Rotting grain & judicial transgression

The mountainous state-owned food stocks lying in the open and rotting in the rain are in stark conflict with a failing public distribution system , hunger, malnutrition and high food prices. The poor management of food stocks provoked the Supreme Court to transgress into executive domain when, on August 12, the court made certain directions like limiting procurement to covered warehousing capacity and distributing the rotting foodgrains free of cost to the poor. The directions were given with the noble intent to prevent the wastage of foodgrains and a feeling of empathy towards the poor and hungry. As on August 1, 2010, the total food stocks with the FCI were 55 million tonnes (mt) as compared to the buffer requirements of 27 mt. Of this, 15 mt of wheat was lying in the open in Punjab and Haryana alone. As per estimates, 50,000 tonnes of food stocks have already deteriorated beyond human consumption as a result of long, improper storage. There are two essential components to the management of food stocks: procurement and distribution through PDS. To ensure that stocks are available round the year for the PDS, different buffer stock norms are prescribed for different points of time during the year. The storage ought to be in scientific warehouses to prevent damage . FCI’s losses are billed to the exchequer and are known as the food subsidy bill. If the stocks exceed the warehousing capacity, safe storage becomes a challenge . But if the stocks are lower than the buffer stock norms, the problem would be to meet the requirements for PDS. This is addressed if FCI is mandated to manage the stocks as per buffer stock norms through open market operations of buying /selling. The efforts of FCI to dispose of some of the excess stocks of wheat at a price of . 1,240 per quintal (excluding VAT) in the recent past have met with abject failure since the price demanded was not commensurate with the quality of the stocks offered in addition to the additional transactional costs in dealing with FCI staff. The solution also does not lie in fixing the open market sales scheme (OMSS) price much below the market price. This will only offer the trader arbitrage opportunities in connivance FCI staff. Low OMSS prices had led to large-scale corruption in the FCI, for which the government failed to pinpoint responsibility. Unfortunately, the court’s directions to distribute rotting foodgrains free of cost to the poor, no doubt appealing to the emotions , would suffer from the same malady. It would lead to massive diversions due to arbitrage opportunities in active collusion with the FCI staff without benefiting the intended beneficiaries. Organised diversion of PDS stocks direct from government warehouses to private flour mills is rampant , with the differential pocketed between the transporters, the PDS shopowners and the government staff. The FIRs yield no concrete result, given the quality of investigation and prosecution and the interminable delays in judicial trials. Chief economic adviser to the government Kaushik Basu has suggested offloading excess food stocks in small lots in order to depress market prices. The same was officially suggested to the FCI/food ministry two years back to dispose of the excess stocks by open and transparent domestic auctions in small monthly lots to reduce any arbitrage opportunities instead of disposals at fixed prices to selected parties. However, FCI continues to dither between exporting excess food stocks and domestic disposals at fixed prices.