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Summary
Economics Class 34

A BRIEF DISCUSSION OF THE PREVIOUS CLASS (5:00 PM)

PUBLIC DISTRIBUTION SYSTEM, PDS (5:04 PM)

  • Terms related to PDS
  • FCI
  • It was set up under Food Corporation Act to fulfill the following objectives:
  • 1. Distribution of food grains throughout the country for PDS
  • 2. Maintaining a satisfactory level of operational and buffer stocks to ensure National Food Security
  • 3. Effective price support operation for safeguarding the interest of farmers
  • 4. To meet the emergency arising out of unexpected crop failure, natural disasters, etc.
  • Central Issue Price
  • Prices at which central government or FCI sells foodgrains to state governments for implementing TPDS (Targeted PDS)
  • Food grains are supplied to BPL (Below Poverty Line) families at a cost lower than the economic cost of FCI
  • The economic cost of FCI comprises procurement prices of food grains i.e. procurement cost, along with the cost of distribution
  • Fair Price Shops, FPS
  • Essential commodities like rice, wheat, sugar, iodized salt, and kerosene, etc. are distributed to the targeted cardholders as per eligibility and rates fixed by the government
  • Minimum Support Price, MSP
  • It is recommended by Commission for Agricultural Costs and Prices (CACP)
  • CACP takes into account several factors like cost of production, changes in input cost, demand-supply, and other micro and macro level data to determine MSP for the season
  • Benefits of MSP
  • It ensures stable income for the farmers
  • The stability of prices ensures the stability of supply fie the next season as well
  • It acts as insurance against price volatility
  • It allows harmers to be able to use higher returns to invest in mechanization
  • Challenges/Issues of MSP
  • 1. Calculation issue
  • Currently, MSP is calculated using actual cost i.e. A2 + FL, where A2 is the actual  cost and FL is the imputed cost of family labor
  • MS Swaminathan and the farmers wanted MSP to be calculated based on comprehensive cost (C2)
  • C2 includes imputed rent on land and interest on capital which makes the cost much higher than the level used by CACP
  • According to NSSO data, only 6% of the farmers are benefitting from MSP
  • 2. MSP is leading to cereal-centric production and reducing  crop diversification
  • 3. MSP distorts the market because the government procurement agency procures, 70-% of rice and wheat forcing out private players
  • 4. The exploitation by the commission agent (or middlemen) defeats the purpose of MSP
  • Issues associated with the PDS system
  • Identification of beneficiary
  • TPDS is prone to large exclusion and inclusion errors
  • This implies that entitled beneficiaries are not getting food grains
  • According to data, PDS suffers from approximately 60% exclusion errors and 25% inclusion errors
  • Leakage of foodgrains
  • TPDS suffers from large leakages of food grains during transportation to and from ration shops into the open market
  • As per data from 2011-12, PDS leakage is up to 46%
  • Procurement issues
  • Open-ended procurement followed by FCI with respect to rice and wheat increases the fiscal burden of the government and also creates a shortage in the open market
  • Issues with storage
  • A performance audit by CAG has revealed a severe shortfall in the government storage capacity
  • The provision of MSP has encouraged farmers to focus mainly on rice and wheat, discouraging crop diversification
  • Inconsistent Quality
  • Corruption
  • Measures taken to reform PDS (6:00 PM)
  • One Nation One Ration Card or integrated management of PDS
  • The objective of the program is to have a nation with the portability of ration cards under the NFSA
  • Through this system, migratory ration card holders can lift their entitled foodgrains from any FPS in India
  • Technology-based reforms as suggested by the Wadhwa Committee
  • Technology-related reforms help in plugging leakages 
  • Automation of FPS, through the installation of electronic point-of-sale devices
  • States such as Chattisgarh and Madhya Pradesh have implemented IT measures  to streamline TPDS through the digitalization of ration cards and the use of GPS tracking to track the movement of trucks carrying foodgrains
  • Computerized allocation of FPS, for example, declaration of stock balance, web-based truck challans, etc.
  • Issuing smart cards
  • PDS and UID synergy to identify the right beneficiary through biometric authentication
  • Implementing universal PDS e.g. Tamil Nadu
  • Shanta Kumar Committee recommendation on PDS
  • Procurement
  • No open-ended procurement model
  • Appropriate quality check mechanism
  • Popularize warehouse receipts
  • Decentralized procurement model
  • Transportation
  • Containers instead of gunny bags
  • Focus on mechanization
  • Voluntary retirement to permanent staff
  • Storage
  • Optimization of storage
  • Stock Forex
  • Use silos
  • Building appropriate warehouses and cold storage facilities using PPP finance
  • Distribution
  • National Food Security Act should focus on covering 40% of the population, instead of 67%
  • Six-month ration at once
  • Direct benefit transfer to the lady of the house
  • Criticisms against recommendation
  • WTO vs welfare (adhering to amber box subsidies rather than welfare)
  • Trade Unions vs scheme
  • Privatization with respect to food security may increase the cost
  • Stocking critical forex resources may not be an appropriate option
  • Recommendations were based on NSSO data which may not be accurate
  • Open Market Sales Scheme, OMSS
  • The central government recently discontinued the sale of rice and wheat from the central pool under the OMSS to state governments
  • Under OMSS, FCI sells surplus stocks of wheat and rice at predetermined prices through e-auction in the open market
  • The main objective is to enhance the supply of food grains, especially wheat during the lean season to moderate the open market prices, especially in the deficit regions
  • FCI conducts weekly auctions using the platform of National Commodities and Derivatives Exchange Limited
  • The state government and UTs also participated in the e-auction if they require wheat and rice outside the TPDS and other welfare schemes
  • The reserved price is fixed by the government and the tenders are floated by FCI
  • The bidders cannot quote less than the reserve price

LAND REFORMS (7:00 PM)

  • At the time of independence, there were three types of land tenure systems prevalent in the country Zamindari, Mahalwari, and Ryotwari
  • In all three systems, the usual practice adopted was to get the land cultivated by tenants
  • there are three types of tenants, occupancy tenants, tenants at will, and subtenants
  • Occupancy tenants enjoy permanent and heritable rights on land
  • They had the security of tenure and could claim compensation from the landlord for any changes effected on the land
  • Tenants at will did not have any security and could be evicted from the land, based on landlords' discretion
  • The position of subtenants was similar to the position of tenants at will
  • The only difference was that the sub-tenants were appointed by occupancy-tenants
  • Objectives of land reforms
  • To eliminate all forms of exploitation and social injustice within the agrarian system
  • To provide security to the tiller of the soil
  • Ensure equality of status and opportunities to all the sections of the rural population
  • To remove intermediaries and increase the efficiency of agricultural production
  • To achieve the above objectives land reforms focus on the following aspects:
  • 1. Abolition of intermediaries
  • 2. Tenancy reforms
  • 3. Reorganisation of agriculture
  • Abolitoin of intermediaries
  • Even before independence, it was widely recognized that the main cause of stagnation in the economy was the stagnation in the agricultural sector
  • This could be largely attributed to exploitative agrarian relations
  • The chief instrument of exploitation was the zamindar promoted and patronized by the alien government
  • Approximately 57% area of the country was under Zamindari System
  • In some states, legislation was passed for their abolition, even before 1951, but most of it was implemented during the period of the first Five-Year Plan
  • The process of initiation and passage of the bill for the abolition of zamindars has taken a very long time, for example, in Uttar Pradesh Zamindari Abolition Act took four and a half years to become a law
  • Once the stage of legislation is completed, new difficulties were realized during the implementation
  • Zamindars were not willing to lay down their lands and turned to Courts and the legal battle between zamindars and state government took an unduly long time
  • In spite of losing the battle, zamindars refused to handover and other documents
  • The biggest loophole in the legal system was the one pertaining to the permission to obtain land for personal cultivation (zamindars could evict tenants for this purpose)
  • Personal cultivation was loosely defined to include personal supervision by the zamindars or members of his family
  • In the second Five Year Plan, the definition of personal cultivation was modified by including aspects like the risk of cultivation, labor, and personal supervision
  • Though the official document claim that, the Zamindari system has been completely abolished, the fact is that it has originated in a different format
  • They are now designated as big landowners, and along with rich peasantry a dominant class of rural capitalists has emerged
  • Despite the above observation, the government was successful in reducing the exploitation and oppression of tenants and reforming the rural feudal structure of the country

Topics for the next class: continuation of Land Reforms