CACP

What is True About Sugarcane in Maharashtra is Also True About Rice in Punjab

 

rice

A water-scarce state like Maharashtra should not be growing as much sugarcane as it does. Sugarcane is cultivated on less than four percent of the total cropped area in the state but uses 70% of the its irrigation water.

This is something that is happening in the production of rice in Punjab as well. Punjab, is basically a semi-arid area. The state is the third largest producer of rice. It produces 11.3% of the total rice produced in the country, with Uttar Pradesh and West Bengal producing 13.9% and 13.6% respectively.

The production of rice needs a lot of water. Given this, rice is really not something that should be grown in a semi-arid region. As the Commission for Agricultural Costs and Prices (CACP) in a report titled Price Policy for Kharif Crops—The Marketing Season for 2015-16 points out: “West Bengal, just as an example, consumes 2605 litres of water to produce a kilogram of rice compared to 5337 litres being guzzled by Punjab. The efficiency gap with respect to consumption of water in Punjab (the most efficient in terms of land productivity) is over 51 percent. This shows that the most efficient state in terms of land productivity is not the most efficient if other factor of production viz. water is factored into.”

What this clearly tells us is that rice farming in Punjab is a huge water-guzzler. The state government helps the farmers by ensuring that electricity is free, which essentially leads to a lot of over-pumping of ground water in the state.

As an August 2015 news-report in The Hindu Business Line points out: “According to the Central Ground Water Board, out of 137 blocks in Punjab, 110 come under the over-exploited category. Besides, the gross underpricing of electricity has encouraged the farmers to pump groundwater with minimal cost and effort.”

The CACP makes a broader point in a report titled document titled Price Policy for Sugarcane—2015-16 Sugar Season where it says: “Instead of focusing on economy in water use in agriculture, most state governments have been content with subsidising electricity for pumping irrigation water.”
Other than free electricity, there is another reason for such a huge amount of rice being produced in Punjab. The government of India announces the minimum support price(MSP) for 23 crops, every year. Nevertheless, as far as procurement is concerned, it primarily buys rice, wheat and cotton, through the Food Corporation of India(FCI) and other state procurement agencies.

The awareness of this procurement among farmers varies throughout the country. In Punjab the awareness is very high. As the Economic Survey for 2015-2016 points out: “In Punjab and Haryana, almost all paddy and wheat farmers are aware of the MSP policy.”

Over and above this, the procurement is also not uniformly carried out throughout the country. In 2013-2014, Punjab produced 11.1 million tonnes of rice. Of this, nearly 11 million tonnes was marketable surplus. The state consumed only 0.1 million tonnes of rice, given that rice is not a staple food in Punjab. The Punjabis are primarily roti eaters and roti is made from wheat.

Of this, 8.1 million tonnes was procured by the government. This is the highest among all the states in the country, both in absolute terms as well as a proportion of total production. Also, nearly one fourth of the total rice procured by the government is procured from Punjab.

Compare this to the state of West Bengal, which produced 15 million tonnes of rice in 2013-2014, with a marketable surplus of 9.5 million tonnes (given that Bengalis are primarily rice-eaters). Of this only 1.7 million tonnes was procured.

As the CACP points out: “For instance, there was almost negligible procurement of rice in Assam during 2013-14, even though it contributed 4.6 percent of the total rice production. The situation in other eastern states such as Bihar, West Bengal is somewhat better than that of Assam but not good enough when these states are compared with Punjab.

This is a point that is made in the Economic Survey as well: “Even for paddy and wheat where active procurement occurs, there is a substantial variation across states – with only half or less paddy and wheat farmers reporting awareness of MSP, especially in states such as, Gujarat, Maharashtra, Rajasthan, Andhra Pradesh and Jharkhand.”

The awareness of MSP for rice essentially ensures that the farmers of Punjab are actually producing more rice than they should, given that they have a ready customer in the government. The free electricity is of course another reason. This has also led to a situation wherein the country is producing more rice than what it needs for consumption and is not producing enough other agricultural products like pulses.

In fact, any export of an agricultural product essentially implies export of water. As CACP points out: “When our country exports about 100 lakh tonnes [10 million tonnes] of rice annually, it implies that over 38 billion cubic meter of virtual water is exported.” In a country as water deficient as India is, this is not a good thing.

Much of this rice is produced by pumping ground water and this has had a huge impact in the state of Punjab. As CACP points out: “Given that this water is extracted by mining groundwater, as is being done in much of the Punjab and Haryana belt (particularly in case of rice), where water table is receding by 33 cm each year, thereby shrinking its per-capita availability, high import duty of 70 to 80 percent is perverse and conveys wrong signals on use of water (and also power).”

Cheap electricity and an ineffective procurement policy have essentially led to a situation where India’s water problem will only get worse in the days to come. As the Economic Survey points out: “India has much lower levels of water per capita than Brazil, one of the world’s leading agricultural countries. This constraint is exacerbated because, while Brazil and China use approximately 60 per cent of their renewable fresh water resources for agriculture, India uses a little over 90 per cent.”

The column originally appeared on Vivek Kaul’s Diary on April 14, 2016

Not Holding IPL in Maharashtra Will Meet Water Needs of Latur for 42 Minutes

Indian-Premier-League-IPL-logo

In yesterday’s column I had explained why holding the Indian Premier League(IPL) T20 cricket tournament, responsible, for the water woes of Maharashtra, is wrong.

The trouble is that no one is using numbers to make an argument. Emotions are running high—and the typical argument against IPL is when there is no water in Latur, how can we waste water on cricket grounds.

But this argument looks at the issue only in absolute terms. It is estimated that the IPL will use around 6 million litres of water. This sounds a lot on its own. But it amounts to only an insignificant amount of the total water used to produce sugarcane in Maharashtra in 2013-2014.

The basic problem is that Maharashtra should not be growing as much sugarcane as it is. Sugarcane is cultivated on less than four percent of the total cropped area in the state but uses 70% of its irrigation water.

Hence, all the noise around IPL being moved out of Maharashtra is essentially nonsense of the worst kind. People who feel for those who do not have water in parts of Maharashtra can do more for them by stopping to waste water in their daily lives, than agitating about this. Also, they should check for water leakages in their building.

Let’s take a look at Latur in a little more detail. An India Today report points out that the daily requirement of water in Latur is 85 litres per person. As per the 2011 census, the population of the Latur district is around 24.6 lakh (2.46 million).

This means the district needs around 209.1 million litres of water every day (85 litres multiplied by 2.46 million). IPL is scheduled between April 9 and May 29, and will use six million litres of water over a period of 51 days in Maharashtra.

During the same period Latur would require 10,664 million litres of water (209.1 million litres multiplied by 51 days). How will not using six million litres of water at IPL help? If I stretch my argument, not allowing IPL in Maharashtra to happen, will essentially save water that is good enough to meet the water needs of Latur for 0.029 days (6 million litres expressed as a proportion of 209.1 million). This essentially means around 42 minutes (0.029 x 24 x 60), if I were to convert it into minutes.

So not allowing IPL in Maharashtra to happen will supply water to the people of Latur for all of 42 minutes. Of course, I am assuming that all the water that is thus saved can be moved to Latur, all at once, and no part of it is evaporated during the process.

The larger point is that there are better things that can be done to save water.

Further, why is no one talking about the huge amount of water that gets wasted everyday due to leakage as well as theft. A March 2016 report in The Times of India offers some data points. The report points out that Mumbai loses 900 million litres of water daily due to leakage and theft.

An August 2015 report in the same newspaper had put the daily leakage of water in Mumbai at 1,012.5 million litres. The Brihanmumbai Municipal Corporation(BMC) terms this leakage as “non-revenue” water, in a classic bureaucratic way.

In this column, I will work with the former estimate of 900 million litres daily leakage, given that it is a more recent one.

I tried looking for the water leakage numbers for Pune and Nagpur where IPL matches are scheduled along with Mumbai, in the state of Maharashtra, but I couldn’t find any numbers. Given that I will have to work with only the Mumbai water leakage number.

The IPL started on April 9 and is supposed to go on till May 29. Effectively, it is a tournament that will go on for 51 days. Over 51 days, 45,900 million litres of water (900 million multiplied by 51) would have been lost just in Mumbai. The total number would be higher if we had the leakage numbers for Pune and Nagpur as well. In comparison, the IPL will use only six million litres of water, over 51 days. This works out to 0.013% of the total leakage of water in Mumbai.

If only a part of the leakage could be plugged, the water needs of Latur could be easily met. Why is no one really talking about this?

I know I am exaggerating here with my calculations but this is just to show the absurdity of the issue of moving IPL out of Maharashtra in order to save water. The question that crops up here is that why are the NGOs which have filed a PIL in the Bombay High Court asking for IPL to be moved out of Maharashtra, not taking BMC to task as well?

The ultimate idea should be to stop the wastage of water and considerably huge amount of water is being wasted by leakage and municipal corporations not doing much about it. Why is this discussion not happening?

The BCCI, for once, does not appear to be in a confrontational state. An India Today TV report points out that BCCI is planning to move five matches out of Maharashtra. Of this two matches were scheduled in Pune and three matches in Nagpur.

The three matches that were scheduled to happen in Nagpur are now likely to take place in Mohali in Punjab. Like Maharashtra grows sugarcane, a fairly water-intensive crop, Punjab grows rice. Punjab is a semi-arid region and in an ideal world, rice shouldn’t be grown there, because it needs a lot of water, and there is not a lot of water going around in a semi-arid region.

Like Maharashtra shouldn’t be growing sugarcane, Punjab shouldn’t be growing rice. Punjab uses 5,337 litres of water to grow one kilogram of rice. This is more than double that of West Bengal, which takes 2,605 litres of water to grow one kilogram of rice.

In total Punjab produced 11.1 million tonnes of rice in 2013-2014. So how many litres of water did it use in total? The total amount of water used was 59,240,700 million litres (11.1 million tonnes of rice multiplied by 5,337 litres of water per kg of rice).

Currently, four matches are scheduled at Mohali. The India Today TV report suggests that three matches from Nagpur will be moved to Mohali. This basically means that seven matches will be played in Mohali.

In the public interest litigation that has been filed in the Bombay High Court asking that IPL cricket matches should be moved out of Maharashtra, it has been said for each match three lakh litres of water are needed. As Ankita Verma, the lawyer for the petitioners told Rediff.com: “International maintenance for pitch guidelines state that for each match you need three lakh litres [0.3 million] of water for one ground.”

Hence, for seven matches in Mohali, a total of 2.1 million litres of water (0.3 million litres per match multiplied by seven matches) would be needed. This forms around 0.0000035% of water used in Punjab for growing rice.

This is as insignificant as the water to be used for IPL matches in Maharashtra in comparison to the total water used for growing sugarcane. If to save such a small proportion of water, cricket matches can be moved out of Maharashtra, they should be moved out of Punjab as well. The logic is exactly the same.

I know the argument is absurd. But it needs to be made in order to show that the real issues behind the water problem in the country are not being talked about. No one is talking about sugarcane and rice paddy not being the right agricultural crops to be grown in Punjab and Maharashtra. The reason is straightforward, there are political parties which benefit from this.

Further, no one is talking about the astonishing amount of water leakage that happens on a daily basis. While, changing cropping patters is a long term solution, preventing water leakage on a war-footing is a simpler solution, and can be carried out, if the local municipalities get their way around to doing it. The only people who will lose due to this, is the water mafia.

But then this is not as sexy as criticising IPL. I am no fan of BCCI, but IPL is a soft target.

The column originally appeared in the Vivek Kaul Diary on Equitymaster on April 13, 2016

IPL Will Use ZERO Percent of the Water That Sugarcane Does

Indian-Premier-League-IPL-logo

The Board for Control of Cricket in India (BCCI) is where politicians from across party lines come together. And given this, you don’t expect it to be the most transparent and fair institution going around. Over and above this, the BCCI also has monopolistic tendencies. Hence, in most situations I would not support BCCI on an issue.

Nevertheless, the entire issue of moving the Indian Premier League(IPL) T20 cricket tournament out of the state of Maharashtra, in order to save water, is basically nonsense. The real issue when it comes to a water crisis in Maharashtra is the agricultural production of sugarcane and not IPL. Allow me to explain.

Take a look at the following chart.

Chart-1.2: State-wise Shares in Production of Sugarcane and Sugar

Maharashtra is the second largest producer of sugarcane in the country after Uttar Pradesh. It is also the largest producer of sugar, which is a by-product of sugarcane. Maharashtra produces more sugar than Uttar Pradesh primarily because the sugarcane produced in the state has a higher sucrose content. In fact, among all states, Maharasthra has the highest sugar recovery rate of 11.1% from sugarcane.

Getting back to the issue of water and sugarcane. As TN Ninan writes in The Turn of the Tortoise: “Nationally, the bulk of the water is used for agriculture…Cropping patters have developed such that water-intensive crops are grown in water-scare areas—like [rice] paddy in Haryana and sugar cane in Maharashtra.”

In fact, Maharashtra uses a lot more water to produce sugarcane than other states like Bihar. As the Commission for Agricultural Costs and Prices(CACP) points out in a document titled Price Policy for Sugarcane—2015-16 Sugar Season: “Water productivity analysis shows that Bihar consumes just 822 litres of water to produce a kilogram of sugar compared to over 2100 litres in Maharashtra, and more than 2200 litres each in Andhra Pradesh and Tamil Nadu. Thus, Andhra Pradesh, Maharashtra and Tamil Nadu consume an additional 1300 to 1400 litres of water over and above what it takes Bihar to produce a kilogram of sugar.”

Andhra Pradesh produces only 4% of India’s sugarcane, so it doesn’t really matter much, if it is a water guzzler. Maharashtra and Tamil Nadu between them produce nearly one-third of India’s sugarcane (22% of Maharashtra and 10% for Tamil Nadu). Given that they use a huge amount of water doing so, this shouldn’t be the case.

As CACP further points out in the case of Maharashtra: “In Maharashtra, sugarcane cultivation, which is on less than 4 percent of the total cropped area of the state, takes away almost 70 percent of irrigation water in the state. This leads to massive inequity in the use of water within the state.”

As mentioned earlier, it takes 2100 litres of water to produce one kilogram of sugar in Maharashtra. This basically means that it will take around 2100000 litres or 2.1 million litres of water to produce one tonne or 1000 kilograms of sugar.

It is estimated that the twenty IPL cricket matches being played in Maharashtra would end up using six million litres of water. How has this estimate been arrived at? A public interest litigation has been filed in the Bombay High Court stating that IPL cricket matches should be moved out of Maharashtra.

Ankita Verma, the lawyer for the petitioners told Rediff.com: “International maintenance for pitch guidelines state that for each match you need three lakh litres of water for one ground. If you multiply that for the 20 matches that will be played here, you will come to the figure of 60 lakh litres [or 6 million litres] of water.”

The BCCI puts the number at four million litres, reports Mint. Let’s take the higher of the two numbers of six million litres of water. As mentioned earlier, it takes 2.1 million litres of water to grow one tonne of sugarcane. Hence, for IPL the total water being used is what would have been good enough to produce less than three tonnes of sugarcane, actually 2.86 tonnes to be very precise.

Hence, the entire argument of IPL cricket matches leading to a wastage of water is basically nonsense. Sugarcane is the real water guzzler in the state of Maharashtra. In 2013-2014, the state produced 75,384,000 tonnes of sugarcane, which would have needed around 158,306,400 million litres of water (75,384,000 x 2.1).

On the other hand, IPL this year will end up using six million litres of water, which would essentially be good enough to produce three tonnes of sugarcane.

So the total amount of water used by IPL will be around 0.0000038%(6.1 million litres expressed as a percentage of 158,306,400 million litres) of the water used to produce sugarcane in Maharashtra in 2013-2014. The proportion is so small that we can even round it off to 0%. This entire argument to move IPL out of Maharashtra is basically nonsense. The real issue is the production of sugarcane in the state.

Of course, no noise is being made against the excessive consumption of water in the production of sugarcane primarily because some of the bigger politicians of the state of Maharashtra are also sugar barons.

There are other issues also that need to be discussed here. India produces much more sugarcane than it consumes. The CACP estimates that the total demand for sugar in India (domestic demand plus bulk demand) is at 24.3 million tonnes. The domestic demand being 12.3 million tonnes and the bulk demand being 12 million tonnes.

In 2014-2015, India produced around 28 million tonnes of sugar. This is 3.7 million tonnes more than demand. This excess sugar is exported. We need to realise that when we export sugar, we are essentially exporting water. As Ninan points out: “Growing sugar cane, even more water hungry than[rice] paddy, in water-scarce Maharashtra is equally contraindicated—especially since the country happens to be surplus in sugar most of the time, and exporting sugar amounts to exporting water.”

And a country as water-constrained as India is, should not be exporting water. To conclude, as CACP points out: “Future growth of cane in Maharashtra is likely to be severely hampered by scarce water supplies unless much of sugarcane is put on drip irrigation or varieties are evolved that use less water. Given that sugarcane is a water guzzling crop, its long term development must ensure that water pricing policies are formulated in a manner that reflects its scarcity.”

And this is something worth thinking about.

Disclosure: The basic idea for writing this column came after reading Sunil Jain’s column titled IPL vs sugarcane: That’s really the equation in Maharashtra in The Financial Express.

The column originally appeared on Vivek Kaul’s Diary on April 12, 2016

 

 

Elections with tur dal tadka

Toor_Dal_Tur_dal
Dal prices have been on fire. The bureaucrats and politicians have been caught napping once again. In the recent past, tur dal prices have crossed Rs 200 per kg. The prices of other major pulses have also crossed more than Rs 100 per kg.

The governments (central as well as state governments) have gone on an overdrive and blamed the hoarders for the price rise, as they have often done since the 1960s. A statement released by the ministry of consumer affairs, food and public distribution late last week pointed out that 74,846.359 tonnes of pulses have been seized from hoarders after 6,077 raids.

It is not surprising that the central government wants to push down the price of various pulses in general and tur dal in particular, given the on-going state assembly elections in Bihar. Media reports suggest that the high dal prices have become an election issue in Bihar, with leaders of both the NDA and the Nitish+Lalu+Congress combine accusing each other of not doing enough to control dal prices.

But is hoarding the really the only reason for high prices? The ministry of agriculture publishes a document titled Commodity Profile for Pulses. This document dated March 2015 had clearly pointed out that the total production of various kinds of dal would fall by 6.8% to 18.43 million tonnes in 2014-2015. The production had stood at 19.78 million tonnes in 2013-2014.

The production of tur dal was expected to be at 2.75 million tonnes, a fall of 13.2%.  The production for 2013-2014 had stood at 3.17 million tonnes.

The Commodity Profile for Pulses dated September 2015, revised these numbers. The total production of dal was revised to 17.2 million tonnes, a fall of 13% from 2013-2014. The production of tur dal was revised to 2.78 million tonnes, a fall of 12.3% from 2013-2014.

The point here is that the government knew at the beginning of this financial year that the production of tur dal in particular and total dal production as a whole, had fallen in 2014-2015. It was but logical that hoarders would get into the fray.

This possibility should have been tackled at that point of time. By the time the government woke up to this possibility it was too little and too late. The damage of escalating dal prices had already been done.

Further, imports have been bandied around as a solution to the escalating prices. In a press release dated October 19, 2015, the ministry of consumer prices, food and public distribution stated that the “government would further import 2000 tonnes of Tur dal and 1000 tonnes of Urad dal and tender will be floated by MMTC immediately.”

As mentioned earlier the production of tur dal has fallen from 3.17 million tonnes in 2013-2014 to 2.78 million tonnes in 2014-2015. Also, a poor monsoon this year may also have had an impact on tur production. Tur is mainly grow during the kharif season and a very small portion of the total area under production has access to irrigation. The monsoon this year was at 86% of its long period average.

So what does this mean? The production of tur dal during the course of 2014-2015 was around 0.4 million tonnes lower than 2013-2014. In an article in The Indian Express Professor Ashok Gulati of ICRIER estimates that the yearly consumption of tur dal in India is in the region of 3.3 to 4 million tonnes. Trying to plug this huge gap between falling production and consumption by importing a few thousand tonnes of tur dal is not going to help much.

In fact, the global market for pulses is not very big. In 2014-2015, India imported a total of 4.6 million tonnes of dal, of which 0.58 million tonnes was tur dal. A little over half of India’s tur dal imports came from neighbouring Myanmar and the remaining came from Africa. Also, it is worth mentioning here that India is the biggest producer of tur dal in the world. So imports really cannot help beyond a point.

Further, pulses are an important source of proteins especially for vegetarians. In this scenario as per capita income goes up, the demand for pulses will continue to go up.

As the 2013-2014 annual report of ministry of consumption, food and public distribution points out: “demand for pulses has been increasing steadily mainly due to increase in population and preference for enhanced protein requirements in food.”

A discussion paper titled Taming Food Inflation in India released by the Commission for Agricultural Costs and Prices (CACP) in April 2013 and authored by Ashok Gulati and Shweta Gulati refers to the same reason. As it points out: “[The] study finds that the pressure on prices is more on protein foods (pulses, milk and milk products, eggs, fish and meat) as well as fruits and vegetables, than on cereals and edible oils, especially during 2004-05 to December 2012. This normally happens with rising incomes, when people switch from cereal based diets to more protein based diets.”

This trend of increased consumption of proteins has been around for a while. What all this clearly tells us is that the government failed to see this crisis coming, even though the data as well as the trend suggested it very clearly.

Further, the trend of increased protein consumption will continue, as people earn more and eat better. This can be only solved by producing more pulses within the country.

The government of India actively procures wheat and rice through the Food Corporation of India and other agencies. This creates its own set of problems. As the CACP report points out “Assured procurement gives an incentive for farmers to produce cereals rather than diversify the production-basket.”

The economic incentive the way it is currently structured encourages farmers to produce more of rice and wheat and not other crops. This is something that needs to be set right.

In the short run, the good news is that the area on which pulses have been sown in this kharif season has gone up to 11.6 million hectares from 10.3 million hectares last year.

As far as tur dal is concerned the area under production has gone up by 4% to 3.74 million hectares. While the number is higher in comparison to 2014-2015, it is not as high as earlier years. Between 2010-2011 and 2013-2014, the number varied between 4.42 million hectares and 3.90 million hectares. The yield in 2010-2011 was 655 kg per hectare. This had jumped to 813 kg per hectare in 2013-2014.

With an increase in area under production, prices are likely to fall a bit in the days to come. Nevertheless, if dal prices in general and tur dal prices in particular, need to come down dramatically in the years to come, then the yield as well as area under cultivation need to go up. And this is easier said than done.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])

The column originally appeared in The Asian Age/Deccan Chronicle on October 28, 2015

How the government makes you pay more for food

 food

Vivek Kaul


“God,” they say, “is in the details”. And so is the devil.
The wholesale price inflation(WPI), one of the ways to measure the rise in prices, touched 4.86% for June 2013. In May 2013, WPI had stood at 4.7%.
The worrying factor was that food inflation increased to 9.74%, due to an increase in price of onions, cereals and rice. During May 2013, food inflation was at 8.25%.
While an overall inflation of less than 5% sounds like a good situation to be in, it clearly is not, because of the high food inflation that prevails (I bought tomatoes at Rs 60 per kg yesterday evening and that hurts).
The point to remember here is that overall inflation is a theoretical construct where various goods and services have a certain weight attached to them. Food articles comprise of around 14.34% of the WPI basket. What this means in simple English is that if an individual were to spend Rs 100 on goods that comprise the WPI basket, he would spend Rs 14.34 on buying food.
But for most people the proportion of money they spend on food is higher than 14.34%. A discussion paper titled Taming Food Inflation in India released by the Commission for Agricultural Costs and Prices(CACP), Ministry of Agriculture, on April 1, 2013, makes the point. “An average household in India still spends almost half of its expenditure on food, and poor around 60 percent (NSSO, 2011), and that poor cannot easily hedge against inflation, high food inflation inflicts a strong ‘hidden tax’ on the poor…In the last five years, post 2008, food inflation contributed to over 41% to the overall inflation in the country,” write the authors Ashok Gulati and Shweta Saini. Gulati is the Chairman of the Commission and Saini is an independent researcher.
This means that rising food prices are a huge problem for most Indians. Vegetable prices went up by 16.47% in June vis a vis 4.85% in May. Onion prices went up by a whopping 114% against 97.4% in May. Price rise in cereals and rice was 17.2% and 19.1% respectively.
While each food product has its own reasons for the price rise, there are some broad generalisations that can be made. Take the case of rice and wheat. Their price rise can be directly attributed to hoarding by the government.
In a research paper titled Buffer Stocking Policy in Wake of NFSB (National Food Securities Bill) Ashok Gulati and Surbhi Jain of CACP point out “The country is currently loaded with large stocks. On July 1, 2012, e.g., it had 80.2 million tonnes, and is likely to have similar or even higher amount this year, despite emerging as the largest exporter of rice (around 10 million tonnes in calendar year 2012) and exporting about 5.6 million tonnes of wheat in FY 2012‐13.”
The situation seems to have continued this year as well. The food grain stock as on April 1, 2013, stood at 59.8 million tonnes against the norm of 21.2 million tonnes, that the government needs to maintain as on April 1, of every year.
One explanation for the hoarding is that the government was building up stocks to implement the food security scheme. But even after taking that into account, the government is hoarding onto more rice and wheat it requires to sell at subsidised rates. The CACP report estimates that anywhere between 41-47 million tonnes, would be a comfortable level of buffer stocks. This would be enough to take care of the subsidised grain that needs to be distributed to implement the food security scheme. At the same time it would also take care of the strategic reserves that the government needs to maintain, to be ready for a drought or any other exigency.
As on July 1, 2013, the government is expected to have around 82 million tonnes of rice and wheat. What this means that the government has an excess stock of nearly 30-40 million tonnes. As Gulati and Jain point out “The value locked in these “excess stocks”, evaluated at their economic cost, ranges from Rs 70,000 crore to Rs 92,000 crore. This infusion of “excess” money into the economy without corresponding flow of goods is evident in the paradox of rising prices of rice & wheat amidst overflowing stocks in government godowns.”
The excess storage by the government causes inflation in two ways. There is lesser rice and wheat available in the open market, and this pushes up prices. In the last few years, the government has been buying and hoarding more and more of rice and wheat produced. In 2006-2007, the government bought 32% of the total rice paddy produced. In 2011-2012, this had shot up to a massive 54%. During the same period the procurement of wheat more or less doubled, from 18% to 35%. As a a report brought out by the Comptroller and the Auditor (CAG) General of India points out “The total food grains stock in the Central Pool recorded an increase of 45.8 million tonnes between 2006-07 and 2011-12.”
In some states the procurement of grains has more or less been quasi nationalised. In states like Punjab, Haryana and now Madhya Pradesh and Chhattisgarh, around 80‐90% of the rice and wheat produced is bought by the government. This means the amount of rice and wheat available in the open market has come down dramatically and which in turn has pushed up prices.
The second reason for inflation is the fact that the farmers have already been paid anywhere from Rs 70,000-92,000 crore for the excess stocks that the government chooses to maintain. When this money is spent it leads to more money chasing the same number of goods and products, and thus adds to inflation.
In fact, high food inflation isn’t a recent phenomenon. It has been a regular part of our lives since 2008, when the Congress led UPA government decided to get ready for the 2009 Lok Sabha elections and go on a spending spree. During the period 2008-2009 to December 2012, the food inflation averaged at 10.13% per year. It has more or less continued at same levels since then.
The rise in expenditure of the government hasn’t been met by a rise in revenues and has thus led to an increase in fiscal deficit. Fiscal deficit is the difference between what the government earns and what it spends. The fiscal deficit of the Indian government in 2007-2008 (the period between April 1, 2007 and March 31, 2008) stood at Rs 1,26,912 crore. This jumped by 230% to Rs 4,18,482 crore, in 2009-2010 (the period between April 1, 2009 and March 31, 2010). It has since jumped to even higher levels and for the 2013-2014(i.e. The period between April 1, 2013 and March 31, 2014) it is projected to be at Rs 5,42,499 crore.
And it is this increased expenditure(reflected in the burgeoning fiscal deficit) of the government that has led to inflation. As Gulati and Saini point out “Indian fiscal package largely comprised of boosting consumption through outright doles (like farm loan waivers) or liberal increases in pay to organised workers under Sixth Pay Commission and expanded MGNREGA(Mahatma Gandhi National Rural Employment Guarantee Act expenditures for rural workers. All this resulted in quickly boosting demand.”
The sudden increase in government expenditure meant more money landing up in the pockets of citizens. And this money was spent leading to an increase in demand for goods and services. But this increase in demand could not be met with an increase in supply because of several infrastructure bottlenecks. As Gulati and Saini write “But with several supply bottlenecks in place, particularly power, water, roads and railways, etc, very soon, ‘too much money was chasing too few goods’. And no wonder, higher inflation in general and food inflation in particular, was a natural outcome…This study finds that the pressure on prices is more on protein foods (pulses, milk and milk products, eggs, fish and meat) as well as fruits and vegetables, than on cereals and edible oils, especially during 2004-05 to December 2012. This normally happens with rising incomes, when people switch from cereal based diets to more protein based diets. ”
Food inflation has now become a way of life for Indians, and is unlikely to go away any time soon. Even with that the government can look to at least control the rise in price of rice and wheat by trying to sell the excess stocks that it is hoarding onto. In fact, the irony is that the government doesn’t have enough space to store all the rice and wheat it is hoarding. The total storage capacity available is around 71.9 million tonnes. Now compare this to the total expected food grain stock of around 82 million tonnes as on July 1, 2013. What this means is that nearly 10 million tonnes of food grain is rotting in the open.
It is not rocket science to suggest that at least this stock can be sold off. It is always better if people eat rice and wheat, rather than the government letting it rot.
The article originally appeared on www.firstpost.com on July 16, 2013

(Vivek Kaul is a writer. He tweets @kaul_vivek)