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CHAPTER-6

FOOD SECURITY AND PROCUREMENT OF RICE IN INDIA

6.1. INTRODUCTION:

Rice holds a unique place in Indian Economy as it contributes 70 per cent

to the total production of food grains in India. It is noteworthy that in recent times,

most of the rice growing areas have received very good rainfall except in the

states of Punjab, Haryana, and West Bengal, UP where 95 per cent of the lands

are irrigated. Hence, quantum of rainfall does not influence much, the production

of rice and its prices. But, prices of rice are increasing due to increased cost of

production occurring through increased demand of energy for operating water

lifting devices in irrigated areas. Added to this, violent fluctuations in yield per

acre and cost per unit of output are noticed. In this context, to safeguard the

interests of rice growers, the government started adopting the measure of

procurement of rice from the farmers. Hence, in this chapter, an attempt is made

to examine the level of procurement at the all India level and across the major

producing states of India. Procurement of rice has been made to ensure adequate

stock of rice for public distribution system. The PDS is the channel through which

rice and other grains are supplied to the BPL and other beneficiaries under the

food security scheme at subsidised rates. The aim of food security scheme is to

“provide for food and nutrition security, in human life cycle approach by ensuring

access to adequate quantity and quality of food at affordable prices for people to

live a life with dignity” Basu, Kaushik (2011). This scheme of food security

assumes greater significance since rice is consumed by majority of people in the

country. The paradox of high economic growth and slow reduction in the number

of food insecure persons needs to be understood in proper perspective. As such, in

this study, an analysis of consumption pattern of rice, determinants of minimum

support price and food security have been made. At the end of the paper,

suggestions to improve the scheme of PDS in respect of rice are given. It would

therefore be interesting to see any relationship between the movement of food

security, procurement, consumption and prices. In doing so, a pre-green

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revolution from 1950-51 to 1965-66 and after-green-revolution from 1966-67 to

1989-90 and reform period of 1990-91 to 2010-11 has been taken into

consideration. This chapter aims to examine the above aspects as a background.

Section I of this chapter is devoted to determinants of procurement of rice in

major producing states in India. Section II is devoted to investigate and relate the

food security and minimum support prices in rice sector. Section III relates to the

consumption pattern of rice. The last part is devoted to suggesting perspective

fruitful rice policies.

6.2. BACKGROUND OF THE STUDY:

The green revolution transformed the traditional cropping in favour of rice at

the cost of coarse cereals. The green revolution in India started in the late 1960s and

with its success India attained food self-sufficiency within a decade. On the

contrary, the agricultural growth in the 1980s (the second ‘wave’ of the Green

Revolution) involved almost all the crops including rice and covered the whole

country, it enabled to raise rural income and alleviate rural poverty substantially

(which is a very important stable food in eastern and southern India) (Koichi Fujita,

2007).

The next phase of free market in food was under the Food Minister, Rafi

Ahmed Kidwai, beginning from 1952. Improved food grains production in 1953

and 1954 led to declining prices and a temporary break from chronic shortages.

Government procurement of food grains was stopped and restrictions on the

movement of grains were removed. Paradoxically, even as farmers faced

deflationary conditions, there were shortages and price rise in various parts of the

country. The instability in prices, combined with adverse weather in the autumn of

1955, has a dampening effect on production.

In 1957, the Ashok Mehta-led Food Grains Enquiry Committee concluded

that an expended money supply, growing industrialisation and urbanisation and

increased investment led to enhanced purchasing power. On the other hand,

hoarding by traders, producers and consumers as well as speculative activities in

anticipation of public investment by the government led to a rise in prices.

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Additionally, it found that prices were allowed to fall too low in 1955 and that there

was no coordinated policy combating inflation shortages that began in 1956.

The government had to reintroduce controls and carry-out price support

operations to curb the fall in prices. It opened an additional 10,000 ration shops

between October 1956 and September 1957, and released its stock to combat price

rise. This episode underscored the need for the government to intervene in the

market to influence prices and output. The food-grains enquiry committee

recommended the setting up of institutions like the FCI and the CACP for this

purpose. The government’s decision to promote cash transfer in the National

Security Bill presented in the recently concluded session of parliament ignores these

lessons from India’s past.

Since the 1950s India has made major strides in agricultural production as

evidence by the large government-held stocks of wheat and rice. However,

problems of inadequate nutrition, starvation and double digit food price inflation

remain. Strengthening of the PDS, as seen in Chhattisgarh and Tamil Nadu, would

serve the purpose of ensuring food security for the nation through stabilising prices,

production and consumption. As seen in the past, government withdrawal from the

food sector can lead to a decline in production and an increase in hoarding and

speculative activity. Unlike the PDS, cash transfers cannot counter the resultant

shortages and price rise. In a growing economy like India with constantly increasing

demand, the government needs to intervene on both the demand and supply sides to

ensure food security for all its citizens.

To understand the importance of a broad food policy, we only have to look at

India’s brief experiments with decontrol. The government’s policy reaction to the

Bengal famine of 1943, which led to the death 1.5 million people, provides us with

a primer of what not to do in famine situation. At first, there was a complete laissez-

faire policy towards food grain trade, which led to hoarding by traders, farmers and

consumers. Subsequently, the provincial governments introduced a policy of

procurement and distribution of food grains, which failed miserably as they did not

have the requisite infrastructure to implement the policy. For example, grains were

rotting in Calcutta, the centre of distribution in the eastern region, as the

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government has not made arrangements to handle in coming stock. To avoid what

was called a “tragedy in unpreparedness”, the government took steps towards

setting up a comprehensive food administration, including procurement by the

government, the building of buffer stocks and the introduction of rationing

(Madhavi Cherin, the Hindu News Paper, May 13-2013).

According to feminist poem titled Mother (Aai, in Marathi) connects with

many a child raised with dignity and pride amidst hunger and self-denial (by

Lanjewar 1981):

I have seen you turning back the tide of tears trying to ignore your stomach’s growl Suffering parched throat and lips Building a dam on a lake… I have seen you sitting in front of the stove burning your very bones to make coarse bread and a little something to feed everybody, but half-feed yourself so there’d be a bit in the morning… I have seen you washing clothes and cleaning pots in different households rejecting the scraps of food offered with pride…

Distribution of subsidized rice and wheat is an important instrument of food

security policy in India. During the 1960s and 1970s, as the dependence on imports

was high, the quantity distributed was around 10 million tonnes per year. During the

1980s and 1990s, the average quantity hovered around 15 million tonnes per year.

However, during the last 10 years, the volume of subsidized grains distributed in the

country has considerably gone up. It varied between 36 and 50 million tonnes

during 2002-03 to 2009-10. It is expected to have exceeded 60 million tonnes

during 2010-11, when food inflation was at very high level. The food grain, mainly

rice is supplied at subsidized prices under a large number of schemes covering

around 50 per cent of the total population. These include (a) targeted public

distribution system (TDPS), (b) supplementary nutrition program, (c) mid day

meals for school children, (d) food for work or employment-linked programmes;

and (e) other welfare programmes. The TPDS is the major programme and includes

20 million poorest of the poor households (Antodaya), 65.2 million below poverty

line families (BPL), and other vulnerable households that are otherwise above the

poverty line (APL).

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Procurement of food-grains, in particular, wheat and rice, is an open-ended

operation. The Food Corporation of India (FCI) procures food-grains at the MSP,

which are based on the recommendations of the Commission for Agricultural Costs

and Prices (CACP). In addition, in recent years, a number of states have opted for

Decentralised Procurement Scheme introduced in 1997, under which food-grains

are procured and distributed by the State governments themselves. Between 2006-

07 and 2010-11, MSP of rice and wheat were hiked at an average annual rate of

14.1 per cent and 14.6 per cent, respectively. On an average, agricultural price

policy has provided a margin of around 20 per cent over total costs to both rice and

wheat farmers (Dev and Rao, 2007).

In order to achieve goals such as inter-year price stability against a bumper

harvest or below-normal production, guaranteed prices to producers, reasonable

prices for consumers and food supply at subsidised rates to vulnerable sections, the

government has been carrying out procurement and storage (buffer stock) of food-

grains (rice and wheat) since the mid-1960s. These measures have been

implemented through two important institutions, namely, the Commission on

Agricultural Costs and Prices (CACP), which is entrusted with the task of

suggesting MSP, and the Food Corporation of India, which carries out the task of

procurement to ensure that producers do not get a price below MSP and that food-

grains required for maintaining a reasonable level of buffer stock and for the public

distribution system are in place. (Chand Ramesh, 2005).

Historically, after the Jha Committee report of mid-sixties, the first detailed

statement of price policy came in the form of a booklet from the Agricultural Costs

and Prices Commission in 1986. This has induced us to have a fresh look at the

major instruments of price policy, viz., Minimum Support Price, Procurement and

Public Distribution System. The Commission was headed by Prof M. L. Dantwala

and in its final report the Commission suggested the Minimum Support Prices for

Paddy (Deshpande.R.S, 2002).

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The commission for agricultural costs and prices (CACP), makes price

recommendations to the over time, support prices have become a guaranteed

income support rather than a price-risk hedge. Is procurement evenly distributed

over rice growing states? No, the main beneficiaries of procurement are Punjab,

Haryana and Andhra Pradesh. For example last year, for paddy, out of 19 million

tonnes, Andhra Pradesh accounted for more than 7 million tonnes and nearly the

same amount from Punjab. How is the price policy responsible for huge stocks of

food grain? Over the '1990s, misuse of the price policy has created a huge food

management problem. Procurement prices for paddy have been continuously rising

each year, creating a distorted incentive for farmers to switch to rice cultivation.

Price policy has an impact on the cost of procurement operations and ultimately on

distribution costs, both on the open market and on the PDS (Gulati A. and Pradeep

K.Sharma, 2011).

The production of food grains during the season about 70 per cent is accounted

by rice alone. It is noteworthy that most of the rice areas have received very good

rainfall so far except Punjab, Haryana and West U.P. which is more than 95per cent

irrigated, hence rainfall intensity and distribution so far may not impact the rice

production, though the cost of production is likely to increase due to more demand

of energy for operating water lifting devices in irrigated areas.What is the level of

procurement of paddy at the national and across the major producing states in India.

Food security in Asia has traditionally focused on rice—its consumption

procurement, and minimum support prices. The technological change of the mid

sixties was a step towards meeting the food crisis that threatened food security of

the country during those years. At that time it was suggested that the technological

change alone might not bring the required dynamism in the growth of agricultural

sector and it needed to be supported with proper institutional backup.

The new Food Security Bill, which is under the consideration of Parliament,

envisages guaranteeing pre-defined quantity of staple grains to 75 per cent of rural

and 50 percent of urban population, with an overall coverage of 63.5 per cent of the

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total population. Out of these, 46 per cent of rural and 28 per cent of urban

population is categorized as priority households, which will be entitled for 7 kg of

rice or wheat per capita per month. The remaining households, which include APL,

will be covered on ‘as and when available basis’.

On the other hand, there is an allocation of Rs. 10,000/- crore to the Food

Security Bill, a project that will most certainly destroy the nation’s financial

security. This shows that the central government will continue to indulge in populist

schemes regardless of their financial consequences. It is unwise to be happy with a

fiscal deficit that is less than six per cent. The problem is that no attempt has been

made to stop or reduce this hemorrhaging of the economy. And the states are not far

behind in ever increasing expenditure on free power rice at Re.1 per kg and so on.

The nation will slowly but surely spend itself to economic failure, (Union Budget,

2013-14).

It would therefore be interesting to see any relationship between the movement

of food security, procurement, consumption and prices. In doing so, a pre-green

revolution of 1950-51 to 1965-66 and after-green-revolution of 1966-67 to 1989-90

and reform period of 1990-91 to 2010-11 has been taken into consideration. This

chapter aims to examine the above aspects as a background. The overarching

purpose of this study is to consider the food security, procurement and prices of rice

in India.

6.3. DETERMINANTS OF PROCUREMENT IN RICE

Procurement and support price acts basically as an insurance cover to

cultivators against the possibility of post-harvest crash in market prices. More

positively, it provides incentive, to farmers and stimulates higher production by

encouraging the use of modern inputs and by inducing investment in cost-reducing

technology. It also influences their choice of selling marketable surplus to

government agencies or in open market. But how is this crucial procurement price

determined? This question has been a matter of debate and controversy in India

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[Krishna and Raychaudhuri.1980; Subbarao, 1981; Krishna and Chhibber,

1983; Gulati, 1987].

Some earlier works like Krishna and Raychaudhuri (1980) tend to suggest

that procurement prices simply follow the trend of wholesale prices. However, in

our formulation we have included cost of production along-with past trends in

wholesale prices of wheat and paddy (as derived by us) as determinants of

procurement prices.

The Food Corporation of India (FCI) is the central nodal agency designated

for purchase of rice and wheat at pre-announced support prices. The FCI

establishes its own purchase centres but largely depends on the state agencies,

which operate on behalf of the FCI. Some state governments also make purchases

to meet the needs of their own initiated public distribution programmes, but the

quantum of such procurement is a small proportion of total procurement at the

national level.

As rice is grown in three seasons, the harvest and market arrivals of

paddy/rice are spread throughout the year. The rice produced in the kharif season

accounts for more than half of the total market arrivals and consequent

government purchases. Month-wise pattern of procurement of rice reveals that

around 50 per cent is procured during October-December, 30 per cent during

January-March, 15 per cent during April-June, and remaining 5 per cent during

July-September.

If we see trend in procurement of rice and wheat during the last 16 years there

is considerable inter-year variation in the scale of procurement of rice and wheat.

However, there is an increasing trend. The average annual procurement of rice

during the triennium ending for (TE) 2010-11 was at 31 million tonnes which was

considerably higher than that during TE 2000-01 (17.4 million tonnes). Similarly,

for wheat, the annual procurement during TE 2010-11 was 25.4 million tonnes as

compared to 14.9 million tonnes during TE 2000-01. The procurement during the

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current marketing season (2011-12) is already at record level for wheat at 28.3

million tonnes and for rice it is expected to reach around 35 million tonnes.

During 2008-09, out of the total rice procurement of 33.7 million tonnes, 52.3

percent was contributed by Punjab and Andhra Pradesh, and 27.8 per cent by UP,

Chhattisgarh and Orissa. These five states together accounted for around 80 per

cent of total procurement of rice in India. Prior to the launch of a decentralized

procurement scheme in 1997, the degree of concentration of procurement was very

high. In recent years several non-traditional states have started contributing to the

price support purchases of rice. Table-6.1 Share of Procurement of rice of major producing states of India

States/Year Punjab Haryana U P A P Orissa TN WB Chhattisgarh India 1996-97 32.77 9.29 7.02 34.89 3.67 5.61 1.23 --- 100.00 1997-98 38.86 8.14 6.88 24.73 4.49 7.90 1.30 --- 100.00 1998-99 34.96 2.38 6.89 40.63 3.82 5.82 1.12 --- 100.00 1999-2000 37.39 5.41 7.80 30.16 4.88 5.04 1.93 --- 100.00 2000-01 32.88 6.99 5.54 33.87 4.33 8.00 2.05 --- 100.00 2001-02 32.91 6.71 8.75 29.04 5.66 3.85 0.22 8.68 100.00 2002-03 48.34 8.07 8.28 16.05 5.42 0.65 0.77 7.86 100.00 2003-04 37.94 5.84 11.19 18.53 6.01 0.91 4.05 10.40 100.00 2004-05 36.89 6.73 12.04 15.82 6.44 2.64 3.82 11.49 100.00 2005-06 32.02 7.43 11.39 17.97 6.45 3.35 4.61 11.81 100.00 2006-07 31.18 7.08 10.07 21.22 7.97 4.29 2.56 11.41 100.00 2007-08 27.77 5.48 10.06 26.44 8.20 3.37 4.97 9.55 100.00 2008-09 25.39 4.23 10.95 26.90 8.28 3.56 4.95 8.46 100.00 2009-10 34.58 6.77 9.78 16.67 7.04 3.66 3.64 11.44 100.00 1996-97 to 2000-01

CAGR 11.69 1.62 8.22 13.62 16.80 15.04 29.12 --- 12.05

2001-02 to 2009-10 CAGR

1.47 2.40 7.42 6.43 11.21 20.93 40.23 7.87 5.83

2001-02 to 2010-11 CAGR

1.24 2.07 5.02 7.78 10.21 20.16 31.51 7.85 5.71

1996-97 to 2000-01 CV

4.56 8.66 4.09 4.78 6.14 7.72 9.98 --- 4.50

2001-02 to 2009-10 CV

0.88 1.69 2.86 4.09 3.64 5.47 6.83 2.68 2.11

2001-02 to 2010-11 CV

0.75 1.44 2.47 3.75 3.18 4.94 5.74 2.51 1.94

Source: www.agricoop.com, Ministry of Agriculture, Government of India. Note: in 000’ tonnes, Data for 2010-11 are based on Advance Estimates. Note: Punjab, Haryana, UP-Uttar Pradesh, AP-Andhra Pradesh, Orissa, TN- Tamil Nadu, WB- West Bengal, Chhattisgarh, India.

Table-6.1 Show the state-wise procurement of rice from major rice producing states in India

Punjab has topped the list of 8 rice producing states in India with regard to

procurement which rose from 32.77 per cent in 1996-97 to 34.88 per cent in 2009-

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10 with the highest procurement of 48.34 per cent in 2002-03. Andhra Pradesh is

another major rice producing state where procurement of rice varied between

minimum of 15.82 per cent in 2004-05 to a maximum of 40.63 per cent of rice in

1998-99. The other states accounted for less than 10 per cent of rice procurement.

The Compound annual growth rate of procurement of rice at all India level

was 12.05 per cent between 1996-97 and 2000-01 during which the compound

annual growth rates (CAGR) of rice procurement of Punjab, Haryana and UP were

lower than the national compound annual growth rates (CAGR). During 2001-02

to 2009-10 the compound annual growth rates (CAGRs) of rice procurement of

Punjab, Haryana, were lower than the national level compound annual growth

rates (CAGR) 5.71 of rice procurement. The compound annual growth rates

(CAGR) of other states of rice procurement were higher than national level

compound annual growth rates (CAGR) during the corresponding period between

1996-97 and 2010-11. Co-efficient of variance (CV) of rice procurement at all

India level during 1996-97 to 2000-01 was higher than the CV of UP but lower

than the co-efficient of variance of procurement of rice of other major rice

producing states. In the two subsequent period 2001-02 to 2009-10 and 2001-02 to

2010-11 the all India CVs of rice procurement was higher than the co-efficient of

variance (CV) of rice procurement of Punjab and Haryana but lower than the co-

efficient variation of rice procurement of other major rice producing states.

Table-6.2 Rice Procurement state wise share in Central Pool

The share of AP and Punjab in the procurement of rice in the central pool

have been high compared to other major rice producing states during the period

from 1999-2000 to 2011-12. However, a trend of fluctuations in the share of rice

procurement from these two states is observed during the corresponding period.

Among other major rice producing states the share of Haryana, Orissa, Tamil

Nadu and UP are substantial compared to other states. The share of Assam,

Karnataka, Bihar, Tamil Nadu and West Bengal has been lower.

The co-efficient of variance of the share in the procurement of rice by the

Central Pool of all the major rice producing countries are higher than the all India

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CV of 1.67 per cent except the CV of Haryana and Punjab. The CAGR of share of

states in procurement of rice by the Central of states like Assam, Bihar, Orissa,

Tamil Nadu, UP and West Bengal are higher than all India CAGR of 5.27. The

CAGR of other major rice producing countries is area lower than the CAGR of all

India. The rice millers in Erode, Karur and Coimbatore districts procure paddy

from Karnataka. Peak arrivals will be in the months of December to April. Usually

May-November is considered as lean season. In this case of Karnataka’s

procurement is mainly from Gangavathi, Sindhanur and Kartagi. Sona, Deluxe,

Emergency, BPT and ADT 43 are the major varieties procured. During off season

viz., from mid June to October arrivals from Andhra Pradesh are reported. Mostly

paddy from these areas is distributed around the district.

It has been observed that the procurement of rice has increased significantly

over time and this increase has been not only in absolute terms but the intensity of

procurement as a proportion of total production has also increased. Rice

procurement as a proportion of total rice production in the country has increased

from 6.4 per cent in 1972-73 to about 34 per cent in 2010-11. The intensity in the

procurement of rice registered wide fluctuations especially before 1999-2000.

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Table-6.2 SHARE OF MAJOR PRODUCING STATES IN THE PROCUREMENT OF RICE IN THE CENTRAL POOL OF INDIA

States/ UTs A.P. Assam Bihar Haryana Karnataka Orissa Punjab Tamil Nadu U.P. West Bengal India Increase over Previous Year

2011-12

1999-2000 34.17 -- 0.12 6.13 0.69 5.58 42.19 -- -- 2.18 100.00 --

2000-01 39.07 -- 0.11 8.04 1.25 5.00 37.78 -- -- 2.36 100.00 22.43

2001-02 33.01 -- 0.46 7.60 0.70 6.44 37.26 4.36 9.93 0.25 100.00 25.28

2002-03 18.05 -- 1.09 9.12 -- 6.11 54.66 0.74 9.36 0.87 100.00 -56.7

2003-04 21.51 0.09 1.77 6.77 -- 7.15 43.98 1.05 12.97 4.70 100.00 64.9

2004-05 18.43 -- 1.61 7.85 0.10 7.49 42.98 3.08 14.02 4.43 100.00 17.76

2005-06 21.14 0.00 2.17 8.73 0.20 7.59 37.69 3.94 13.40 5.14 100.00 29.06

2006-07 24.54 -- 2.19 8.18 0.10 9.22 36.06 4.96 11.79 2.95 100.00 -24.71

2007-08 29.94 -- 2.19 6.20 0.07 9.29 31.46 3.82 11.39 5.63 100.00 36.29

2008-09 30.21 0.01 3.61 4.75 0.36 9.34 28.53 4.01 13.36 5.81 100.00 53.66

2009-10 27.46 0.03 3.24 6.61 0.31 9.07 33.71 4.51 10.55 4.51 100.00 -20.68

2010-11 33.27 0.05 3.06 5.84 0.62 8.54 29.90 5.34 8.84 4.54 100.00 21.64

2011-12* 24.24 0.04 5.79 7.48 1.26 8.07 29.20 5.95 12.47 5.49 100.00 -18.26 1999-00 to

2011-12 CV 2.52 11.73 6.60 1.42 7.64 2.89 0.77 4.60 2.55 4.61 1.67 23.57

1999-00 to 2011-12CAGR

4.63 9.30 39.99 3.52 0.97 10.16 1.53 20.39 7.90 21.49 5.27 2.01

Source: www.caluculatedfci.com, (Food Corporation of India). Note: Neg-Less than 500 tonnes, *as on 21.05.2012. Note: Marketing Season-Wise) (Figures in lakh tonnes)

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Chart-1 compound annaual growth rate of rice procurement for central pool in India (Marketing season wise)

Source: table-6.2

6.4. MINIMUM SUPPORT PRICES OF RICE:

Table-6.3 MINIMUM SUPPORT PRICE FOR RICE IN INDIA Year/Average Paddy Common Coarse Cereals

*1975-76 to 1980-81 510.00 507.00 *1981-82 to 1990-91 1494.00 1375.00 *1991-92 to 2000-01 3745.00 3205.00 *2001-02 to 2011-12 7845.00 7195.00

1991-92 230 205 1992-93 270 240 1993-94 310 260 1994-95 340 280 1995-96 360 300 1996-97 380 310 1997-98 415 360 1998-99 440 390 1999-00 490 415 2000-01 510 445 2001-02 530 485 2002-03 530 485 2003-04 550 505 2004-05 560 515 2005-06 570 525 2006-07 580 540 2007-08 645 600 2008-09 850 840 2009-10 950 840 2010-11 1000 880 2011-12 1080 980 2012-13 1280 2013-14 1345

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#Compound Annual Growth Rate (CAGR) 1975-76 to 1980-81 7.70 7.83 1981-82 to 1990-91 5.85 4.47 1991-92 to 2000-01 8.69 7.73 2001-02 to 2010-11 8.23 8.07

**Co-efficient of Variation (CV) 1975-76 to 1980-81 2.49 2.59 1981-82 to 1990-91 1.86 1.49 1991-92 to 2000-01 2.44 2.47 2001-02 to 2010-11 2.71 2.63

Source: Directorate of Economics and Statistics, Department of Agriculture and Cooperation, GOI. Note: In case of Bihar and Kerala additional incentive bonus extended upto 31.05.2007 and in case of

Andhra Pradesh, Chhattisgarh, Orissa, Tamil Nadu and West Bengal additional incentive bonus extended upto 30.09.2007. (i) Paddy common for 2006-07 include an additional incentive bonus of ` 40 per quintal on procurement between October 1, 2006 to March 31, 2007. (ii). Paddy common for 2008-09 includes a bonus of ` 50 per quintal over the MSP. Note: (Fair Average quality) Rupees per quintal

In this table-6.3 shows details the average MSP for paddy (common)

during 1975-76 to 1980-81 was the lowest i., e. at Rs. 510.00 per quintal which

is more than doubled during the next decade between ranging from 1981-82 to

1990-91 which is the Rs 1494.00. The MSPs for rice during 1991-92 to 2000-01

rose by more than hundred percent to Rs. 3745.50 over the previous decade

1981-82 to 1990-91 highest MSP for rice at Rs. 7845.00 which prevailed

during 2001-02 to 2011-12. An almost identical trend of MSP for coarse cereals

was observed during the corresponding decade between 1975-76 to 1980-81 and

2001-02 to 2011-12. The fact that in recent years there has been a tendency

among successive governments to fix Minimum Support Prices (MSP) for

paddy and wheat in excess of the levels prescribed by the Commission for

Agricultural Costs and Prices (CACP). While this increases farmers’ incentive

to produce more, it has raised the market prices and has reduced the demand for

cereals. Studies conducted at the National Council of Applied Economic

Research demonstrate this fact (Sharma, 2001).

There has been a continuous increase in the MSP of rice from Rs. 230

per quintal in 1991-92 to Rs. 510 in 2000-01 and further to Rs. 1080 per quintal

in 2011-12, similarly a continuous rise in MSP coarse cereals from Rs. 205 per

quintal in 1991-92 to Rs. 445 per quintal in 2000-01 and further to Rs. 980 per

quintal in 2011-12 is observed. The compound annual growth rate of MSP for

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rice (common) and for coarse cereals has indicated a trend of fluctuations

during the period from 1975-76 to 2001-2011(table-5). A similar trend of

fluctuations in the co-efficient variation (CV) of the MSP for the two produce

has been observed during the corresponding period.

Chart-2 Trend in Minimum Support Price for Paddy during 1970-71 to 2010-11

Source: table-6.3.

Table-6.4 Minimum Support Prices of Paddy in India (According to crop year as on 10.06.2010) (Rs. Per quintal) (Fair Average Quality)

Year Common Grade 'A' 2004-05 560 590 2005-06 570 600 2006-07 580^ 610^ 2007-08 645$$/850~ 675$$/880~ 2008-09 850$ 880$ 2009-10 950& 980 2010-11 1000 1030 2011-12 1080 1110 2012-13 1250 1500

2004-05 to 2011-12 CV 34.42 28.79 2004-05 to 2011-12 CAGR 11.53 10.71

Source: Directorate of Economics and Statistics, Dept of Agriculture and Cooperation, GOI

The data obtained from the official sources indicate that there is no

significant difference between the Minimum Support Price (MSP) for common

and Grade variety of paddy during the period from 2004-05 to 2011-12. There

has been a continuous rise in the MSP of both common and Grade ‘A’ variety

of paddy during the above period. The MSP of common variety of paddy rose

from Rs. 560 per quintal in 2004-05 to Rs. 1080 per quintal in 2010-11 and the

MSP of Grade ‘A’ variety of paddy rose from Rs. 590 per quintal in 2004-05 to

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Rs. 110 per quintal in 2011-12 (table-6). The co-efficient Variation (CV) of

MSP of common variety of paddy was 34.42 during 2004-05 to 2011-12 and

that of Grade ‘A’ Variety was 28.79 per cent during the corresponding period.

The CAGR of MSP of common variety of paddy was 11.53 per cent during

2004-05 to 2011-12 and that of Grade ‘A’ variety of paddy was 10.71 per cent

during the same period. This was mainly because of increase in the cost of

production of rice in the country. The Grade ‘A’ fetched slightly better prices in

the market when compared to common grade.

Table-6.5 Projected Cost of Production and MSP in Rice during 1999-2000 to 2009-10

Year Project C2 cost per qtl (in Rs)

MSP (In Rs.)

MSP over Cost (%)

1999-00 400.6 520 29.8 2000-01 429.3 540 25.8 2001-02 471.7 560 18.7 2002-03 505.2 560 10.9 2003-04 525.2 580 10.5 2004-05 530.9 590 11.1 2005-06 557.6 600 7.6 2006-07 569.5 650 14.1 2007-08 595 775 30.3 2008-09 619 930 50.2 2009-10 644.9 1030 59.7

Source: www.calculatedcacp.com, GOI

The data on costs and returns of crops from Cost of Cultivation Scheme are

available with a lag and therefore actual cost data for the years 2008-09 and 2009-10 are

not available to compare with MSP data. Therefore, we have used projected cost data

which is used by CACP for recommending MSPs. As can be seen from the table, the

margin over cost declined over time for rice from 30 per cent in 1999-00 to 7.6 per cent

in 2005-06. But, the margin of MSP over cost for rice rose significantly from 14 per

cent in 2006-07 to nearly 60 per cent in 2009-10. Therefore, it can be said that the recent

increases in support prices have the effect of ameliorating the distress of rice farmers.

The price support policy of the government is directed at providing insurance

to agricultural producers against any sharp fall in farm prices. The minimum guaranteed

prices are fixed to set a floor below which market prices cannot fall. Till the mid 1970s,

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government announced two types of administered prices, Minimum Support Prices,

Procurement Prices. Substantial increases in MSP of rice and the system of open ended

procurement have resulted in two problems. Firstly, increases in the MSP much above

the cost of production in the efficient states such as Punjab and some regions of Haryana

and UP have caused farmers to divert more land for production of rice from coarse. This

has aggravated the problem of rising food subsidies, particularly buffer subsidies, which

presently account for over 20 per cent of the food subsidy bill. The carrying cost of

these stocks is becoming un-sustainable. A re-orintaion of the food grain policy is

therefore imperative. There is a need for a re-thinking on the rationale of raising the

MSP of rice every year.

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Table-6.6 Government Operations in Rice in India during 2011-12 to 2012-13

Marketing Year (Oct-sept)

Govt ProcurementMillion tonnes

MSP for Paddy Rs. Per tonne PDS off-take

Million Tonnes**

PDS Issue Price for Milled Rice Rs. Per tonne

Govt. Food Subsidy Billion

Rs. Common Grade A APL Grade A BPL AAY 2002/03 16.40 (22.8) 5,500 5,800 26.10 8,300 5,650 3,000 241.80 2003-04 22.90 (25.8) 5,500 5,800 25.10 8,300 5,650 3,000 251.80 2004-05 24.70 (29.7) 5,600 5,900 20.80 8,300 5,650 3,000 258.00 2005-06 27.60 (30.1) 5,700 6,000 24.00 8,300 5,650 3,000 230.80 2006-07 25.10 (26.9) 6,200 6,500 24.80 8,300 5,650 3,000 240.10 2007-08 28.70 (29.7) 7,450 7,750 25.20 8,300 5,650 3,000 313.30 2008-09 34.10 (34.4) 9,000 9,300 24.70 8,300 5,650 3,000 437.50 2009-10 31.40 (35.2) 10,000 10,300 27.60 8,300 5,650 3,000 584.40 2010-11 34.20 (35.6) 10,000 10,300 30.00 8,300 5,650 3,000 638.40 2011-12 37.00 (36.0) 10,800 11,100 31.80 8,300 5,650 3,000 728.20 2012-13 12,500 12,800 8,300 5,650 3,000 ***750.0

Sources: http://fciweb.nic.in/ Note: * Estimated; ** On Fiscal Year (Apr–Mar) basis; ***Budgeted PDS = Public Distribution System; APL = Above Poverty Line BPL = Below Poverty Line; AAY = Antyodaya Anna Yojana (Poorest of the Poor), Figures in parenthesis show government procurement as percent of production.

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Following the table-6.6 with view to maximize distribution due to food

security concerns and to compensate farmers for the increasing cost of production,

the government has been steadily increasing the Minimum Support Price (MSP) of

paddy. The government increased the MSP for paddy for MY 20011–12 by Rs. 800

per metric tonne to Rs. 10,800 per tonne for Common varieties and Rs. 11,300 per

tonne for Grade ‘A’ varieties. The government has not increased the sale price of

rice distributed through the PDS (issue price) since July 1, 2002, although the MSP

has doubled during this period, contributing to the increasing food subsidy. The

government food subsidy has tripled since 2002–03 to Rs728 billion in Fiscal Year

2011–12 (Apr–Mar) with FY 2012–13 food subsidy budgeted at Rs. 750 billion. The

implementation of the National Food Security Act is likely to lead to further

escalation in food subsidy. India’s MY 2010–11 rice exports are estimated at 2.8

million tonnes compared to around 2.1 million tonnes in MY 2009–10 (mostly

Basmati rice as non-Basmati rice exports were banned during April 1, 2008 to

September 8, 2011).

Table-6.7 Major Producing State-wise Minimum Support Prices (MSP) Proposed by

Commission for Agricultural Costs and Prices (CACP) for Kharif Crops in India (2009-10 to 2011-12) (Rs. Per. Qntl)

Major States Paddy (Common) Paddy (Grade-A)

2009-10 2010-11 2011-12 2009-10 2010-11 2011-12 Recommended by CACP 950 1000 1080 980 1030 1110 Andhra Pradesh 1557 1646 1900 1640 1682 2030 Assam 900 1000 1200 950 1050 1250 Bihar 1360 - 1531 - - - Haryana 1250 1300 1350 - - - Karnataka 988 1500 1500 - - 1650

Sources: www.cacp.com Commission for Agricultural Costs and Prices (CACP), Govt of India

Table-6.7 provides the detail of Minimum Support Price proposed by CACP for

paddy for different states from 2009-10 to 2011-12 (Rs. Per Qntl). CACP recommended

MSP for paddy (common) at Rs. 950, Rs.1000, and Rs. 1080 for 2009-10, 2010-11 and

2011-12 respectively. However, different states have fixed higher MSP for the three

years except Assam which fixed lower MSP in 2009-10. Similarly MSP for paddy

(grade-A) fixed by CACP was Rs. 980, Rs. 1030 and Rs. 1110 for 2009-10, 2010-11 and

Rs. 2011-12. The states except Assam have fixed higher MSP for this variety of rice.

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Table-6.8 Procurement Incidentals and Distribution Cost of Rice in India (1994-95 to 2012-13) (Rs. Per Quintal)

Year Rice ($) Procurement Incidental Rice Distribution Cost 1994-95 58.13 98.91 1995-96 54.1 127.34 1996-97 67.47 161.97 1997-98 54.23 181.66 1998-99 56.04 191.6 1999-00 * 77.09 172.69 2000-01 * 83.63 166.43 2001-02 66.81 119.62 2002-03 61.67 157.72 2003-04 30.68 214.52 2004-05 58.48 256.51 2005-06 39.12 272.37 2006-07 193.66 289.58 2007-08 214.91 297.82 2008-09 * 226.87 280.76 2009-10 * 288.6 184.92 2010-11* 313.09 223.49 2011-12 # 366.85 291.32 2012-13@ 383.26 397.12

Source: Ministry of Consumer Affairs, Food and Public Distribution, Govt of India. Note: *: Provisional, #: Revised Estimated, @: Budget Estimated.

Table-6.8 provides the details of procurement incidentals and distribution

cost of rice in India (1994-95 to 2012-13). Procurement incidental cost of rice in

India has shown a general trend of a rise through with periodical decline during

certain years, the incidental cost rose substantially since 2006-07 till 2012-13

compared to the previous years from 1994-95 to 2005-06 when incidental cost

reached the lowest level of Rs. 39.12 Per qntl rice distribution cost has been high

since 1995-96 on wards the cost per qntl rose from Rs. 98.91 per qntl to Rs. 256.51

per qntl in 2004-05 and further to Rs. 397.12 per qntl in 2012-2013. Increase in

procurement incidental and distribution cost obviously resulted of in higher price to

the beneficiary buyers of rice.

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Table-6.9 Percentage Share of Production and Procurement of Rice in India

Year Production ProcurementProcurement as %

of Production 1996-1997 81.73* 122.23 66.87 1997-1998 82.54* 143.32 57.59 1998-1999 86.08* 118.67 72.54 1999-2000 896.83 182.28 492.01 2000-2001 849.80 212.81 399.32 2001-2002 933.40 221.28 421.82 2002-2003 718.20 164.22 437.34 2003-2004 885.26 228.28 387.80 2004-2005 831.31 246.85 336.77 2005-2006 917.93 276.56 331.91 2006-2007 933.55 251.07 371.83 2007-2008 966.93 287.36 336.49 2008-2009 991.80 341.04 290.82 2009-2010 891.00 320.34 278.14 2010-2011* 95.98 35.03 273.99 2011-2012* 104.32$ 35.03 297.80 2012-2013* 85.59@ 12.24 699.26 1996-97 to 2000-01 CV 108.40 26.09 -- 2001-02 to 2012-13 CV 53.01 56.92 --

Source: Ministry of Consumer Affairs, Food and Public Distribution, Govt of India. Note: *: Figure Area In million tonne, #; Procurement as on 30-11-2012, $: Fourth Advance Estimates released on 16.07.2012, @: First Advance Estimates released on 24.09.2012. Note: during 1996-97 to 2012-13 (in Lakh Tonne).

Table-6.9 provides the details share of procurement of rice in production

from 1996-97 to 2012-13. There has been a substantial production of rice during

the period from 1999-2000 to 2009-10. Similarly procurement as a share of

production during the corresponding period has indicated a continuous and

substantially rise procurement as the percentage of production rose from 122.23

lakh tonne to 276.56 lakh tonne in 2005-06 and further to 320.34 lakh tonne in

2009-10. There is a trend of decline in procurement during the last two years i.e.,

2010-11 to 2012-13.

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Charet-3 Share of Percentage in Production and Procurement of Rice in India during 1996-97 to 2012-13 (in Lakh Tonne)

Source: table-6.9

6.5 FOOD INFLATION AND RICE:

Table-6.10 Annual Average Food Inflation Rate (%)

(Based on WPI with base 1993-94 and (2004-05)

Year Food Grains Rice

1993-94 2004-05 1993-94 2004-05

2000-01 -1.47 - -2.22 -

2001-02 -0.81 - -0.30 -

2002-03 1.10 - -0.60 -

2003-04 1.15 - -1.69 -

2004-05 0.68 - -0.36 -

2005-06 5.35 7.2 3.75 5.2

2006-07 10.16 14.12 2.92 4.56

2007-08 4.61 6.92 6.74 11.30

2008-09 8.63 11.02 11.11 14.83

2009-10 15.59 14.49 14.41 12.31

2010-11 - 4.78 - 5.72

Source (Basic Data): Sthanu R. Nair, Central Statistical Organisation (http://eaindustry.nic.in) Note: (-) indicates not available.

Table-6.10 provides the of details annual average basis, the fiscal years

2008-09 and 2009-10 recorded high inflation in food products. Notably, in terms

of duration and magnitude, the food price spiral witnessed from January 2008

onwards was the longest and largest since April 1995. One widely debated aspect

of the episode of food inflation was the spiralling prices of food-grains, in

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particular rice amidst a piling up of a gain mountain in government storage depots.

The Central Government was in the firing line of criticism from various quarters

including the Supreme Court for failing to control rice prices during 2008-09 and

2009-10. Two systemic problems associated with India’s food grain management

have received considerable attention. They are the high minimum support price

(MSP) offered for food grain and high level of food grain procurement by the

government (Basu 2011).

International agencies are warning of high food prices on a global scale in

2013 if urgent action is not taken. The president is address to parliament has

only a cursory mention of inflation “inflation is easing gradually, but is still a

problem”, he said still problem? Surely the suffering of people from the relentless

prices rise inflected on them by the flawed policies of the United Progressive

Alliances deserves more recognition and redress. Even the World Bank, whose

neoliberal policy impositions are responsible to a great extent for global food

inflation, has warned that “high and volatile food prices are becoming the new

normal (Brind Karat, 2013 The Hindu News Paper).

While wheat exported at global prices was between Rs.1800 to 2000 a

quintal, the support price the Indian farmer received was at least one third less at

Rs, 1,285. The export of rice also was at prices far higher than the MSP. Thus, the

government helped traders and exporters make profits while denying farmers a fair

price. The stocks should and must be used to ensure an amount of food grains not

less than 35 kg per family at subsidised rates through a universal public

distribution system.

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6.6. DETERMINANTS OF FOOD SECURITY:

A broad definition of food security that has commonly been accepted in the

literature states that food security implies access by all people at all times to

sufficient quantities of food to lead an active and healthy life. The world food

summit held in Rome (13-17 November 1996) used the following definition in its

action plan: “Food security exists when all people, at all times, have physical and

economic access to sufficient, safe and nutritious food to meet their dietary needs

and food preferences for an active and healthy life”. According to this, food security

requires not just adequate supply of food at the aggregate level but also enough

purchasing capacity with the individual/household to demand adequate levels of

food (Srinivasan.P.V, 2009).

Table-6.11 Share of Per capita Availability of Rice in the Per capita Availability of Food-grains

Years Rice Food-grain % Share in rice of food grain 1990 77.4 172.5 44.87 1991 80.9 186.2 43.45 1992 79.2 171.1 46.29 1993 73.4 169.4 43.33 1994 75.7 172.0 44.01 1995 80.3 180.8 44.41 1996 74.6 173.5 43.00 1997 78.1 183.6 42.54 1998 73.1 163.2 44.79 1999 74.2 170.0 43.65 2000 74.3 165.9 44.79 2001 69.5 151.9 45.75 2002 83.5 180.4 46.29 2003 66.2 159.7 41.45 2004 71.3 168.9 42.21 2005 64.7 154.2 41.96 2006 72.3 162.5 44.49 2007 70.8 161.6 43.81 2008 64.0 159.2 40.20 2009 68.8 162.1 42.44

1951 to 1956 CV 5.97 3.16 2.82 1981 to 1985 CV 1.65 0.11 1.55 1990 to 2000 CV 0.34 0.38 0.22 2001 to 2009 CV 0.92 0.57 0.52 1990 to 2000 CAGR -0.62 -0.48 -- 2001 to 2009 CAGR -1.14 -0.22 --

Source: www.caluculatedagricoop.com, GOI Note: (As on 20-07-2010). 1. The net availability of food-grains is estimated to be gross production (-) seed, feed & wastage, (-) exports (+) imports (+/-) change in stocks. Note: (Per Annum) (KG per Year).

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Table-6.11 provides the detail of Per capita Net Availability of Food grains

and Rice in India. The percapita availability of rice in India during the 1990s and

the first decade in the new millennium has varied between a minimum of 64 kg

per year and a maximum of 80.9 kg per year. The percapita availability of food-

grain varied between a minimum of 151.9 kg to a maximum of 186.2 kg during

the corresponding period. The percentage share of rice in food-grains availability

per capita varied from a minimum of 41.96 per cent to a maximum of 46.29 per

cent during the same period.

The co-efficient variance from a minimum of 41.96 per cent to a maximum

of 46.29 per cent is noticed during the same period. The co-efficient of variance

of the percapita availability of rice between 1951-56 and 2001-09 varied between

0.34 and 7.63 per cent, while the CAGR of the same was negative during 90s and

the first decade of the present century. The co-efficient of variance of percapita

availability of food-grains during the corresponding period varied between 0.11

per cent and 4.88 per cent. The CAGR of the same was negative during the same

period. The CVs of percentage share of rice in food-grains varied between 0.22

per cent and 2.88 per cent during the same period.

6.7. CONSUMPTION OF RICE:

The patterns of calorie as well as protein intake do not depict a clear trend

for both rural and urban households. For the overall period form 1983-84 to

2009-10, the calorie and protein consumption has declined in the rural areas and

increased in the urban areas. (Radhakrishna and Reddy.2004, Rao.2003).

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Table-6.12 Average Per head monthly rice consumption of rice major producing states of rural and urban in India 2010-11

States

Urban Rural

Rice Total

cereals

% share of rice total cereals

Rice Total

cereals% share of rice

total cereals

AP 9.31 10.39 89.65 11.16 12.02 92.89 Assam 11.36 12.70 89.45 12.49 13.11 95.27 Bihar 6.04 12.74 47.45 6.96 12.91 53.88 Chhattisgarh 9.25 12.70 72.82 12.32 12.96 95.04 Haryana 1.55 9.22 16.77 0.74 10.18 7.25 Karnataka 5.60 9.28 60.34 5.61 10.49 53.43 Odissa 10.33 12.52 82.53 13.13 13.76 95.41 Punjab 1.16 8.30 13.93 0.68 9.78 6.99 Sikkim 1.21 9.71 12.41 9.62 10.71 89.80 Tamil Nadu 8.18 9.07 90.16 9.87 10.57 93.33 Uttar Pradesh 2.74 10.27 26.69 3.93 11.83 33.23 West Bengal 7.69 10.00 76.91 11.13 12.03 92.45 All-India 4.75 9.68 49.03 6.36 11.68 54.51

Source: NSSO report No.530, Households consumer expenditure in India -2009-10 Note: Rice includes rice products, (Average quantity consumed (Kg).

Table-6.12 provide details of share of availability regarding the average

monthly quantity of consumption of rice per person in India which indicate the

average consumption of rice which is at 4.75 kgs in urban area and is lower than

the monthly average consumption of rice in rural areas at 6.36 kgs. Similarly, the

consumption of cereals in urban areas is at 9.86 kgs per person which is lower than

the average consumption of cereals of 11.68 kgs in rural areas. The consumption of

rice as a percentage of total cereals in urban areas is at 49.03 per cent which is

lower than the consumption of rice as a percentage total cereal in rural areas which

is at 54.51 per cent.

State wise consumption of rice in urban areas was highest at 10.33 kg per

person in Orissa and lowest at 1.16 kgs per person in Punjab. In rural areas highest

rice consumption per person, was again in Orissa at 13.13 kgs and lowest at 0.74 kg

per person in Haryana. Consumption of cereals was highest at 12.70 kgs per person

in Assam and Chhattisgarh and lowest at 8.30 kgs per person in Punjab

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consumption of rice as a percent of total cereals per person was highest at 89.65 per

cent in AP and lowest at 12.41 per cent in Sikkim in urban areas states. In rural

areas the consumption of total cereals was highest at 13.76 kgs per person in Orissa

and lowest at 9.78 kgs in Punjab. The consumption of rice as percentage of total

cereals was highest at 95.27 in Assam and lowest at 6.99 per cent in Punjab. A food

coupon system for distribution of rice and kerosene through PDS was introduced in

Andhra Pradesh during 1998-1999 (Government of Andhra Pradesh: 2001).

Basically, the scheme was aimed at improving the delivery system of kerosene and

rice. Under the scheme mere possession of card was not adequate to draw PDS rice,

wheat or kerosene. People today prefer to consume more of non-cereals and among

cereals the preference is for rice and wheat as against coarse cereals.

6.8. TARGET OF PUBLIC DISTRIBUTION SYSTEM IN INDIA:

India’s government food distribution programmes, including both the old PDS

and the current TPDS, have been criticized for their limited impact on the poor, and for

inefficiency. Although large amounts of grain appear to have been distributed through

the PDS and TPDS, poor households still rely primarily on the market for their supplies

of wheat and rice. According to the 1999-2000 National Sample Survey, only about 10

per cent of poor rural households and 14 per cent of poor urban households purchased

grain from the TPDS (Ramaswami and Murugkar, 2005). A study of TPDS efficiency

estimated that it costs Rs 3.14 to transfer Rs1.00 of benefit to poor households through

the Target Public Distribution System in the State of Andhra Pradesh, and Rs 4.00 to

transfer the same benefit in the State of Maharashtra. Out of the total expenditure on

food subsidies in these States, 26.5 to 31 per cent was lost in transfers to non-poor

households; 16 to 26.5 per cent was lost because of the abnormally high costs of grain

transport, handling, and storage; and 15 to 28 per cent was lost because of “leakages” to

the open market and other forms of fraud. The share of subsidy expenditure actually

reaching poor households was about 25 per cent in Maharashtra and 32 per cent in

Andhra Pradesh (Ramaswami, 2002). Another issue is concern about loss of government

control of physical grain markets and private traders in the current system. The potential

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benefits of shifting to a food stamp programme are discussed in India’s 10th Five Year

Plan (Government of India, Planning Commission, 2002).

In India, although the green revolution technology resulted in greater self-

sufficient in food production and reduced import dependence it did not benefit uniformly

farmers from different regions and different socio-economic back-grounds. While it

solved the food security problem at the aggregate level it was left to subsidy programmes

such as the public distribution system (PDS) to take care of food security at household

level. The latter is therefore closely linked to health, educational and other infrastructure

services (Srinivasan.P.V, 2009).

Table-6.13 provides the detail of procurement, off-take and stocks of Rice

form 1991-1992 to 2012-2013. The percentage procurement of rice for public

distribution during the 1990s and the present decade (2001-02 to 2010-12) in the

country has indicated divergent trends. The procurement of rice for public

distribution system (PDS) was slow during the first decade from 1991-92 to

1999-00. During the next decade there has been a rapid growth of procurement

of rice for PDS. The procurement which was just 17.16 per cent in 1991-92 rose

to a maximum of 66.35 per cent in 2011-12. However, the off take of rice for

PDS was lower which ranged between a minimum of 17.95 per cent in 1992-93

and a maximum of 56.87 per cent in 2011-12. Stock of rice for PDS ranged from

a minimum of 11.07 per cent in 1991-92 to a maximum of 53.44 per cent in

2011-12 and reached a high of 80.6 per cent. The recommendation of the

Expenditure Reforms Commission is based on a study carried out by Dr Kirit

Parikh (Parikh: 1999) according to which a buffer stock of 10 million tonnes

was adequate from a food security angle. The present levels of buffer stocks in

the country are far in excess of requirements and create more economic

instability than stability.

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Table-6.13 Share of Percentage rice in Public Distribution System - Procurement, Off-Take and Stocks in India

Year Procurement Off-take Stocks Rice Total Rice Total Rice Total

1991-92 54.84 17.16 49.47 20.74 80.04 11.071992-93 66.60 19.1 55.10 17.95 78.37 12.671993-94 51.36 26.4 50.86 18.6 65.97 20.541994-95 52.50 24.99 45.52 19.44 67.46 26.81995-96 44.81 22.16 47.76 24.35 62.73 20.821996-97 59.28 20.04 48.03 25.63 80.26 16.411997-98 60.99 23.84 59.07 18.96 72.02 18.121998-99 47.73 24.2 57.07 20.73 55.73 21.821999-00 54.03 30.76 53.88 23.05 54.38 28.912000-01 53.64 35.29 57.22 18.21 51.56 44.982001-02 50.59 41.75 48.95 31.3 48.82 51.022002-03 49.96 38.03 49.86 49.84 52.30 32.812003-04 56.81 36.58 50.76 49.33 63.29 20.652004-05 58.88 40.83 55.94 41.47 74.23 17.972005-06 64.34 41.48 59.36 42.25 82.31 16.622006-07 74.02 35.53 68.15 36.77 73.45 17.932007-08 70.26 37.42 67.38 37.43 70.08 19.752008-09 59.14 55.53 62.33 39.5 60.71 35.582009-10 56.21 57.98 55.03 48.86 61.60 43.362010-11 54.82 56.79 56.36 52.87 64.98 44.352011-12 57.14 66.35 57.07 56.28 62.41 53.442012-13 12.39 43.41 0.00 0.00 38.10 80.6

Co-efficient Variation (CV)

1972-73 to 1980-81 21.06 23.20 13.08 12.82 20.18 57.82 1981-82 to 1989-90 6.28 19.44 8.04 17.86 20.08 37.001991-92 to 2000-01 11.68 22.38 8.95 13.03 16.11 43.872001-02 to 2009-10 13.65 19.24 12.64 15.38 16.60 44.84

Compound annual growth rate (CAGR) 1972-73 to 1980-81 7.24 7.26 5.36 7.26 25.17 7.26 1981-82 to 1989-90 4.74 3.66 2.18 3.66 2.25 3.66 1991-92 to 2000-01 4.87 5.70 2.22 5.70 6.48 5.70 2001-02 to 2009-10 6.78 4.00 3.93 4.00 1.80 4.00

Source: Ministry of Food, Consumer Affairs and Public Distribution, Government of India. Note: 1. Total Stocks Include coarse cereals. For 2010-11, procurement data is up to August 18, 2011, Off- take for the period April 30, 2011 and Stocks as on August 01, 2011.

Food Corporation of India (FCI) is the central agency responsible for

undertaking procurement, transportation and storage operations in India. Rising

procurement prices raise economic costs of FCI operations, which are Rs 1,174

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per quintal of rice at present, and are all set to rise. To cover part of the costs,

PDS prices have been raised throughout the nineties, especially after 1997-98.

This turned away most PDS customers, since market prices were below PDS

prices. So, while rising prices have led to a huge supply response from farmers,

PDS off take has fallen. As a result, grain stocks have ballooned over the past

few years, and today stand at 58 million tonnes, in spite of dumping 18 million

tonnes of food in the open market at half the economic cost, over the past few

months. Has anything been done to correct the problem? In 1997-98, targeted

PDS was introduced, under which two sets of PDS prices were announced, one

each for Above Poverty Line (APL) and Below Poverty Line (BPL) users. Since

their inception, APL prices had to be raised to cover the rising costs of FCI.

As consumers fled the PDS, issue prices had to be lowered to 70 per cent

and 48 per cent of costs to FCI for APL and BPL users, respectively. Another

policy that is being tried is decentralized procurement, whereby states are

individually responsible for procurement and storage operations. Some states like

West Bengal have been following this practice, but most states complain of

inadequate finances and infrastructure to undertake this operation. Among the

most vocal opponents of decentralized procurement are Punjab and Haryana,

who will have to confront farmers lobbies on their own. Food-for-work

programmes have been implemented which make grain available to states at BPL

prices, yet the programme has shown some results only in Rajasthan. What are

the fiscal implications of higher prices? Recently issue prices were cut even

further to encourage PDS off take. This will put more pressure on food subsidy.

As it is, bulk of the Rs 18,000-crore food subsidy bill is actually a producer

subsidy; consumers hardly derive any benefit from the PDS in addition, FCI pays

for procurement with food credit, and higher procurement prices lead to

unwarranted diversion of investible funds [World Bank-2002].

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Table-6.14 Share of Consumption of major producing states under Public Distribution System in India

State 1993-1994 2009-10 AP 20.6 29.7Assam 3.2 10.4Bihar 0.2 4.7Chhattisgarh 2.2 38.8Haryana 4.3 0.5Karnataka 14.5 34.5Orissa 0.8 22.9Punjab 2.3 0.1Tamil Nadu 17.9 47.6Uttar Pradesh 3.2 16.1West Bengal 1.7 5.3All India 9.9 21.7

Source: Authors estimates based on unit level data from NSSO

Table-6.14 provides the detail of role of PDS in meeting the consumption

requirement of households. Out of the total consumption requirement of food-

grains of people during in India, 1993-94 it was 9.9 per cent of which it was met

out of public distribution system (PDS) which got increased to 21.7 per cent in

2009-2010. This reveals the expanded activities of Public Distribution System in

India. The share of PDS in the consumption of rice has increased in all states,

except in Haryana, Punjab. The share of PDS in the total consumption of rice

was higher in AP, Chhattisgarh, Karnataka, Orissa, and Tamil Nadu. This

percentage got pushed up to an alarming level of 80 per cent.

A recent ADB study defined an Asian Poverty Line of $1.35. On this basis two-

thirds of India’s population or around 740 million Indian people live in poverty.

The recently introduced multi dimensional deprivation index (MPI) also places

about 645 million (55.4 percent) Indians below the poverty line. According to

Human Development Report, percapita GDP India rank 134 among 182

countries worldwide.

The Union cabinet has cleared the National Food Security Bill that gives legal

entitlement to 67 per cent Population (including 75 per cent rural and 50 per cent

urban) for subsidised grains under the Targeted Public distribution system

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(TPDS). A beneficiary will be entitled to 5 kg of rice, wheat or coarse cereals at

Rs. 3, 2 and Re.1 a kg a month and will be identified by the state based on

parameters prescribed by the Union government. But 71 amendment of cabinet

gave its nod to propose by the food ministry, including the one that said the 2.43

Crore Antyodaya Anna Yojana (AAY) beneficiary households will continue to

get their quota of 35 kg grains a month under the TPDS.

In its revised form, the bill favours the “two-child norm” by denying maternal

benefits to a pregnant woman beyond to live births. The law ministry quoted

Supreme Court judgement and the National Population Policy of 2000 to justify

the provision. The communist party of India (Marxist) had opposed the clause in

the Standing Committee meeting and gave a dissent note on it (Gargi Parsai, the

Hindu News Paper-March-20-2013).

6.9. ANTYODAYA ANNA YOJANA (AAY) IN INDIA:

In order to make the Targeted Public Distribution System (TPDS) more

focused and targeted towards the poorest of the poor BPL families, the Govt. of

India launched the Antyodaya Anna Yojana. 35 kg of rice per month is issued at

highly subsidized rate of Rs. 3/- per kg to the identified families from April 2002.

There are 38000 identified beneficiaries under the scheme. Government of India

has been making allocation of subsidized food-grains for all the accepted

number of 6.52 crore BPL families including about 2.43 crore Antyodaya

Anna Yojana (AAY) families. Allocation of subsidized foodgrains are also

made to Above Poverty Line (APL) families based on the availability of food-

grains in the Central pool and past off-take. Presently, the allocation of food-

grains to APL families to the States/UTs range between 15 kg. and 35 kg. per

family per month.

In order to make the TPDS more focused and targeted at the poorest of

the poor, Antyodaya Anna Yojana was launched in December, 2000 for one

crore poorest of the poor families to be identified from the BPL families.

Coverage under this scheme has been expanded thrice since then i.e. during

2003-04, 2004-05 and 2005-06, covering additional 50 lakh households each

time to be identified from BPL families. Thus, the total coverage under AAY

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was raised to 2.50 crore families. The identification of AAY families within

the target of AAY families given to each State/UT is the responsibility of

concerned State/UT Government. Out of the target of 2.50 crore AAY families

given to the State/UT Governments, the State/UT Governments have identified

and issued ration cards to about 2.43 crore AAY families.

The identification of the Antyodaya families and issuing of distinctive

Ration Cards to these families is the responsibility of the concerned State

Governments. Guidelines were issued to the States/UTs for identification of

the Antyodaya families under the AAY and additional Antyodaya families

under the expanded AAY. It has been stressed upon to identify poorest of the

poor amongst the BPL families to be included in the AAY list. Allocation of

food grains under the scheme is being made to the States/UTs on the basis of

issue of distinctive AAY Ration Cards to the identified families.

Table-6.15 Percentage allocation of rice under Antyodaya Anna Yojana (AAY) in major producing states of India during 2008-09 to 2012-13

Major States/Year

2008-09 2009-10 2010-11 2011-12 2012-13

2008-09 to 2012-13 Over the Year

Co-efficient Variation (CV)

Andhra Pradesh 6.42 6.42 6.40 6.39 6.40 32.66 Assam 2.90 2.90 2.89 2.89 2.89 57.48 Bihar 10.00 10.00 10.24 10.26 10.28 26.06 Haryana 1.20 1.20 1.20 1.20 1.20 227.85 Karnataka 4.94 4.94 4.93 4.86 4.68 26.20 Orissa 5.21 5.21 5.19 5.19 5.20 30.19 Punjab 0.74 0.74 0.74 0.74 0.74 188.82 Tamil Nadu 7.68 7.68 7.66 7.65 7.67 27.15 Uttar Pradesh 16.86 16.86 16.81 16.80 16.83 25.99 West Bengal 6.10 6.10 6.08 6.07 6.09 71.69 India 62.06 62.06 62.13 62.05 61.98 27.46

Source: Ministry of Consumer Affairs, Food and Public Distribution, Govt of India. Note: (000’ million tonnes)

Table-6.15 provides the detail Allocation of rice for AAY- in Major states

(2008-09 to 2012-13). Maximum allocation of rice for AAY has gone to Uttar

Pradesh (16.80 per cent to 16.86 mm tones) during 2008-09 to 2012-13 followed

Bihar (10.00 to 10.28 mm tonnes) Tamil Nadu (7.65 to 7.68 mm tonnes), Andhra

Pradesh (6.39 to 6.42), West Bengal (6.07 to 6.10), Orissa (5.19 to 5.21), and

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Karnataka (4.68 to 4.94). Allocation of rice for AAY has been low in case of

Assam, Haryana and Punjab which accounted for the minimum allocation of rice

under AAY (0.74, 1000 mm tonnes).

Chart-4 Major State-Wise Allocation of Rice for Antyodaya Anna Yojana (AAY) In India during 2008-09 to 2012-13 (000’ million tonnes)

Source: Table-6.15

6.10. USE OF INFORMATION COMMUNICATION TECHNOLOGY

SYSTEM IN PUBLIC DISTRIBUTION SYSTEM OF RICE IN INDIA:

ICTs play a very important role in the promotion of growth of agriculture

sector. Earlier ICT instruments like T.V, newspaper played an important role in

helping the board to reach the ideas to the farmers. Emergence of mobile phone

and internet enhanced the scope of communication between the various stake

holders ICT has enabled Central and State Government’s for updating of rice and

wheat daily market price to farmers through mobile SMS every day. Facilities are

also arranged for online communication between farmers and scientists and other

experts in the field. The Planning Commission, in early 2000s, found that the

total leakage of grains meant for BPL population was 58 per cent. Pending

unanimity in approach for identification of beneficiaries, Aadhaar smart cards

could help reduce identification errors and leakages significantly. Smart cards

have the ability to store and record a large amount of programmed and authorised

biometric information that can be matched to the actual fingerprint or signature of

an individual involved in a transaction, including eligibility for rations, quantity,

price and time intervals at which he/she could be supplied rations. These features

of the proposed smart card are expected to immensely help the existing food

197

coupon or food-stamp system, introduced on a pilot basis in select districts in

Andhra Pradesh, Arunachal Pradesh and Bihar. Greater use of Information and

Communication Technology (ICT) in PDS, such as GPS tracking of movement of

vehicles transporting PDS commodities, CCTV monitoring of FPS and

computerisation of various operations of PDS could also improve its efficiency.

An even bolder measure would be direct cash transfer that offers households the

choice of purchase of any mix of grains, pulses or other household basics up to the

value of the coupon. Provisions have also been made for transparency and

accountability including disclosure of records relating to the PDS, social audits,

and setting up of vigilance committees besides an elaborate grievance redressal

mechanism (Economic Survey, 2011-12, GOI).

6.11. Future Challenges:

There is need for further research to understand the consistently poor

performance of PDS in some states and reasons behind improvement in others

besides, increasing the efficiency of public expenditure and strengthening of

social safety net programme like, ICDS, NFSM, Mid-Day Meal, PDS, etc. The

lessons learnt from the successful states in PDS management should be

replicated in poor-performing states. Alternative system of PDS can also be

explored in these states. One of the reasons for increasing paddy price is the

increase in cost of cultivation of the same. People today prefer to consume more

of non-cereals and among cereals the preference is for rice as against coarse

cereals. The increase in food subsidies is benefiting rice producers in regions

where the government procures these two crops most conspicuously, that is,

Punjab, Haryana, AP and Karnataka. The option of involvement of private

players in procurement and storage may also be explored subject to retaining the

public control in view of food security needs. Often neglected but equally

important are domestic policy reforms. Domestic pricing and marketing reforms

continue to be the weakest link in Indian agriculture. Thus, while the government

holds mammoth stocks of food (estimated at about 60 million tonnes in January

2009), a large number of Indians suffer from poverty and malnutrition. Because

of political pressures from various interest groups, the government often ends up

198

pursuing economically unsound policies. Rather than buckling to pressure for

procurement, governments need to encourage the use of other domestic

instruments and institutional innovations. The State government’s ambitious

Anna Bhagya Scheme that aims to provide rice at Re. 1 a kg may have brought

smiles to 98.35 lakh Antyodaya Anna Yojana and below the poverty line

cardholders. But, the thousands of loaders of food-grains at the Karnataka Food

and Civil Supplies Corporation (KFCSC) god-owns are toiling without any

social security or employment benefits. It is from these god-owns that the

subsidised rice reaches the 20,450 fair price shops across the State. Anna Bhagya

Scheme that aims to provide rice at Re. 1 a kg may have brought smiles to 98.35

lakh Antyodaya Anna Yojana and below the poverty line cardholders. Each grain

of rice has our sweat in it. But the authorities have failed to respond to our plight.

With the launch of the Anna Bhagya Scheme, our work has increased but our

pay scales remain the same,

BOX ITEM

Budget Pays lip Services to Food Security – Union Budget – 2013-14

Although Finance Minister P.Chidambaram has pledged and additional amount of Rs.

10,000/- crore to meet the requirement of providing concessional food-grains to only

identified beneficiaries under the proposed National Food Security Bill, it appears that he

has garnered this sum by curtailing the annual budgeted Public Distribution System food

security requirement of the Department of Food. The food subsidy budgeted for 2013-14 is

Rs. 80,000/- crore, and compared with the Rs. 85,000/- crore projected the revised

estimates for 2012-13 was around Rs. 90,000/- crore. As against this, the allocation is for

Rs. 80,000/- crore. The estimated requirement of food subsidy in the government’s

National Food Security Bill was Rs. 1, 17,000/- crore for distribution of 7 kg of food

grains per person per month.

Subsidy Demand:

The parliamentary standing committee, to which the bill was referred, projected a subsidy

demand Rs. 1, 12,000/- crore for the distribution of 5 kg food grains per person per month.

They suggested coverage of 67 per cent of the population. By all accounts the food bill

subsidy allocation should be between ideally Rs 20,000 to Rs. 30,000 crore, unless the

government intends to reduce the number of beneficiaries.

199

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