Reorienting state intervention in foodgrain markets in India to improve food security, regional equity and efficiency

Indian government intervention in foodgrain markets, meant primarily for promoting food security, has reached a stage where it is depriving consumers of basic food by diversion of large proportion of output from market to government warehouses.The present paper examines various issues related to government intervention in the foodgrain markets. It looks at the reasons for the mounting grain stock in the country and analyses its implications for food security, consumers and private trade. In particular, the author examines the system of administered prices, procurement and buffer stock in relation to their underlying objectives and to the emerging scenario of demand, supply and trade.The paper deals with the following: explaining the role of the Commission on Agricultural Costs and Prices (CACP) and the system of Minimum Support Prices (MSP) examining the factors underlying the accumulation of grain stocks in the recent years and analyzes its implications for food security, fiscal burden, future production, private trade and policy discussing the regional aspect of foodgrain surplus and procurementThe author explores the adverse effects of government intervention in foodgrain markets. These include:a sharp rise of the burden of food subsidies but paradoxically a decline of the supply of subsidized food benefits for private trade from buying rice and wheat from government and strong disincentive to buy directly from market decline of export competitiveness of cereals and Indian exports supplied by government sells at a heavy discount in international marketBecause of these adverse effects urgent changes are needed in government intervention in foodgrain market and food policy. The author recommends the following:MSP should promote efficiency, equity, quality and balanced production of various commoditiesMSP should be ensured through need based procurement and system of "deficiency price payment” to help in preventing unwanted stocks and in providing price incentive to producers in all the relevant regionsthe system of deficiency price payment should be implemented for the produce sold through regulated markets in all surplus generating areas using district as a unit for determining surplus areapromote private trade and competitiongovernment intervention in the form of procurement should be selectivemaintain food security buffer stock which should be maintained by purchasing grains during above normal production and releasing stock during low harvest years the amount of foodgrains needed for PDS supply and for inter year price stabilization should be purchased through competitive bid from the markets where prices are lowest