Nationalising the grain trade PDF Print E-mail
Monday, 19 December 2011 00:00
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Once the government provides vastly subsidized grain to the bulk of population, private grain traders have no role left


Blurb: With the ration price of wheat between a sixth and half the MSP, it makes sense for everyone who gets subsidized wheat – 75% of rural and 50% of urban population – to sell grain back to government which is obligated to buy it!


            : Given how Sonia Gandhi praised her late mother-in-law’s decision to nationalise the banking system, it must be with a great feeling of pride that she is now starting the process of nationalising the country’s foodgrain trade. What is surprising, however, is how the traders’ party of India, which has been so voluble when it came to opposing FDI in retail, has remained largely silent on the Food Security Bill that the Cabinet is trying to push through. Ironically, the pro-poor image the Bill has managed to get since Sonia Gandhi’s NAC was pushing it, will probably ensure the BJP will even vote for it if it comes to Parliament—clearly the government goofed up when it wasn’t able to sell the retail-FDI Bill as a pro-poor one, let’s see if Rahul Gandhi makes any headway on this in UP now that he’s made retail-FDI part of his election spiel! Certainly the Prime Minister seems to be banking on this, given his statement that he’s confident of getting in retail-FDI once the UP elections are over.

So has the BJP been made a fool of or has the canny bania party (disclosure: I’m a bania too, but restrict myself to the once-a-year increment game) figured out something most of us haven’t? Oh, here it is—Schedule 1 of the draft Bill says ‘priority households’ (46% of rural households and 28% of urban ones fall in this category) are to get wheat at R2 a kg (rice for R3, but the principal of pricing is the same) while the rest (between the priority and other households, 75% of the rural population and 50% of the urban one will be covered by the Bill) will get it at a price that does not exceed half the minimum support price (MSP) paid by the government to the farmer. Given that the MSP of wheat is R12.85 per kg, that means priority households will get it at a sixth the market value—that’s assuming, incorrectly, that there are no procurement, storage, transportation and marketing costs—while the others will get it at half the price. So there’s a huge profit to be made by simply buying the wheat/rice from those who get it cheap and selling it back to the government at the MSP—given that it’s an MSP, the government is legally obligated to buy the grain. As the MSP keeps rising, the profit to be made will also rise. The poor selling off their grain, albeit at a profit, will mean P Sainath will keep writing about how the poor don’t get enough grain and Justice Katju will keep saying he’s the only decent journalist in town!

On a more serious note, this just has to be the most damaging welfare scheme the world has seen, apart from being quite hare-brained—in which society is two-thirds of the population so poor that it needs to get subsidised grain? Given the price at which the grain is to be given, that R32 poverty line doesn’t look that outrageous, does it? More so when you throw in the free schooling, free healthcare etc that the government spends on in the name of these poor.

Though the Bill is the most ambitious of the welfare schemes the UPA has come up with, it’s in sync with its overall philosophy of bringing back government into our lives. The Right to Education Act brings in the government bureaucracy into the flourishing private education space and threatens to finish it off, given not just the monitoring of the 25% quota but also the fact that everything from teacher salaries to classroom sizes will now be government-determined. MGNREGA is not the only thing driving up farm wages but, given that 5% of the workforce (for now!) can get a wage that’s higher than the prevailing one, it is an important determinant of farm wages which, till now, were determined by market forces—ironically, the higher the MGNREGA wage, the higher the mechanisation and therefore the higher the need for MGNREGA. Even without the BJP’s opposition to it, the government has dealt a huge blow to the private pension business—the government-run Employees Pension Scheme has a R50,000 crore hole in it by offering a pension plan that no one who is not government-funded can ever hope to match.

But how does, my BJP friends ask, the private trade get wiped out by the food Bill? Simple, just see what happened to the private sector players who got into the petroleum retail business in the last decade. Reliance and Essar had grand plans to beat the oil sector PSUs by offering cheaper fuel and better service standards. What they didn’t count on was that, having come up with a policy to do away with subsidies, the government quickly rolled this back. So, no matter how efficient Reliance or Essar were, they could never compete with the huge subsidies the government made the oil PSUs bear—R1 lakh crore in just the current year. Shutting shop was the only way out, so that’s what the private firms did. Once the government offers grain at a price that’s at least half (in many cases, a sixth) the market price to two-thirds of the population, why would anyone want to buy from a private trader? Sure, there’s still a third of the market left, but that’s nowhere near enough and, in any case, prices here will be affected by the subsidised market—the more efficiently the Bill is executed, the greater the impact on private traders, and vice versa.

And yet, despite all this, the Prime Minister is on record saying we’ll be back to the 9% growth days once we sort out the temporary setbacks we’re facing. Perhaps he feels the Food Security Bill-type legislation will never get passed, much less implemented? Or perhaps he feels well-fed workers, never mind if they’re unwilling to work since they’re being fed anyway and their wages will be indexed to inflation anyway, are all that industry wants?

Postscript: A former editor of mine says the UPA is trying to bring back the Hindu rate of growth. Question is whether India’s got more secular over the years?



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