance Now, Sept 1-15
Between the farmer’s field and your kitchen, the government procures, stores and distributes food grains. How it messes up at every stage and what can be done about it.
If you want to know what’s wrong with our food distribution system, step into the godowns of arguably the country’s largest agriculture produce marketing body, Punjab Markfed (an annual turnover of Rs 4,800 crore) in Bhawanigarh block of Sangrur district.
Hundreds of gunny bags containing wheat lie in the open, exposed to the elements. Mercifully, it is a sunny day when I visit it but there are tell-tale signs to show how the monsoon caused a havoc here a few days ago. Several hundred of empty and damaged gunny bags are strewn all over the place for the purpose of drying under the sun while their contents are spread elsewhere for the same purpose. An employee is sifting through the grain and stuffing those he thinks have dried enough into new bags. Wherever you look, the bags carry fungus stains, suggesting that the grain inside is rotting and is probably not fit for consumption. A few stacks have no sign of the tarpaulin cover. Bhim, a caretaker of the godown, says most of the stocks were brought in in 2007 and have already been exposed to three monsoons.
Less than 10 km away, in Akbarpur, another godown of the Punjab Markfed similarly stores paddy in the open. Some stacks have no tarpaulin cover and grains are spilled all over. These were brought in last October and may possibly survive the first rains. But a few yards away in the same compound, a rice mill remains idle with ample covered space but that cannot be used because the miller is yet to get the clearance to de-husk the paddy.
Both these godowns fall in the category of what is called “CAP” (cover and plinth) in the FCI parlance —grain stored in the open on wooden platforms, with tarpaulin sheets for protection. Punjab stores most of the paddy and a significant amount of wheat stocks for the entire country. Punjab Markfed is one of the five state government agencies that procure and store food grains on behalf of the Food Corporation of India (FCI), the national food procurement, storage and distribution agency.
FCI’s problem of plenty
Punjab has a total capacity to store 19.9 million tonne of food grains—9.5 million in godowns and 10.4 million in the open (CAP). All of its rice stock (6.3 million tonne) are in godowns as it can’t be stored in the CAP. This leaves 3.2 million tonne space for wheat and the rest - 9.5 million of total wheat stock of 12.7 million tonne (that is 74 percent!) - rotting in the open in Punjab alone!
But that is not all. A far bigger trouble is waiting round the corner. Fresh procurement will begin in October for paddy (9 million) and in April for wheat (12.7 million). These would require additional storage space. Every month 1.2 million tonne of grains are supposed to move out of Punjab to other states, thus vacating space for fresh procurement. But this year, Punjab has seen little grain movement. The wheat stock hasn’t been touched at all and only 2.7 million tonnes of rice (of 9 million) has moved out. The space constraint has led to delay in de-husking of 2.2 million tonne paddy procured last October.
This problem of plenty pervades FCI’s operations throughout the country. As per official data, it currently stores 57.8 million tonne, against a requirement of 31.9 million tonne of buffer/strategic stocks as on July 1. Of this, 17.8 million tonne are under the CAP—that is, lying in the open.
FCI explains this bizarre situation by saying it “de-hired” godowns at the advice of a private consultant and the Comptroller and Auditor General of India (CAG) so as to utilise space lying unused following the 2002 drought. The scenario has changed but the practice continues and explains why liquor bottles were found stocked in FCI godowns of Jaipur while grains were rotting outside. Worse, it doesn’t have details about the space “de-hired”.
That is not the end of FCI’s trouble. In June, an empowered group of ministers (EGoM) headed by Pranab Mukherjee decided to offload 5 million tonne of wheat in the open market to bring down the soaring prices. But to everyone’s shock, it was found that there was no taker for this because the prevailing wholesale price turned out to be lower than the FCI price! This was true in Delhi (Rs 1,252.15 as against wholesale price of Rs 1,230 a quintal), Lucknow (Rs 1,282 against Rs 1,150), Bhopal (Rs 1,304 against Rs 1,180) and elsewhere. Apparently, something is seriously wrong with the minimum support price (MSP) at which FCI procured wheat last year.
Modern Golghar and other solutions
What all these details show is that the FCI and the food ministry needs to completely overhaul their operations. But how?
* The first obvious step is to set the MSP right, particularly while going for procurment of more than the normal 40 to 45 million tonne of grains - which happened last year when the government bought an extra 10 million tonne fearing drought. The problem of plenty can be addressed by setting the right target for procurement and establishing a system that can avoid panic procurement of the kind witnessed last year.
* Storage of grains has emerged as a major problem. Needless to say, capacity building is required but not in the way it is done now. The right example to follow is the 18th century Golghar of Patna, built by the British to counter famine. The modern-day silos follow the same system, which is scientific as it works on the principle of first-in-first-out. We have half-a-dozen silos in the country. The only thing going against it is its high cost of building. Involving private sector by way of public private partnership (PPP) may be a way out.
* The cheaper option is to go for Grain Banks at village or panchayat level, which are more efficient. A couple of non-government organisations of Andhra Pradesh and Orissa have demonstrated how these banks can work at the village level.
* Excessive dependence on FCI and state agencies that work on its behalf is also a cause of problem. Tamil Nadu has a highly successful public distribution system which is largely run by the cooperative societies and women self-help groups - 93 percent of all fair price shops (FPS). These are also empowered to procure grain and other food items locally.
* Grain movement from the FCI godowns to the intended states needs to be rationalised and made efficient so as to avoid the practice of holding on to grains for three to four years and letting them rot.
Adopting some of these measures may prevent rotting of grains that we witnessed in Punjab. But what about taking the stuff that has not rotten to the people?
Universal PDS
It needs no elaboration that the public distribution system (PDS) too is rotten. What is of greater relevance is the fact that replacing the PDS with the Targeted PDS in 1997 caused even more harm. A Planning Commission report of 2005 said this switch “neither benefited the poor nor reduced subsidy”. On the other hand, it increased diversion of food grains by a greater extent—“58 percent of subsidised food grains didn’t reach the intended beneficiaries.”
Kerala, which used to be a model state in pre-1997 era, is a good example. A 2008 study showed how “Kerala has taken a complete u-turn in utilisation of the PDS from a scenario where the majority of the population was dependent on the PDS to a state where 70 percent are excluded from the system completely.”
On the other hand, Tamil Nadu is a shining example how the pitfalls could have been avoided. When the entire country opted for the Targeted PDS, it retained the universal character and is a great success story. The National Advisory Council, which is presently working on the right to food law, held a special presentation of this model to learn how and why it works there.
The right step, therefore, would be to switch back to the universal PDS. More so since the government is working towards the right to food law, which is, by definition, universal. Universal PDS will also remove three obvious shortcomings in the Targeted PDS: Lesser number of beneficiaries attached to an FPS makes it economically unviable, prone to greater diversion and deprives local community a stake and hence, no incentive to make PDS work.
Universal PDS completely negates the concept of direct cash transfer (DCT) proposed by some experts and the governments of Delhi and Bihar to battle the PDS menace. And rightly so. Even the Planning Commission has opposed it in its recent presentation to the NAC because DCT “threatens to dismantle PDS and leave the intended beneficiaries at the mercy of the private traders” who would get in and take over the operation.
The only stumbling block in switching back to the universal PDS is subsidy, which would go much beyond the current level — Rs 60,000 crore has been earmarked as food subsidy in this year’s budget. The answer, however, can be found in differential pricing, which means a higher price of PDS supply for those who are economically better off.
Operational modifications
But to make PDS work, it would require several radical changes in its operation.
One is to introduce ‘smart cards’ as the Planning Commission has proposed. The plan panel says that “instead of delivering subsidised grain to the poor we should switch to a system where the PDS shops sell grains at the normal above-poverty-line (APL) price, but the poor have a smart card which enables them to pay the subsidised price and have the subsidy amount credited to the shopkeeper’s account”. This would eliminate possibility of diversion of food grains flowing to FPS to the market.
But that leaves the issues of bogus ration cards and exclusion of the poor from the system unaddressed. The plan panel suggests that these problems can be overcome by linking the smart cards to the Unique Identity project. This linkage will have an additional benefit. UID will link food entitlement to the individuals, rather than the families, which is the case now. Since the family size vary the present system does not necessarily address people’s needs correctly. The UID Authority has already begun its spadework this linkage.
The third change required is to make FPS economically viable. As Justice Wadhwa Committee has pointed out in its reports to the Supreme Court, it requires about 1,000 cardholders for each FPS to make it viable at the present rate of commission. Apart from this, the Justice Wadhwa Committee also suggested a few more measures, like involving cooperatives and women self-help groups to run the FPS, door-step delivery of food grains to the FPS, charging actual cost of transportation (a major cause of loss for the PFS) rather than a formula-based approach as at present, timely delivery to the FPS and allowing FPS to sell other commodities.
A few other modifications can be borrowed the Tamil Nadu and Chhattisgarh models. Tamil Nadu’s universal PDS has some features other than allowing cooperatives and women self-help groups to run the FPS and buy food items locally. These include mobile FPS to cater to smaller and isolated groups of people, part-time FPS to take care of emergencies, restricting the distance of FPS from beneficiaries to less than two km and keeping private individuals and firms completely off the PDS network.
Chhattisgarh runs a successful Targeted PDS model. Key elements of this model are: (i) transparency — every aspect of the operation is computerised, from the time grain is procured from a farmer and paid for on the spot, its real time distribution status, availability at every FPS at any given time and details about individual consumer (ii) community participation in monitoring and (iii) stiff punishment for any wrongdoing, which can be reported through a convenient mechanism.
As it would be clear now, at the end of the day it is as much an issue of good governance as the involvement of local community that makes the food distribution system work. n
prasanna@governancenow.com
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