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The Rs 50,000-crore food scam

Saurabh Sharma

We possibly have the biggest scam in India to date - and it has gone unnoticed. The only little comment came in a nugget tucked away in the editorial pages of Business Standard of September 20: "At the same time, it (the government) is encouraging exports by supplying grains to exporters at heavily discounted rates. The magnitude of the loss incurred in the process can be gauged from the fact that 15 million tonnes of grains, costing the exchequer around Rs 15,000 crore or Rs 150 billion (taking average mean economic cost of wheat and rice at roughly Rs 1,000 a tonne) have been exported for a mere Rs 6,656 crore (Rs 66.56 billion). It is said that there are another 60 million tonnes available as buffer stocks and 16 million tonnes of rice are expected to be mopped up as kharif crop this year…"

Analysing this nugget of information in detail, alarm bells ring loudly. The loss incurred on 15 million tonnes of foodgrains sold is Rs 15,000 crore (Rs 150 billion) minus Rs 6,656 crore (Rs 66.56 billion) - that is, Rs 8,344 crore (Rs 83.44 billion). If the balance 60 million tonnes were also to be sold, the additional loss would amount to Rs 8,344 crore times four that is Rs 33,376 crore (Rs 333.76 billion).

Adding the two, we have a total loss of Rs 41,720 crore (Rs 417.2 billion) or, say, Rs 42,000 crore. The securities scam of 1992 by the late Harshad Mehta involved a mere Rs 640 crore (Rs 6.4 billion). Yes, we have say a Rs 42,000 crore food scam on our hands.

How did this scam take place? The mechanics are quite simple. Since 1990, our agriculture ministers took the money we gave them (income tax, excise tax, import duty and so on) and purchased grains at high prices. What is the right price? How much quantity to buy at this price? Who decides the price and quantity? That is the genesis of this scam.

The mechanism to determine the minimum support price at which foodgrains are purchased is opaque - it is a policy decision of the Cabinet. The agriculture minister announces it and, yes, Balaram Jakhar in particular raised the minimum purchase price for wheat frequently and steeply.

A lack of public debate then on these actions not only fuelled high inflation but also laid the genesis for the scam taking place today.

More numbers. Let us take Rs 42,000 (for the sake of simplicity) per year as the above-poverty-level income in a village. Rs 42, 000 crore (Rs 420 billion) divided by Rs 42,000 gives us 10 million. Had this money been given to 10 million farmers (even if they sat at home and did nothing) it would have lifted them out of poverty.

That is half the population of Australia. If we assume Rs 26,000 as the amount required every year to stay above poverty level in a village, the numbers return 20 million or one Australia equivalent lifted out of poverty. That we squander such resources is a matter of shame.

Now consider families - assume a family size of four. If ten million farmers get the above-mentioned dole, 40 million people get lifted above poverty level. At the lower boundary of Rs 26,000 a year 80 million people are rocketed from dire penury to comfortable existence. Some of this money could provide micro capital spiralling many families out of the vicious cycle of poverty. These numbers are telling.

Critics could opine that were the MSP steady over the years small farmers would have slipped into poverty by now. Hardly true. Most small farmers earn Rs 10,000 to Rs 40,000 per year per acre. Thus, farmers in the villages having three to four acres would suffer a drop in income, but the drop would not push them into poverty.

Critics would be right in that small swings either way to the MSP affect farmers with one acre of land or less in an inversely proportional manner. Targeted subsidies, like the BPL ration cards, would have helped them. After all, discounts on the price of urea should not go to, say, Ajit Singh, the farmer.

There are more distortions in this handout of taxpayers money. While the small farmer produces on two to five acres of land, the larger farmers claim 100 to 200 acres. The distribution pattern of land suggests that Pareto's Law may be working - 80 per cent of the farmers gets 20 per cent of the subsidies! Is this fair?

Adding insult to injury is another perspective: if the taxpayers' money gave say Rs 2 per kilo as subsidy and support, when purchasing the same foodgrains the hapless taxpayer has to shell out an additional Rs 2 for the Rs 2 he had earlier provided - a double whammy.

Leakages exist in the procurement system due to limited checks and balances. Thus, a large farmer bringing 100 quintals or 1,000 quintals may well be receiving payment for considerably more than these stated numbers. The concept of underinvoicing and overinvoicing is universal. Do the powerful and rich farmers commandeer more subsidies this way?

Let us assume a token leakage of 10 per cent (which is a conservative estimate) on a total purchase price of Rs 75,000 crore (Rs 750 billion). Add Rs 7,500 crore (Rs 75 billion) and our food scam has now ballooned to a very healthy Rs 49,500 crore (Rs 495 billion), a Rs 50,000 crore scam. Want to add interest for ten years? Storage costs of these unwanted foodgrains? Cost of transportation to the godowns? Opportunity cost to the railways? Let the debate begin.

We have 540-odd members of Parliament. Neglecting their fiduciary responsibility their penalty is roughly Rs 100 crore (Rs 1 billion) each. At 50 Union ministers in the Cabinet it is Rs 2,000 crore (Rs 20 billion) per minister. If five ministers form the Group of Ministers who decide this - each of these gentlemen has cost us a whopping Rs 10,000 crore (Rs 100 billion). Five individuals have deprived at least 80 million of India's poor the privilege of going above the poverty line. Harshad Mehta was punished - what about this group?

In conclusion, it is astonishing that the food scam of Rs 50,000 crore (Rs 500 billion) is not getting the attention, debate and inquiry that it fully deserves. At a minimum, the food scam demands that budgetary support to agriculture be reviewed (the mountain of unsold sugar and the cotton monopoly scheme can easily add another Rs 50,000 crore in losses). Skewed redistribution of wealth from the relatively less well-off to the rich has to stop.

The double whammy on the taxpayer has to stop. We are a nation of plenty already - production of foodgrains and agriculture now needs to be planned. We can produce a better mix of foodgrains and export-oriented crops. But when a rich farmer is also the Union minister deciding and granting subsidies, something is wrong, very wrong in New Delhi.

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