How important is professional advice to the government? This question crops up from time to time as the capability of government to deliver high growth of 7-8% per annum is challenged. The question will be answered in two weeks from now.
Dr Ramesh Chand, member, Niti Ayog and one of the most respected agriculture economists, has said that there is no justification for extending the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) beyond December 2022. He has rightly argued that the government should instead release 40 lakh tonnes of food grains in the open market to tame inflation in cereals. The allocation for the Open Market Sale Scheme this year is only about 9 lakh tonnes.
Relatively high temperatures in March and April 2022 adversely affected the wheat crop and the government could procure only 188 lakh tonnes of wheat this year against 433.5 lakh tonnes in the previous year. And deficient rainfall in UP, Bihar and WB caused a drop in rice production in Kharif 2022. As a result of these weather events, the year-on-year inflation in cereals has continued to accelerate. It reached about 13% in November 2022 when the consumer price inflation in wheat/atta was 19.7%. Inflation in rice was 10.5%.
About 81.3 crore beneficiaries identified for subsidised food grains under the National Food Security Act (NFSA) have been getting an additional quantity of (free) wheat/rice under PMGKAY. This was perceived as a major factor in the BJP’s victory in state elections in UP. That was perhaps the reason why it was extended beyond March 2022 for six months, up to September and then for another three months, up to December 2022.
The offtake under PMGKAY till October was 231 lakh tonnes. Under the PDS, the total offtake up to October was 319 lakh tonnes.
The allocation for PDS and all other welfare schemes in 2022 to March 2023 is 614 lakh tonnes. If we assume that 90% will be used by state governments, 552.6 lakh tonnes will be lifted from central pool stocks. Even if PMGKAY is not extended beyond December 2022, 322.9 lakh tonnes (90% of the allocation of 358.8 lakh tonnes) would be lifted in 2022-23.
Taking all the allocations under the NFSA, other welfare schemes and PMGKAY, the total offtake in 2022-23 is projected to be around 917 lakh tonnes. Last year, it was 1,023 lakh tonnes. When the NFSA was enacted in 2013, the government had projected that the total requirement of food grains would be around 600 lakh tonnes.
It is due to excessive procurement of wheat and rice in the last four years that the government had a huge surplus in central pool stocks. In fact, the underlying implicit theme of the three farm laws was to bring market dynamics in wheat and rice cultivation, so that procurement could go down and the burden of carrying cost of excessive stocks could be reduced.
Prudence demands that allocations under PMGKAY are not extended beyond December 2022 and food grains are released in the open market. It has to be realised that a large number of poor families do not have ration cards under NFSA and millions of poor migrants across India live away from their families and must purchase food grains from the open market. An inflation rate of 13% in cereals is too burdensome for them.
The continuation of additional allocations made under PMGKAY, even after the pandemic is largely over, proves that the government does not really trust the view of Dr Surjit Bhalla (Pandemic Poverty and Inequality: Evidence from India, IMF Working Paper) that less than 1% of Indians are in extreme poverty (i.e. are living on less than purchasing power parity of $1.9 per person per day).
With the threat of climate change, a rather moderate winter so far and geopolitical uncertainties which impact global prices of petroleum and edible oils, the government would do well to use the central pool stocks prudently and wait for the next Rabi crop. In fact, the buffer norms need to be revised to take into account the current requirement of food grains.
Siraj Hussain was agriculture secretary to the Union government.
