How ‘food’ has become the real social safety net in pandemic

11 June 2021
UNDERSTANDING THE RURAL ECONOMY- A NEW SERIES BY CPR

The last one year has seen record PDS offtake,public procurement and stock buildup – and also export of rice and wheat from India

Harish Damodaran

Earlier this week, the Narendra Modi government extended the distribution of free foodgrains under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) for another five months till November 2021. The move reinforced the primacy of “food” – more specifically, rice and wheat channeled through the public distribution system (PDS) – in its social safety net programmes during the current pandemic.

Till 2019-20, annual offtake of rice and wheat from the Food Corporation of India’s (FCI) godowns averaged hardly 62 million tonnes (mt); it actually fell from almost 66 mt to just over 60 mt between 2012-13 and 2017-18. Much of this comprised PDS rations under the National Food Security Act (NFSA) of 2013. This law, passed during the previous United Progressive Alliance (UPA) regime (https://bit.ly/3pChsfv), entitles 81.35 crore Indians to receive at least 5 kg of wheat or rice per month at Rs 2 and Rs 3 per kg, respectively. The annual foodgrain allocation under NFSA – which includes a higher 35-kg monthly ration for 2.37 crore families identified as “poorest of the poor” under the Antyodaya Anna Yojana – is estimated at nearly 55 mt.  

Under PMGKAY, the NFSA beneficiaries were provided an extra 5 kg grain per month free of cost during April-November 2020. While that translated into an additional allocation of over 32 mt, actual lifting under PMGKAY, the Atmanirbhar Bharat Package (for returning migrant labourers) and assorted schemes launched in the wake of the Covid-19-induced lockdown last year totaled about 31.5 mt.

The chart below shows offtake of rice and wheat from the Central pool crossing an all-time-high of 93 mt during 2020-21, roughly 50% higher than the previous fiscal year. This was largely courtesy of PMGKAY, which has been re-launched this year as well, following the pandemic’s second wave. The Modi government initially allocated the 5-kg extra free grain per month to NFSA beneficiaries only for May and June 2021. But on June 7, the Prime Minister announced its extension up to Diwali, i.e. November. That is expected to, again, boost offtake by an estimated 28 mt in 2021-22.

Offtake is for fiscal year (April-March) and inclusive of lifting under other welfare schemes and open market sales.

Source: Department of Food and Public Distribution.

But it is not only food offtake that has hit an all-time-high. Government agencies have, as on June 9, procured 42 mt of wheat and 55 mt of rice from the 2020-21 crops. This, as can be seen from the next chart, has broken even the record 39 mt and 52 mt that got procured in the previous year. The Modi government has, in the post-pandemic period, both distributed as well as procured more rice and wheat than ever before!

Procurement is for crop year (July-June); figures for 2020-21 are as on June 9.

Source: Department of Food and Public Distribution.

While the spike in offtake is a result of the pandemic – free food has arguably been the single biggest relief intervention, ahead of even MGNREGA (another UPA legacy programme), for those worst affected by the economic disruptions after March 2020 – the increased procurement is, perhaps, a fallout of the movement against the Centre’s farm reform laws. The minimum support price (MSP) value of the paddy and wheat bought by government agencies since October 2020 – the three farm laws got passed the previous month – comes close to Rs 237,000 crore. Approximately 39% of that amount has gone to Punjab and Haryana, whose farmers have been at the forefront of the protests. The Modi government’s going all out to convince farmers, that its reform laws aren’t aimed at ending the MSP-based procurement regime, can be seen in paddy and wheat purchases from Punjab scaling new highs in the 2020-21 crop year. Record grain paddy procurement has been its strongest defense against allegations of being anti-farmer!  

This links up with a third record. Even after the unprecedented 93 mt-plus offtake, stocks of rice and wheat in the Central pool crossed the 100 mt-mark for the first time on May 1, surpassing the previous high of 97.27 mt reached on June 1, 2020. The chart below shows that stock levels have been rising since 2017, reversing a declining trend of the preceding 4-5 years.

Stocks include rice equivalent of un-milled paddy.

Source: Department of Food and Public Distribution.

If stock accumulation has primarily to do with the political economy compulsions of MSP-based procurement, Covid-time distress has actually provided an opportunity for whittling down FCI’s massive grain mountain. FCI’s “economic cost” of procuring, handling, transporting, storing and distributing grains was estimated at Rs 39.99 per kg for rice and Rs 27.40/kg for wheat in 2020-21. The subsidy on the 31.5 mt of grains (20.8 mt rice and 10.7 mt wheat) distributed free of cost under PMGKAY and other special relief programmes would have, then, worked out to around Rs 112,500 crore. The actual cost, though, would have been lower, because FCI also incurs interest and storage expenses in holding excess stocks in its godowns. This “carrying cost of buffer”, pegged at Rs 5.40/kg in 2020-21, is saved even when grain is given out free. The corresponding annual savings on 31.5 mt would have been in excess of Rs 17,000 crore. Similar savings would accrue on the 28 mt additional grain allocations under PMGKAY for 2021-22.

Source: Department of Commerce.

Now is the final record: 2020-21 saw all-time-high PDS offtake, government procurement and stock buildup. It also saw the country exporting a record 19.8 mt of rice and wheat. On paper, virtually this entire quantity that got shipped out was grain procured from the open market. According to the department of food and public distribution, a mere 75,000 tonnes of wheat and 4,000 tonnes of rice were exported from the Central pool in 2020-21. This was wholly on “humanitarian grounds” through the Ministry of External Affairs.

Foodgrain exports from India have been significantly aided by the surge in international prices. The UN Food and Agriculture Organization’s Cereal Price Index hit a 95-month-high in May. While the hardening of global prices has definitely helped, the competitiveness of Indian rice and wheat may have also been enabled by recycled/leaked grain from the PDS (https://bit.ly/3vjVm2I). Given the massive quantities that were offered free/near-free under PMGKAY/NFSA, it should not surprise if some of this grain got diverted to the open market or even exports.

But at the end of the day, it is the abundant crop produced by farmers that has made all four records – PDS offtake, procurement, stocks and exports – possible even amidst the country’s worst pandemic in over a century.

This note is part of the Understanding the Rural Economy series by CPR. Read other notes:

 

The views shared belong to individual faculty and researchers and do not represent an institutional stance on the issue.