Cash transfers will ensure no Punjab-type problems
The central bank asking banks to make a provision against loans advanced to the Punjab government for purchasing food is unusual since the loan has been guaranteed by the state government. But when R20,000 crore of stock is believed to have vanished, RBI’s measure makes sense since there is no way the state government has the money to plug the gap. Increasingly, banks making loans to state governments need to take into account the riskiness of the loans/bonds. More than that, this should also be a wake-up call to the extent of the potential problem caused by an archaic—and uneconomic—system of Food Corporation of India (FCI) holding 37 million tonnes of foodgrains on April 1, or around double the recommended buffer.
In this case, the Punjab government agencies that routinely get bank credit for buying foodgrains—these are later transferred to FCI—found they didn’t have the kind of stocks they were supposed to have. But even in the case of FCI, as this newspaper had reported in December 2014, R10,000 crore of rice was found missing—R6,300 crore pertained to FY13 and R3,700 crore to FY14. Normally, the paddy procured by either FCI or the state governments on its behalf is transferred to the millers directly and, after a period of time, they mill it and give the rice back. In FY13 and FY14, however, with market prices of rice quite high, they delayed this—after the pressure mounted on them, the amounts were later squared. And while there haven’t been too many instances of discrepancies in FCI’s stocks being made public, the fact that around 10 million tonnes are kept under what is called ‘cap and plinth’ is an invitation to trouble, since it is difficult to ascertain how much of stock has been pilfered and/or rotted, and mis-declaration is a risk that needs to be kept in mind. Also, since it is difficult to know just how much foodgrain FCI actually has, the Shanta Kumar committee had recommended shifting to mechanised silos that automatically weigh the grain in them.
Given how the government has over a billion Aadhaar records now and also has a common list of the poor that each state government has agreed to—from the SECC census—it has to immediately marry the two datasets with the 21 crore Jan Dhan bank accounts of the poor; and then move on to do this for the rest of the population. Since the Food Security Act (FSA) mandates that two-thirds of the population get subsidised wheat/rice at R2/3 a kg, assuming a market price that is R20 higher, this means the government needs to spend R96,000 crore as compared to the R130,000 crore it spends right now—the savings could rise if the government raises the issue price since the FSA provides for a revision. Apart from the possibility of more Punjab-type instances, the issue is also the sheer waste of the FCI system, and the fact that more than half the foodgrain does not reach the target groups. Just the carrying cost of an extra 15 million tonnes by FCI adds up to around R4,500 crore; another R10,000 crore is added by way of the mandi taxes paid to Punjab and Haryana. Once there is direct cash transfers, FCI can afford to lower its stocks by 20-25 million tonnes immediately which will also free up R50,000-60,000 crore. If the government doesn’t learn the right lessons from the Punjab crisis, it will be a real pity.