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Wednesday, 13 December 2017 03:58
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Not clear why Suresh Prabhu is fighting for them at WTO

 

It is not quite clear why commerce minister Suresh Prabhu decided to go on the offensive and look for a permanent solution to foodgrain stocks at the WTO negotiations since, as he told this newspaper in November, these were protected by the peace clause anyway. Worse, in an attempt to justify India’s high food stocks, Prabhu has been quoted by newspapers as saying these are vital for 800 million hungry and under-nourished people in the country. While it is true the UPA’s Food Security Act (FSA) wants two-thirds of India to get hugely subsidised wheat/rice, it is completely incorrect to argue there are so many starving Indians—India’s consumption story can’t be explained if two-thirds of people are so poor they need an 80-90% food subsidy. Indeed, if this were true, the government would have to relook all its subsidy reduction plans on kerosene, LPG, etc.

What makes Prabhu’s argument even more unfortunate is that, even if the government stuck to the FSA’s subsidy levels, it could save `40,000 crore if the same entitlement of 5 kg of wheat/rice per person per month was given in cash instead of supplying them equivalent amounts of grain. The reason for this is that Food Corporation of India (FCI) is incredibly inefficient, and it costs it more to deliver the same grain as compared to the open market. Indeed, the WTO objection is also related to this. WTO has no objection to India’s stocks as long as they don’t affect global trade. But when the government overstocks, as it does, and then needs to clear the stocks, it needs to sell this at the market price which is lower—that is, it has to absorb FCI’s inefficiency—and when exporters buy the wheat/rice, WTO considers this to be an export subsidy. So, if there were no FCI foodstocks, beyond a limited buffer for emergencies, the government would save a large sum and there would be no WTO problem. Since FCI purchases of wheat/rice also ensure farmers remain focused on these crops, eliminating this and perhaps giving farmers a per-acre cash payment—by including even fertiliser subsidies that only rich farmers get—would also encourage farm diversification. Given how many policy objectives can be met by eliminating FCI, it is unclear why the government hasn’t moved faster on this—since FSA allows for cash transfers, the government doesn’t even have to amend the Act to push for complete cash transfers.

 

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