Central idea

• Three years ago, financial constraints prevented the Centre and states from providing cash transfers to vulnerable households during pandemic lockdowns. However, there was an abundance of wheat and rice in FCI’s warehouses, allowing distribution to 813.5 million people. However, the current scenario has reversed, with governments having funds but limited grain stocks, raising concerns for future provisions.

Grain Distribution and Export Scenario

Grain Distribution:

• During the pandemic-enforced lockdowns the government distributed 10 kg of grain per month practically free to 813.5 million people from April 2020 to December 2022.
• This distribution was made possible through the public distribution system (PDS) and aimed to support poor and vulnerable households suffering from job and income losses.

Offtake of Grains:

• 2020-21 (April-March): The offtake of wheat and rice totalled 92.9 million tonnes, surpassing the annual average of 62.5 million tonnes during the first seven years after the National Food Security Act (NFSA) implementation.
• 2021-22: The offtake further increased to 105.6 million tonnes.
• 2022-23: The offtake remained high at 92.7 million tonnes.

Grain Exports:

• Rice: In 2021-22, India exported 21.2 million tonnes of rice, valued at $9.66 billion. In 2022-23, rice exports reached 22.3 million tonnes, valued at $11.14 billion.
• Wheat: Wheat exports accounted for 7.2 million tonnes ($2.12 billion) in 2021-22 and 4.7 million tonnes ($1.52 billion) in 2022-23

Karnataka Case: Shift from Grain to Cash Transfers

• Change in Financial Situation: As economic activities resumed, the financial situation improved for both the Centre and the states. Gross GST revenues grew, indicating increased financial resources available to the governments.
• Reduction in Grain Quota: From January 2023, the monthly grain quota under the National Food Security Act (NFSA) was reduced from 10 kg to 5 kg per person.
• Additional grain demand: The government in Karnataka sought additional grain from the FCI to fulfill its election promise of providing 10 kg of free rice per month to all members of below-poverty-line (BPL) households.
• Centre’s Refusal: The Centre did not allow the state government to distribute the extra rice beyond the 5 kg provided under the National Food Security Act (NFSA)
• Resort to Cash Transfers: As a result the Karnataka government started giving cash transfers instead. They started transferring Rs 170 to the bank accounts of the BPL family heads in lieu of the extra 5 kg of rice

Implications of cash transfers 

• Inflationary Pressures:
• When households receive cash instead of free grain, they have the flexibility to use the money for various purposes, including purchasing rice or other goods.
• Increased demand for rice in the market can lead to higher prices, potentially contributing to inflationary pressures.
• Deflationary Impact of Free Grain Distribution:
• When surplus grains are distributed without a monetary transaction, it can help stabilize or reduce the prices of grains in the market.
• This can mitigate inflationary pressures and ensure affordable access to essential food items for vulnerable populations.
• Budgetary Considerations:
• This allocation needs to be carefully managed to ensure that it aligns with overall fiscal goals and priorities.
• The availability of adequate financial resources for cash transfers can be a determining factor in choosing between cash transfers and free grain distribution.
• Flexibility for Beneficiaries:
• Instead of receiving a predetermined amount of grain, households can decide how to allocate the cash according to their priorities.
• This flexibility allows households to address their unique requirements beyond food, such as healthcare, education, or other essential expenses.
• Market Dynamics:
• Cash transfers can stimulate economic activity by injecting money into local markets. This can have positive multiplier effects, benefiting various sectors and local businesses.
• On the other hand, free grain distribution may limit the market demand for grains, potentially affecting the livelihoods of farmers and traders.

Depleted grain stocks and uncertain monsoon

• Depleted Grain Stocks:
• The total stocks of wheat and rice in the Central pool today stands at a five-year-low.
• While these stocks are still above the normative minimum required, there are concerns about the monsoon and its impact on this year’s rice crop, which may affect procurement and future stocks.
• Monsoon Impact on Production:
• The poorly distributed rain has resulted in lower-than-usual rice cultivation, with farmers having planted only 123.18 lakh hectares out of the normal total of 399.45 lakh hectares under rice during the monsoon season. Additionally, the cumulative area sown is 6.1% lower than the previous year.
• Insufficient rainfall in the monsoon’s second half can impact not only the kharif rice but also the upcoming rabi wheat crop.

The Export conundrum

• Record Export Quantities: Despite the imposition of restrictions on grain exports, India witnessed record-breaking exports of rice, wheat, and other cereals. Specifically, total exports amounted to 32.3 million tonnes in 2021-22 and 30.7 million tonnes in 2022-23, valued at $12.87 billion and $13.86 billion, respectively.
• Inflationary Pressures:  The rising demand for rice, coupled with reduced domestic availability due to exports, can lead to higher prices for consumers within the country.
• Limited Import Capability for Rice: As India is the world’s largest rice exporter, importing rice in case of domestic production shortfalls becomes challenging. Unlike wheat, which can be imported due to ample global supplies, rice imports are restricted.
• Price Volatility and Potential Export Restrictions: The rising rice prices globally, indicating potential price volatility. Given concerns over depleted grain stocks and uncertainties related to the monsoon, the government is considering additional export restrictions.

Way forward: A balanced approach

• Targeted Cash Transfers: Implement focused cash transfer programs to support the most vulnerable households affected by economic hardships.
• Optimal Grain Procurement: Strengthen grain procurement mechanisms to ensure an adequate supply of grains for the Public Distribution System (PDS) and strategic reserves.
• Strategic Stock Management: Develop effective strategies to balance grain distribution for immediate consumption while maintaining sufficient reserves for emergencies.
• Diversify Food Sources: Explore diverse food options, such as millets, pulses, and vegetables, to reduce reliance on a single crop and enhance food and nutritional diversity.
• Enhance Food System Resilience: Improve supply chain efficiency, reduce food waste, and enhance coordination among stakeholders for a resilient food system.
• Continuous Monitoring and Evaluation: Establish robust monitoring and evaluation systems to track the effectiveness of cash transfer programs, grain procurement strategies, and food security initiatives.

Conclusion

• The current state of depleted grain stocks, coupled with the uncertainties surrounding monsoon performance and global market dynamics, presents a significant challenge for the government. Balancing the need for cash transfers to alleviate the plight of vulnerable households while ensuring adequate grain reserves to sustain the country’s food security is a delicate task.

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