Where Did All The Food Stocks Go?

Jayati Ghosh

ONE year ago, the problem of excess food grain stocks was a major one for the Indian policy makers. The food stocks held by the Food Corporation of India were around 65 million tonnes, far in excess of the buffer stock norms of around 16-24 million tonnes. But even while these were seen to be a problem, the existence of such large stockholding was also trumpeted by the central government as proof of how India has become a surplus producer of food grain.

This perception is not really correct. As has been argued earlier in this column, apparent food grain “surpluses” and exports of food are not always signs of domestic self-sufficiency and market saturation. India was a net exporter of food grain even in the late 19th century under Colonial rule, when much of its population was denied access to adequate food. The situation in recent times may not be so very different.

The large food grain stocks were of course expensive to hold, because simply the carrying cost of these was estimated to be around Rs 2 per kilogram. The total carrying cost of food grain stocks exceeded Rs 14,000 crore in the last fiscal year.

But more than the financial cost, of course, these surplus stocks amounted to a tremendous waste of resources. Many observers at that time pointed to the obscenity of holding such large surplus stocks at a time when there were hundreds of millions of people below the official poverty line, and even more – around half the rural population – whose estimated calorie consumption in 1999-2000 was less than the minimum that is supposed to be required for physical subsistence.

MISSED OPPORTUNITY

Of course, these stocks also represented a tremendous opportunity. If some of these stocks had been used in a massive food-for-work public works programme to generate and maintain infrastructure, this would have had many positive effects upon the Indian economy. It would not only have reduced the unnecessary cost of holding food grain by the FCI. It would have provided more food to poorer households, especially in the rural areas, whose consumption of food has fallen because of the rise in the relative price of food in the past decade. It would simultaneously have increased employment generation (especially in the rural areas) and created much needed infrastructure.

Since the economy has been in recession over the past few years, such expenditure and the income released by it would also have had very positive linkage and multiplier effects, generating more employment and more economic activity especially in the rural economy which is now in a state of crisis. So, while these stocks were costly to hold, they provided a tremendous opportunity for policy makers to correct some of the major imbalances in the Indian economy and improved the parlous condition of the rural poor in particular.

DWINDLING FOOD STOCKS

Given how these stocks have been so much in the news in the past year, it comes as a bit of a shock to realise how rapidly they have been run down. The official estimate of total food stocks held by the FCI at the beginning of August this year was just above 30 million tonnes, which means that they had been run down to less than half their value a year previously.

The latest (informal) estimates suggest that by the beginning of September, total food stocks were even lower, at only 22 million tonnes. Even more shocking, total rice stocks are now supposed to be only around 5 million tonnes, which is even less than the buffer stock norm of 8 million tonnes for rice.

How did this happen? Where did all these food grain stocks go? Were they used productively in food for work and other employment schemes? Were they provided to the poor at subsidised prices? We are talking of more than 43 million tonnes of food grain, which is not exactly a small amount, and the use of which could have made a huge difference not only to consumption but also to the Indian economy as a whole.

It turns out that only a relatively small part of this huge amount of food grain was used for the grain component of employment schemes (around 10 million tonnes). Another 18 million tonnes can be accounted for by increase off take from the Public Distribution System, as the drought conditions in the previous year forced many rural households to turn to the PDS as their own crop output was reduced.

SUSIDISED EXPORTS

But a significant portion of these stocks was actually exported, at hugely subsidised rates. The export price was as low as the price paid by Below Poverty Line households. When the WTO objected that this amounted to an export subsidy which is not allowed, the Indian government responded by converting the difference into a transport subsidy for exporters, who were still allowed to sell abroad at these amazingly low rates. So while hundreds of millions of our people continued effectively to starve, the central government sent more than 15 million tonnes of food at abysmally low rates, out of the country.

The appalling fact is that even the export revenues from such unwarranted and unjustified exports of food grain have not been used productively. Instead, they have added to the large build up of foreign exchange reserves held by the Reserve Bank of India. Foreign exchange reserves now amount to more than $ 85 billion, and they have increased by $21 billion in just the past year. This means that this money is simply not being spent usefully within the country, but is being stored at very low rates of interest in banks abroad. The immense waste that this implies for the Indian economy and the Indian people cannot be understated.

Even worse, it turns out that at least 3 million tonnes of these food stocks are apparently “unaccounted for” - that is, stolen or rotted because of inadequate storage conditions. To add to the insult of subsidised export when so many of our own people are in dire need of food, we have the further injury of around 30 lakh tonnes simply missing from the FCI godowns! A central government that so cynically denies food to its own people surely cannot be considered worthy of ruling.