Excess Food Stocks, PDS and Procurement Policy

Abstract

This paper by Arvind Virmani and P.V. Rajeev examines the accumulation of excess food stocks in India, primarily rice and wheat, and analyzes the interplay between consumption patterns, the Public Distribution System (PDS), and procurement policies. As of April 2002, government-held food grains significantly exceeded buffer stock requirements, largely due to favorable monsoons and high Minimum Support Prices (MSPs) that incentivized overproduction. The study highlights shifting dietary trends, with declining cereal consumption and increased demand for milk and meat, indicating a plateau in cereal demand and a need for policy adaptation. The PDS, operating through over 4.62 lakh Fair Price Shops serving approximately 16 crore families, faces inefficiencies and subsidy leakage, with food subsidies consuming over 5% of government expenditures in 2002-03. The paper recommends reforms including improved targeting, potential use of direct subsidy transfers, and modernization of distribution infrastructure. In procurement, the authors advocate aligning MSPs with Commission for Agricultural Costs and Prices (CACP) recommendations, covering only variable production costs, and promoting market-based interventions to reduce surplus stocks. Policy reforms suggested include allowing private sector participation, amending the Essential Commodities Act, and fostering competitive and efficient storage and distribution systems. The study concludes that adaptive policies reflecting changing consumption patterns, economic realities, and market dynamics are essential for efficient stock management, food security, and fiscal sustainability in India’s food policy framework.