Agriculture Reference
In-Depth Information
market arrivals in the state. Consequently, for the state governments, the stakes
are high to maintain India's dual pricing policy resulting from FCI's operations.
Cost Implications
Recent trends in the costs of maintaining India's procurement-stocking-distri-
bution paradigm seem to echo some of the problems that opponents of price
stabilization policies had predicted through their theoretical models (Timmer
1996). The system has become wastefully expensive, is dictated by special in-
terests, has hindered development of private trade, and consequently imposed
an increasing burden on society. In recent years not only have direct operational
costs increased, but stories of rent seeking, diversion of government foodgrains,
and undue influence of FCI's operations by special interests are making national
headlines as well. This section analyzes the trends and synthesizes available
narrative evidence of various cost components that are essential for maintain-
ing the current price stabilization system.
Reported Costs and Subsidies
Public costs of maintaining price stabilization in India have been increasing for
years, but sent a wake-up call to policymakers at the turn of the twenty-first cen-
tury. By 2002, public grain stock reached about 65 million tons, equivalent to
about 50 percent of total world-trade volume in a given year; total food subsidy
bills jumped from US$986 million in 1990/91 to about US$3.8 billion in
2002/03; buffer stock subsidy has increased from US$156 million in 1992/93
to an estimated US$1.6 billion in 2002. To put these numbers in perspective, in
2002/03, the food subsidy bill was equivalent to about 1 percent of national
gross domestic product (GDP), more than 4 percent of agricultural GDP, 6 per-
cent of total public expenditure, and about 50 percent of total capital expendi-
ture. Only a decade ago these numbers were barely half of what they are today.
Indirect Costs of Intervention
In addition to direct operational costs, maintaining the current system imposes
various forms of hidden costs to society, including costs of policy-induced mar-
ket distortions, costs of providing regulatory supports, and the inefficiency of
the parastatals and other organizations entrusted to implement the policies. Pro-
viding estimates of all these components of cost is beyond the scope of this vol-
ume, but key points can be highlighted by examining existing studies and con-
ducting some simple analyses. Discussions of system leakage and inefficiencies
are presented below.
LEAKAGE AND DIVERSION OF GOVERNMENT FOODGRAINS . All available
estimates, including the Government of India's own, suggest that leakage from
the system of public distribution is high. A 2002 study by Tata Economic Con-
sultancy Services (cited in GOI 2002a) reports that, at the national level,
31 percent of rice and 36 percent of wheat never reach the intended beneficiar-
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