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Fiscal Steps to Ensure Food Security

Fiscal Steps to Ensure Food Security

The Coronavirus pandemic has resulted in a looming crisis for the world and Indian economies. According to the IMF projections, India’s GDP is demonstrated to grow at 1.9%, which has since been downgraded to nerly 0.2-0.5% by a number of rating agencies. One of the most serious consequences is expected to be on the food security. The extension of the countrywide lockdown to combat the novel coronavirus disease (COVID-19), though necessary, will cause a new suspension of labour and no wages and sources for people to support themselves and their families.

The activities in services and manufacturing which offer non-essentials could also be suspended, though with severe consequences. However, agricultural operations can’t be postponed for much longer. Any delay may disturb the assembly system and affect India’s food security.

The food supply scenario is largely satisfactory but a challenge to India’s food security can emanate from the demand side.

 

Therefore, the Union also as state governments, tries hard to resume agriculture-related activities. The rabi harvest will be starting soon, and most farmers are struggling thanks to the shortage of mobility of labour, machinery and necessary equipment during this lockdown period. Apart from logistical and administrative problems, farmers face financial crunch at a time when the rabi crop is prepared to be harvested. Therefore the Kharif season is to start soon.

Lack of credit within the agrarian economy may cause the distressed sale of produce to non-public traders and money lenders, which will distort food supply management within the near future. Thus, credit provisioning to the agrarian economy is crucial in maintaining food reserves within the country. During this context, allow us to discuss the status of grain stocks in India and what actions are needed in easing farming operations during this significant period.

According to UN FAO, the 4 pillars of food security are access, availability, utilization and stability. These indicate the economic access to food; physical availability of food; absorptive capacity and stability of the availability & access. Access and availability become extremely important in the present context.

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The amount of food grains in buffer stocks which has been put aside for the central pool by the Food Corporation of India (FCI) is predicated on the principles of operational stocks and strategic reserve. Operational stock is required for normal distribution of food grains to the beneficiaries covered under the National Food Security Act also as other various welfare schemes of the govt. The strategic reserve is maintained to satisfy the availability constraints.

So, five million tonnes of grain is maintained under strategic reserve throughout the year. Similarly, this stocking norms for operational stocks varies from 16 million tonnes on April 1st to 36 million tonnes on Dominion Day per annum. As a part of the Pradhan Mantri Garib Kalyan Anna Yojana, the Union government announced a further five kgs of rice/wheat per month to be distributed free from cost to every beneficiary covered under the general public distribution system for three months. This would benefit on the brink of 81 crore people within the country and need 12.14 million tonnes of food grains, both wheat and rice. As on March 1st 2020, the country had a grain stock of 58.5 million tonnes, consisting of 31 million tonnes of rice and 27.5 million tonnes of wheat within the central pool.

Over the past few years, India’s procurement-based food security provisioning has been criticised by various quarters, including the meetings of the planet Trade Organization. Still, one shouldn’t undermine the necessity and importance of such a procurement-based subsidised distribution system at the time of an epidemic like COVID-19. The system of procurement should still feed 1.35 billion Indians while the whole country is locked right down to fight against the spread of COVID-19. The govt. of India, through FCI and therefore the state governments or their agencies should procure rabi crops immediately before farmers are compelled to sell their produce to intermediaries in villages.

The distress sale to ease the cold cash required for Kharif preparation is often averted if procurement happens at the village level. It’ll not only help farmers get the special price of their produce, but also make sure that food grains stocks are maintained for months to return.

But before the procurement of rabi crops, there’s a requirement to deal with the matter of fund crunch within the agrarian economy which is hindering the harvesting of rabi crops also as initial work for Kharif. Until these actions are taken on time, supply constraints will cause another crisis, and no amount of money supplements are going to be ready to fetch minimum grain for survival within the coming days.

Re-prioritize actions

Reviving the agriculture sector was one among the main thrusts of the incumbent government. A series of interventions are attempted to deal with the agrarian crisis within the nation in recent years.

A target was set in order to double the farmers’ income by 2022, taking 2015-16 because of the base year through a variety of schemes and programmes like Pradhan Mantra Kisan Samman Nidhi (PM-KISAN), Pradhan Mantri Fasal Bima Yojana (PMFBY), increase in Minimum Support Price etc.

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As a consequence, the share of the agriculture sector’s budget within the total Union Budget increased to 7.3 per cent in 2020-21 (Budget Estimates), from a mere 2.2 per cent in 2017-18 (Actual). It’s crucial to spotlight that budget allocation to cash-related schemes like PM-KISAN, PMFBY, subsidy and interest subvention constitute around 81 per cent of the entire budget allocations of the agriculture sector. When the share of components like these of the budgetary expenditure is extremely high, there’s far more flexibility with the govt to re-prioritise such public expenditure interventions, sometimes when things demand per this scheme, the Centre transfers an amount of Rs 6,000 annually, in three equal instalments, straight into the bank accounts of the registered farmers.

As a response to COVID-19, the govt. of India announced an advance release of the first instalment of Rs 2,000 to every of the 8.69 crore beneficiary farmers. Therefore, no such extra amount has been allotted to the agriculture sector under the stimulus package announced by the Centre in response to COVID-19. The govt should have allocated extra funds beyond the supply already made under PM-KISAN, that might have helped farmers in some ways. Secondly, rather than expecting the scheduled period to pay the second and third instalments to farmers, the govt should decide to transfer the funds now, when the farmers face a funds crunch in taking over farm operations for Kharif cultivation.

The requirement for provisioning cheap credit and reaching bent farmers

Farmers are in dire need of funds due to the rabi harvest, preparatory work for Kharif cultivation and private consumption purposes.

No one would quibble on the very fact that a significant proportion of cultivators are still dependent upon credit from non-institutional sources like commission agents and traders thanks to the straightforward availability of credit. Moreover, India’s eastern states are highly hooked into informal sources of credit which come at an extremely high rate of interest. It was reported by the farmers that thanks to fear of repayments of loans, there has been a pointy decline within the supply of credit from non-institutional sources currently when there’s a great need of credit to buy labour, machinery and other inputs during the rabi harvest. The results of farmers facing a shortage of funds would be destructive.

The Union government allocates funds under the Interest Subvention category for agriculture and allied sectors that ensures two per cent subsidy on the rate of interest for agricultural loans. Besides, a further three per cent incentive is given to farmers for prompt repayment of the loan, thereby reducing the effective rate of interest to four per cent for farmers. For the present financial year, the Centre has allowed Rs 21,175 crore as interest subvention. The Union government has aimed to inject Rs 15 lakh crore in credit to agriculture and has allied sectors via different channels during this fiscal.

Since the Union government has already announced the credit flow to the agriculture sector, there’s a requirement to re-prioritize the actions. The utmost amount of this credit target should be disbursed at the earliest so that the rural cash-starved industry can drive the wheel of the economic process. Besides these provisions to supply credit, there are bottlenecks in availing the institutional loan. The norms to avail institutional credit must be relaxed a minimum of during the time of this crisis. One of the foremost challenging tasks would be the disbursement of credit to those farmers who don’t have land rights or any collateral against an institutional loan.

Similarly, both, PM-KISAN and therefore, the interest subvention scheme for institutional credit often exclude sharecroppers and tenant farmers who constitute a high share within the farming community. Timely and appropriate actions on the fiscal front are urgently required from both the Union and state governments before this community is pushed further to the margins. Therefore, the food supply scenario is greatly satisfactory but a challenge to India’s food security can emerge from the demand side. A prudent policy of direct food distribution and payments is urgently called for.