For all those couched in socialistic mindset and obstinate about keeping complete control on food supply and distribution in pursuit of food security – regardless of all the negatives that go with it – need to take a look at a report of the Comptroller and Auditor General [CAG] on “Procurement and milling of paddy for Central pool” tabled in the Parliament on December 8, 2015.
But, first a word on the trigger for audit by CAG is in order. A whistle-blower in Odisha had alleged that close to Rs 10,000 crores of black money was being generated every day as millers were hiding or under-reporting earnings from sale of paddy by-products. Reportedly, the Prime Minister’s Office [PMO] had forwarded the complaint to CAG early this year.
To put things in perspective, procurement agencies like Food Corporation of India [FCI] and state agencies purchase paddy from the farmers and give it to the millers for processing. Millers supply rice equivalent of paddy within a specified period. Thus, for 100 kg of paddy given by FCI/state agency for milling for targeted public distribution system [TPDS], the miller gives back 68 kg of parboiled rice or 67 kg of raw rice and is paid Rs 87.
What happens to the balance 32/33 kg? That consists of by-products generated in during processing of paddy. These include bran, husk and broken rice. These by-products have multiple uses in industries such as breweries, edible oil, textile and cosmetic companies. Their sale yields huge revenues for the millers.
Ironically, under the extant policy for sale of paddy and rice by-products, the miller does not have to pay a single rupee to the government/FCI from the profit he makes from selling the by-products. According to CAG, millers in Andhra Pradesh, Telengana, Uttar Pradesh and Chhattisgarh got excess realization of Rs 3743 crores during 2009-10 to 2013-14.
CAG has also pointed towards delays in delivery of rice by millers to FCI/state agencies. Even worse, there were instances of ‘non-delivery’. In selected districts of Bihar, Haryana, Odisha, Punjab, UP and Telengana, during 2010-11 and 2013-14, around 1.6 million tons of paddy and 2.3 million tons of levy rice valued at Rs 7570 crores was not delivered to FCI/state agencies.
Pathetically, FCI and state agencies could not even recover the value of non-delivered customs miller rice [CMR] as they had not insisted on collateral security from millers, a basic requirement under any such contract. In other words, the former were fully prepared to let CMR be misappropriated by the latter. Needless to say, millers were diverting it to open market and make money.
The auditor has also raised doubts about whether genuine farmers got the minimum support price [MSP] for their paddy in states specially AP, Haryana, Punjab, Telangana and UP in the 2013-14 marketing season [October-September]. These states contribute more than 70% of paddy procurement carried out by FCI/state agencies. The payments were made without ascertaining the bonafides and genuineness of the farmers.
In short, CAG has un-masked flagrant misuse of India’s much touted food security program. The mis-appropriation of funds on such a gargantuan scale [estimated to be Rs 50,000 crores] was paid for by the tax payer as reimbursements to FCI and state agencies towards handling and distribution charges as subsidy. The malpractices easily passed muster as reimbursements were made on ‘actual’ basis devoid of any norms in regard to efficiency or cost.
What makes the scenario even more despicable is that all this is happening in the name of millions of poor farmers and poor consumers. And, it leads to ballooning subsidy [food subsidy alone accounts for over 50% of total subsidy payout by Union government], which makes the task of sticking to fiscal consolidation road map more and more difficult.
The revelations reflect on void in policy with regard to milling of paddy for Central pool as well as utter lack of proper checks and controls. It would be naive to surmise that authorities were unaware of what was going wrong. For instance, it is hard to believe that they could not figure out huge value that by-products fetch for millers. Likewise, payments to fictitious farmers or diversion of CMR clearly point towards malafide intent.
So, how do we deal with this malaise? For the past omissions and commissions, needless to say, law has to take its course to identify offenders, fix accountability and initiate prosecution where ever criminal intent to defraud the exchequer is established. For the future, in view of Modi’s emphasis on good governance and zero tolerance for corruption, there is reason to expect that loopholes will be plugged to prevent recurrence of such practices.
Despite fool proof control mechanisms, so long as controls exist requiring intervention by government machinery, officials will find ways to promote personal interest at the cost of exchequer. Therefore, it is always desirable to achieve the food security objective through policies that minimize scope for controls.
Two basic points in this regard are (i) assure a good price to farmers so that he is encouraged to produce more; (ii) ensure that poor consumers have access to food at ‘affordable’ price. At present, the government is trying to achieve these through all pervasive controls. But, this inevitably leads to kind of endemic problems [even brazen loot of exchequer] as brought out above.
A potent alternative to achieve these objectives is to make direct cash payments (i) to farmers equal to excess of MSP over their realization from sale [situations wherein MSP is lower than realization are very rare and most unlikely] and (ii) to poor consumers equal to excess of market price over the price considered ‘affordable’. The money can be directly credited to their bank account seeded with Aadhaar card [to ensure genuineness of the beneficiaries] under direct benefit transfer [DBT].
With the above arrangements for DBT in place, the government can dismantle the extant system of procurement by FCI/other state agencies and distribution through TPDS and open up food sector to private trade. The farmers will be free to sell their produce to any buyer of their choice viz., public, private, cooperatives etc. On the other hand, supplies from these multiple sources will help consumers access their food needs at best price.
The proposed dispensation will not only fully protect the millions of poor farmers and consumers thereby ensuring food security but also have other strongly positive spin-offs:-
(I) it will put an end to mammoth pilferage of precious resources – be it payments to ‘fictitious’ farmers or diversion of subsidized food to the market for profiteering or millers raking in moolah by selling by-products at exchequers expense.
(II) it will help in better targeting of subsidy by restricting it only to the poor in contrast to existing arrangements wherein millions of non-poor to get away with subsidized food. With mode of subsidy payments being changed to DBT, it is much easier to segregate the better-off and make them forego subsidy entitlement as we have already seen in case of LPG.
(III) Juxtapose I & II and we will have a massive reduction in subsidy outgo which will help the government in its fiscal consolidation efforts. After huge cut in oil subsidy [courtesy, drop in international price of crude oil], much needed reduction in food subsidy will give big relief in fiscal deficit.
(IV) With unshackling of food sector [post-dismantling of procurement by FCI/state agencies], there will be surge in availability in market place. This in turn, will reduce food prices as competitive pressures build up and stakeholders start investing in setting up of infrastructure for storage, handling and transportation [under extant intrusive controls, incentive is missing]. This will benefit all consumers.
Modi – government is well aware of the dire need for reform in food sector and implementation of DBT is already on its radar. However, the startling revelations in CAG report on how existing system is being brazenly misused should serve as a wake call and prompt it in to fast mode action.