Indian Economy, 5th edition (34 page)

(c)
Environmental degradation
due to excessive and uncontrolled use of chemical fertilisers, pesticides and herbicides have degraded the environment by increasing pollution levels in land, water and air. In India it is more due to
deforestation
and extension of cultivation in ecologically fragile areas. At the same time, there is an excessive pressure of animals on forests—mainly by goats and sheeps).

II. Toxic Level in Food Chain
Toxic level in the food chain of India has increased to such a high level that nothing produced in India is fit for human consumption.
Basically, unbridled use of chemical pesticides and weedicides
and their industrial production combined together had polluted the land, water and air to such an alarmingly high level that the whole food chain had been a prey of high toxicity.

Conclusion

The above studies and the report were eye-openers in the area of ecologically non-sustainable kind of agriculture as well as a big question mark on it. This was the time when agro-scientists suggested for a really ‘green’ (eco-friendly) green revolution which is today known among the experts with many more names-the
evergreen revolution,
the
second—
green revolution
the
green farming.

Minimum SupPort prices (MSP)

The Government of India started announcing the Minimum Support
p
rices (MSP) in 1966–67 for wheat which was expanded to cover many more crops in the coming years in the wake of the Green Revolution which might have resulted into fall in prices of wheat depleting farmers’ profit. It is a minimum price at which the government will purchase farmers’ crops—whatever may be the market price for the crops.
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Procurement Prices

Besides the minimum support prices (MSP) which was announced before sowing started, the government started announcing procurement prices (after the harvesting of the crops) at which it purchased the crops from the farmers. Procurement prices were announced higher than the MSP since the government was lagging behind when its foodgrain procurement required to maintain the buffer stocks. But this increased price hardly served the purpose as a suitable incentive to farmers. It would have been better had it been announced before sowing and not after harvesting. Since the fiscal 1968-69 the government announced only the MSP which is considered the procurement price, too.
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Issue Price

The price at which the foodgrains are allowed by the government to offtake from the FCI—this is the price at which the FCI sells its foodgrains. The FCI has been incurring huge losses in the form of food subsidies.
27

The government-procured foodgrains are stored temporarily in the concerned states of their purchase and then transported to their decided FCI godowns as part of the buffer stock. From here they head to the sale counters. The transportaion, godowning, the cost of maintaining the FCI, grain losses make the foodgrains touch higher price that are never affordable by the masses. That is why the issue prices have never been market-based prices. The gap is considered as the element of the food subsidy in India.

Buffer Stock

India has a policy of maintaining a minimum reserve of foodgrains (only for wheat and rice) so that food is available throughout the country at affordable prices round the year. The main supply from here goes to the public distribution system (now TPDS) and at times goes to the open market to check the rising prices if needed. As per the current Buffer
s
tocking Policy
28
of foodgrains, the minimum stocks on different dates is required to be mentioned given below:

Date             Wheat       Rice        Total

1
st
April             4.0         12.2          16.2

1
st
July              17.1          9.8          26.9

1
st
October       11.0          5.2          16.2

1
st
January          8.2         11.8         20.0

ECONOMIC COST OF FOODGRAINS

The economic cost of foodgrains consists of
three
components, namely the MSP (and bonus if applicable) as the price paid to the farmers, procurement incidentals, and the cost of distribution. The economic cost for both wheat and rice witnessed significant increase during the last few years due to increase in MSPs and proportionate increase in the incidentals between the period 2002-03 and 2010-11 per kg burden on wheat and rice has increased to Rs. 15 (from Rs. 9) and Rs. 20 (from Rs. 12 ), respectively
29
.

Decentralised Procurement
Scheme

The decentralised procurement scheme of the Government of India that is in operation since 1997 has evoked good response from the State Governments. Under this scheme, the designated States procure, store and also issue foodgrains under TPDS. The difference between the economic cost of the State Governments and the central issue price (CIP) is passed on to the State Governments as subsidy. The decentralised system of procurement, helps to cover more farmers under the MSP operations, improves efficiency of the PDS, provides varieties of foodgrains more suitable to local taste, and reduces the transportation costs of the FCI
30
.

RISING FOOD SUBSIDY

Provision of minimum nutritional support to the poor through subsidised foodgrains and ensuring price stability in different states are the
twin objectives
of the food security system. In fulfilling its obligation towards distributive justice, the government incurs food subsidy
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. While the economic cost of wheat and rice has continuously gone up, the issue price has been kept unchanged since 1 July, 2002. The government, therefore, continues to provide large and growing amounts of subsidy on foodgrains for distribution under the TPDS, other nutrition-based welfare schemes, and open market operations. The food subsidy expenditure
31
has increased substantially in the past few years putting severe strain on the public exchequer from a total of Rs. 17,494 crore in 2001-02 it has gone to the level of Rs. 62,929 crore by 2010-11. The fiscal outgo is expected to be more once the proposed National Food Security Act is implemented.

NATIONAL FOOD SECURITY BILL

The National Food Security Bill was introduced in the Lok Sabha on 22 December, 2011. As per the provisions of the Bill, it:

•
Is proposed to provide 7 kg. of foodgrains per person per month belonging to priority households at prices not exceeding Rs. 3 per kg of rice, Rs. 2 per kg of wheat, and Rs. 1 per kg of coarse grains and to general households not less than 3 kg of foodgrains per person per month at prices not exceeding 50 per cent of the MSP for wheat and coarse grains and derived MSP for rice.

•
It will benefit up to 75 per cent of rural population (with at least 46 per cent belonging to priority households) and up to 50 per cent of urban population (with at least 28 per cent belonging to priority households), besides providing nutritional support to women and children and meals to special groups such as destitute and homeless, emergency and disaster affected, and persons living in starvation. Pregnant and lactating women will also be entitled to maternity benefit of Rs. 1,000 per month for six months.

•
In case of non-supply of foodgrains or meals, entitled persons will be provided food security allowance by the concerned state/UT governments. Provisions for reforms in the TPDS such as doorstep delivery of foodgrains, application of information and communication technology (ICT) including end to end computerisation, leveraging ‘aadhaar’ for unique identification of beneficiaries have also been made in the Bill. 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.

SUGAR SECTOR REFORMS

India is the largest consumer and second largest producer of sugar after Brazil. Sugar and Sugarcane are notified as essential commodities under the Essential Commodities Act 1955. The production of sugarcane during 2012-13 is estimated at 334.54 million tonnes. However, the Indian sugar sector suffers from policy inconsistency and unpredictability. The Sugar industry in India is over-regulated and prone to
cyclicality
due to price interventions. Deregulation of the sugar industry has been widely debated for a long time. From a purely economic point of view, greater play of market forces would provide better prices and serve the interests of all stakeholders. The government should come into the picture only in situations where absolutely necessary. Export bans and controls could be replaced with small variable external tariffs to stabilize prices.
A report on
‘Regulation of the Sugar Sector in India: The way forward’
has been submitted by the Committee under the chairmanship of Dr C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister – the measures suggested are as follows
*
–

a.
phasing out cane reservation area;

b.
dispensing with minimum distance criteria;

c.
dispensing with the levy sugar system;

d.
states that want to provide sugar under the PDS may procure it from the market according to their requirement, fix the issue price and subsidize from their own budgets (Till April 4, 2013, when the GoI ‘decontrolled’ the sugar industry from the burden of ‘levy’ to the tune of 10 per cent of their total production, there was an implicit cross-subsidy on account of the levy as sugar mills were under a transition). The Report suggested some level of central support to help states meet the cost to be incurred on this account may be provided for a transitory period (which has been announced on April 4, 2013);

e.
dispensing with the regulated release mechanism (of non-levy) sugar;

f.
stable trade policy;

g.
no quantitative or movement restrictions on byproduct like molasses and ethanol and dispensing with compulsory jute packing.

h.
a stable, predictable, and consistent policy reforms to be brought about in a fiscally neutral manner and issues considered for implementation in a phased manner.

In the meanwhile, following on the path of ongoing
‘factor market reforms’
the GoI decontrolled the sugar industry in
April 2013
– effective for the ‘sugar year’ September 2012 - August 2013. It abolished the decades-old practice of regulating ‘how much sugar a mill can sell in the open market’ and the ‘levy’ system in which a company is forced to sell 10 per cent of the output at a loss to the FCI for supplies through the PDS (Public Distribution System) – they will be no more under the levy obligation. The
next move
of reform may be ‘linking sugar and sugarcane prices’. To continue subsidised supply to the poor, states will now have to buy sugar at market rates and maintain the existing PDS sale price of Rs 13.50 per kg, which has not been revised for a decade and is substantially lower than the average market price of Rs. 35 per kg.

EDIBLE OIL ECONOMY

India is one of the largest producers of oilseeds in the world. However, 50 per cent of its domestic requirements are today, met through imports, out of which crude palm oil and the RBD (Refined, Bleached and Deodorised) palmolein constitute about 77 per cent and soyabean oil constitutes about 12 per cent. The
Economic Survey 2012-13
provides some valuable and timely advisory inputs on the ‘edible oil sector’ of India in the following way –

i.
Import dependence was about 3 per cent during 1992-93. The production of oilseeds, though it has increased in recent years (from 184.40 lakh tons in 2000-01 to 297.99 lakh tons in 2011-12), it has not kept pace with the demand for edible oils in India. Imports have helped raise the per capita availability of edible oils which has increased from 5.8 kg in 1992-93 increased to 14.5 kg in 2010-11.

ii.
One instrument for promoting future domestic production is calibration of the import duty structure. Large imports of edible oils are primarily due to competitive prices of edible oils in the international market and the import duty structure which has been sharply reduced to
near zero
levels over time to protect consumers – India has such a high market share (in the world edible oil imports) that allows it to set some independent tariff policy that can meet both goals better.

iii.
Considering the situation, it is time to frame a price band for edible oils in a manner that harmonizes the interests of domestic farmers, processors, and consumers through imposition of import duty at an appropriate rate.

iv.
The import duty would also generate revenue, which could also be utilized for an ‘oilseeds development programme’.

v.
Recently the tariff value of all edible oils (which had remained unchanged since 2006) was updated to market levels. This is a right step for aligning the tariffs to current prices for edible oils in the international market. By freezing the tariff value, imports had become more attractive than domestic refining. Over time, domestic oil palm production may also gain.

vi.
India is also fortunate in having a wide range of oilseed crops grown in its different agro-climatic zones, including high-value premium crops. Recently, export of edible oils in branded consumer packs upto 5 kg has been allowed without any quantitative limit having minimum export price (MEP) of US $ 1500 per ton in order to encourage export of high value premium edible oils. Farmers respond to prices. The aim of policy is to consistently enhance their competitiveness.

AGRICULTURAL MARKETING

The role of the agriculture market
32
is to deliver agricultural produce from the farmer to the consumer in the most efficient way. Agriculture markets are regulated in India through the APMC Acts. According to the provisions of the APMC Acts of the states, every APMC (Agricultural Produce Marketing Committee) is authorised to collect market fees from the buyers/traders in the prescribed manner on the sale of notified agricultural produce. The relatively high incidence of commission charges on agricultural/horticultural produce renders their marketing cost high, which is an undesirable outcome. All this suggests that a single point market fee system is necessary for facilitating free movement of produce, bringing price stabilisation, and reducing price differences between the producer and consumer market segments. Another point to be highlighted is that the cleaning, grading, and packaging of agricultural produce before sale by the farmers have not been popularised by these market committees on a sufficient scale.