In fact, the interest costs alone would be enough of a burden on government since these are paid by the union government to the procurement agencies like the Food Corporation of India. The procurement of rice as on July 1, 2011 was 316.07 lakh tonnes as against 297.47 lakh tonnes procured last kharif season. Wheat procurement for season 2011-12 was 278.38 lakh tonnes as against 224.72 lakh tonnes procured last in season.

The off take of rice in all schemes, during June, 2011, has been 28.10 lakh tonnes. This comprises 19.04 lakh tonnes under TPDS and 9.06 lakh tonnes under other schemes. The total off take of wheat has been 20.59 lakh tonnes comprising of 14.74 lakh tonnes under TPDS and 5.85 lakh tonnes under other schemes.

Government procurement of food grains has risen over the years as the minimum support prices for both rice and wheat have been raised every year. Thus, the economic costs of food grains will consist of three components, namely, minimum support price (MSP) which is the price paid to the farmers, procurement incidentals and the cost of distribution. It has been noticed that the economic costs have increased sharply over the 2000s. In 2002-03, the economic costs of rice and wheat were Rs 1165 per quintal and Rs 884 per quintal. These increased to Rs 2043 and Rs 1543 quintal in 2010-11. The good part of rise in economic costs is due to hikes in MSPs, which are considered necessary for incentivising farmers to grow these staple food grains. The MSPs are also provided since it is thought that this should help the small and marginal farmers. However, there is reason to believe that these farmers are not mostly in a position to access the market on their own and the benefits of higher MSPs reach only the middlemen and traders.

In a paper issued last year by the union finance ministry, Professor Kaushik Basu, chief economic adviser, had examined the issue of food grains stock management. He underlined the importance of efficient management of the stocks and timing of market intervention. It is not only good to have food grains stocks, but equally important to intervene in the market in times of need. He also underlined the importance of adopting newer approaches to release of these stocks in the markets in smaller parcels and through more numerous agents than followed currently.

The food grains buffer stock is important as these stocks which are used for all nutritional support programmes of the government. Thus, these are the backbone of national food security infrastructure. But the economic costs of wheat and rice have risen constantly while the issue prices have remained same since July 1, 2002. As a result, the food subsidy has jumped substantially over the years and putting pressure on government finances. Between 1999-2000 and 2010-11 the food subsidy bill has gone up from Rs 9200 crore a year to Rs 51,197 crores – by all counts a huge jump. This needs to be addressed. The other aspect of the food economy that is calling for immediate attention is the persistent rise in food inflation. The union commerce ministry released its latest inflation figures which showed food price rose faster by 9.13% for the week ending September 17 (against 8.84% in the previous week). The fuel price index rose by close to 15% on account of the latest hikes of petroleum prices. While the country has surplus in food grains stock, food prices are rising. This shows that the nature of Indian food inflation has changed and rising food prices are driven not by spurt in food grains prices but in those of fruits, vegetables, poultry items, pulses and milk. Pulses like urad, masur and arhar are rising sharply.

This calls for a different strategy for future development of the farm sector. The Economic Survey for 2010-11 points out: “The country has made great strides towards increasing food grains production since the sixties. “ However, the agriculture sector in India is “at a crossroads with rising demand for food items and relatively slower supply response in many commodities resulting in frequent spikes in food inflation”. The Economic Survey points out the future course of action: “The technological breakthrough achieved in the 1960s is gradually waning. The need for a second green revolution is being experienced more than ever before”.

At this juncture of India’s economic development, when the country has broken free from the earlier growth barrier, the essential condition for maintain high growth is adequate farm growth. Increasing farm production and productivity is a “necessary condition” not only for ensuring national food security but also for achieving the growth target set by the Twelfth Plan (9%).

These aspects of India’s food economy need to be taken into account while devis9ing strategies for meeting high food inflation. As noted, food inflation has continued to rise for nearly two years now, while at the same time the Reserve bank of India has continued to raise interest rates. The ineffectiveness of the anti-inflationary measures of the Reserve Bank is now clear. The RBI has raised policy interest rates twelve times between March 2010 and September 2011 even though inflationary rate has remained stubbornly at over 9% now. Given the hardnosed stance of RBI, rates might be raised again. In the upshot we have got a slow-down in the industrial sector. (IPA Service)