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Reducing Subsidies: Let’s Focus on Food Wastage, and Not Procure and Store 50% More Than Required, Please?

The Food Corporation of India continues to have very high stocks of wheat and rice, but it’s beginning to moderate. We are still storing stocks that are 50% higher than even the revised buffer requirements due to the Food Security Act (which were increased from earlier norms by over 1/3rd).

Here’s the current buffer stock of Wheat and Rice (which is pretty much more than 95% of what FCI procures):

image

According to a Business Standard Article, the government will change the buffer norms (the black line above) to the following:

image

 

We currently have 48 million tonnes (480 lakh tonnes) in stock. This is higher than even the upwardly revised norms of 33 million tons by about 50%!

Subsidy Blowout

A less spoken about part of the budget this year was: The Food Subsidy for 2014-15 is going to be 123,000 cr., which is 33,000 cr. higher than the expenditure budgeted in July last year of 90,000 cr.

We just overshot our subsidy budget for food by 35%!

Our View: Clean This Up

I would encourage everyone to read this excellent summary of the Shanta Kumar Report on the FCI. FCI staff get over Rs. 4 lakh a month as salary, procure from a very small set of states, and stock way above the buffer norms.

This needs to be cleaned up. We saved 30,000 cr. on the oil subsidy last year, just to pay it out to FCI. FCI procures only from rich farming states – and only 4 to 5 states benefit – which means the “subsidy” is going only to a few pockets.

Asking everyone else to give up LPG subsidy is okay, but it’s more important to see the bigger picture of subsidies themselves. The sheer size and wastage in the Food Subsidy makes the LPG thing pale in comparison. It’s time to reduce that dramatically, and immediately, just as we desperately beg people to pay Rs. 200 more per cylinder if they can afford it.

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  • What an irony – we are stocking up on something which we can anyway grow at home. On the other hand, after 65 years of independence, we have not thought it fit to stock up on oil reserves, where we are overwhelmingly dependent on imports. Against a strategic reserve of 696 million barrels of U.S. & 91 million of China, India reported has virtually Nil reserves (though some capacity of around 15-20 is reportedly currently under construction).

  • kumar says:

    this is a sensible suggestion, and i think it will be rejected outright by the powers in power.
    it has been the fashion so far to increase the targets each year, even in case of past failures to achieve the same said targets. and god forbid, someone would be dedicated to inquire as to why past targets were never achieved.
    even in case of a downward economy, the collection targets HAVE to be higher than the targets of the past year, no other thought is allowed.
    it is better that the collected grains rot in the godowns than they be given out to the population, i think the courts tried to tackle this issue, but were unsuccessful, when confronted with politically wise folks.

  • kumar says:

    what next deepak?
    are you going to say that government should not spend more money than it has, banks should not lend more money than they have, institutions should follow the rules they create?
    those that do not live beyond their means lack imagination 🙂
    amongst all this ‘sacrifice your subsidy’ talk, i am not hearing that the parliament canteen is altering its price structure to reflect the reality of the real world. or that it has taken steps to implement the everyone’s favorite DBT scheme.
    after all, the next step in the DBT scheme is going to be non-depositing of the subsidy amounts. who are you going to complain to. 😉