Indian policymakers back in the 1950s believed they could easily live without free markets. Sitting in New Delhi, they would supplant the market with trial and error: Dictate some price or quantity; if supply and demand didn’t happen to match, keep adjusting the price or quantity till they did.
Judging by reports of rotting foodgrains by Mint and our sister publication Hindustan Times this week, it’s clear policymakers at the Food Corporation of India (FCI) and the Union agriculture ministry haven’t shed this belief. Their trial and error ends up only in massive errors: Over the past four years, 600,000 tonnes of grains have been lost in storage, 675,000 tonnes in transit.
Some solution to this problem lies, then, in improving storage and transit. FCI, for instance, promotes “open plinths” (meaning grain stocks aren’t covered), sometimes even leaving them out in the open. Warehouses aren’t big enough. It can try to change all this, but that would mean even more money. Given that FCI already spends more on distribution than procurement, perhaps private entities can do better. Of course, such piecemeal privatization shouldn’t be a panacea; in cases where FCI already works with the private sector, it can even be a placebo.
The actual problem is, admittedly, harder to solve. Even if the government wants to prevent food from rotting, can it really correct years of misguidance?
At its simplest level, the problem is that food rots because FCI procures more than it can store or transfer. The buffer stocks at the end of June came to 58 million tonnes, more than twice what it’s supposed to hold. FCI has ended up holding so much grain because it is required to buy whatever any farmer wants to sell to it. And any farmer would doubtless want to sell to FCI: The government’s minimum support prices (MSPs) for wheat and rice have shot up 65-70% in the last four years.
So what does the government do? Don’t increase MSPs, and farmers will stop voting. Keep procuring, and it will find itself contending not just with rotting food, but also spiralling food prices. After all, if the public knows that FCI stores grain in an inflexible buffer stock, it will expect prices to rise—the recipe for inflation.
If the real crux of the problem is so deeply entrenched, India has to start wondering if the solution has to be more radical. In a January editorial, we suggested that the Union agriculture ministry just be abolished. Once this sector is decentralized—once restrictions on inter-state food sales go away, for instance—foodgrains can travel freely and be bought and sold in a freer market.
That’s when India will finally abandon the fatal conceit that a policymaker in New Delhi can determine true supply and demand.
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