Why the govt has more cash, less grain to give

Source: The post is based on the article “Why the govt has more cash, less grain to give” published in The Indian Express on 17^th July 2023.

Syllabus: GS 3 – Agriculture – Issues of Buffer Stocks and Food Security

Relevance: About uncertainties over foodgrains production

News: The article describes the government’s food grain supply three years ago and its current situation.

What was the situation of foodgrains three years ago?

Three years ago, during the pandemic, both the center and the states did not have money to make large-scale cash transfers to poor and vulnerable households.

However, there was plenty of wheat and rice in the Food Corporation of India’s (FCI) warehouses. Due to which, there was enough distribution of these foodgrains.

Along with distribution, the three years from 2020-21 also saw all-time-high grain exports from India. Thus, there was surplus grain not only to give out free, but even to export in record quantities.

What is the present situation?

The situation has reversed today. Governments have money, due to the resumption of economic activity, but there has been a shortage of grains.

The newly formed Karnataka government sought additional grains from FCI to fulfill its poll promise of providing 10 kg of free rice per month to all members of below-poverty-line (BPL) households. However, the FCI refused to provide it.

Hence, the government in Karnataka is transferring cash into the bank accounts of beneficiaries. Thus, earlier there was grain but no money. Now, there’s not much grain, but governments have money to pay PDS beneficiaries.

Why is the FCI hesitant to provide additional grains?

The total stocks of wheat and rice in the Central pool on July 1, 2023, are at a five-year low. 

While these stocks are currently above the minimum required level, there are concerns regarding the monsoon and its potential impact on this year’s rice crop.

Although the country has experienced normal rainfall during the current monsoon season, major rice-growing areas, including Telangana, Andhra Pradesh, Chhattisgarh, Odisha, have faced significantly below-normal rainfall.

Additionally, the presence of El Niño, through the 2023-24 winter, raises concerns about the monsoon’s performance in the rest of the season. This can impact the production of not just the kharif rice, but even the upcoming rabi wheat crop.

Must Read: Protect rural incomes to tackle the current food security threat

What are the concerns present with exports?

Last year, due to a poor crop, the government banned wheat exports in May 2022. This was followed by a prohibition on exports of broken rice and the imposition of a 20% duty on non-parboiled non-basmati rice shipments in September.

However, despite these restrictions, the last two years registered record exports of rice and wheat.

However, with retail cereal inflation at 12.7% in June and monsoon-related production uncertainties, the government is considering additional curbs on rice exports.

What can be the way ahead?

India is the world’s largest rice exporter, with a 40.4% share of the global trade in the cereal. Therefore, given its position, it cannot import rice even for domestic production shortfalls; instead, it can only limit exports.

Moreover, if the FCI does not have surplus grain, it is possible that many states could follow Karnataka. However, from a macroeconomic perspective, opting for cash transfers has an inflationary effect, while distributing free grain is deflationary.