The alternative possibility is that the government will bring down the APL wheat price to around Rs 700 per quintal all over the country. This would encourage sales through fair price shops, and also increase the overall offtake (through both PDS and OMSS) quite sharply, taking these to about 10-20 per cent above last year's level, as against a decline in the previous scenario. But, even in this scenario, wheat stocks on April 1, 2001 would be around 17 million tonnes, so that, although the pressure on storage capacity will be much reduced on that date, the available storage capacity is unlikely to allow for wheat procurement in excess of 11-12 million tonnes. On the other hand, since the cost of grain at the current MSP of Rs 580 per quintal is at least Rs 675 per quintal, inclusive of statutory charges and the cost of gunny, the private trade will stay away from purchases unless this is possible below MSP or can be effected without paying the statutory dues. As a result, the public agencies will be faced with having to buy almost the entire arrival in mandies, and since farmers turned away due to the shortage of storage space will almost certainly receive much less than the current MSP, the credibility of that system would be under severe threat.
 
Thus, the nation may now be at a brink where the very future of India's existing food security system may be at stake. This has so far depended on MSP purchases to stabilise producer prices and on PDS offtake to stabilise consumer prices, and, in this, it has been fairly successful since the variability of foodgrain prices in India have so far been less than a third of what it is in international markets. The problem has to do not only with the high MSP levels which have pushed up procurement, but also with the Targeted Public Distribution System (TPDS). This was adopted in 1997 in an effort to target the food subsidy towards the poor, and the subsequent increases in Central Issue Prices were made with a view to contain the overall food subsidy bill. It now appears that it has failed in both these objectives. The reduced allocations and higher APL prices under TPDS has pushed the food subsidy bill to an all-time high because of sharply increased stock holding costs. Simultaneously, these stocks have pushed up open market prices of cereals by almost 30 per cent in the three years that the TPDS has existed, hurting precisely the poor who were sought to be served but who still have to buy more than half their grain requirements from the open market.
 
Also, the main objective of the original PDS was to contain inter-temporal and inter-regional differentials in retail consumer prices arising either from high trade and transport costs or because of local monopolies. This aspect of price stabilisation, which is best served not through open market sales to millers but through sales actually effected at local fair price shops, depends vitally on the financial viability of the existing network of over 4 lakh fair price shops. This, too, is now under threat because their sales have shrunk sharply as a result of the effective exclusion of APL families under TPDS.
 
Most ominously, with procurement currently exceeding the reduced TPDS offtake by a large margin, there are already demands in the press, and from certain economists close to the World Bank and IMF who were incidentally instrumental in the adoption of the TPDS, that the system of Minimum Price Support itself be wound up. But the MSP system, which protects farmers from undue price fluctuation, has been a crucial part of the package of policies which has enabled Indian farmers to multiply cereal production by over two and a half times since the mid-sixties, and thus avert the possibility of growing hunger.
 
The demands to give up this system up are coming at a time when not only has the rate of growth of domestic foodgrain production dropped below the rate of population growth so that the long-term vulnerability to food security has increased, but also when, as a result of more open trade, all Indian farmers, not just rice and wheat producers, are faced with the prospect of much higher price volatility and increased unfair competition from their highly subsidised counterparts in the West.
 
Interestingly also, the very economists who today castigate politicians and farm interests most loudly for pushing up the MSP too high are precisely those who till recently had argued most strongly that Indian farm prices were too low in relation to the world price, and that accepting the WTO discipline would bring even greater benefits in the form of even higher world prices. It is another matter that these economists were proved totally wrong since world agricultural prices actually collapsed between 1997 and 1999 when this argument had reached its crescendo. But can these economists honestly absolve themselves of responsibility, since their misguided analysis may actually have been taken seriously by those who allowed the MSPs in India to ratchet upwards from peaks reached by the world prices just when these had begun to turn sharply downwards ?
 
Thus, whether the MSP levels are correct, whether targeting is consistent with stable stock levels, or whether higher issue prices will be successful in reducing the food subsidy in the face of increasing stocks, are all questions which appear to have failed most mainstream economists wedded to unthinking liberalisation. So what is the solution if one does not accept the view that the present food security system should be given up since a combination of free trade and futures markets will necessarily bring panacea for an Indian agriculture dominated by small and financially vulnerable farmers ? On this, the only sensible argument in government seems to have come from that organisation which is directly concerned with the matter but to which nobody seems to listen nowadays - the Commission on Agricultural Costs and Prices.
 
In the Commission's Reports for Rabi crops sown during 1999-2000 season, it had argued strongly that primacy be placed on balancing procurement and offtake in the medium run. It noted that such a balance could be reached with different combinations of procurement and issue prices but that if the former was high, and led to high procurement, the latter should be correspondingly low to ensure high enough offtake, even though this would involve a relatively high subsidy. Attempting to hike the issue prices without cutting the procurement price in this situation would be counterproductive since not only would the subsidy rise further in the short run, it would make the system unstable.
 
It noted further that the only viable way of reducing the subsidy was by choosing a lower ratio of the MSP to cost, and that once a decision was taken on this, reconciling the inherent conflict between a high MSP and a low subsidy level, the MSP itself should be defended against international price fluctuations through a system whereby tariffs on exports and imports were automatically varied with movements in world prices. The only way to get out of the present mess, according to this analysis, is to have a temporary moratorium on the MSP for wheat, keeping issue prices at the level required to maintain medium run balance between procurement and offtake. This would, however, still leave the problem of the existing large stocks built up over the last few years, but these should be treated as investible resources to build up infrastructure through food for work programmes.
 
To this very sensible analysis, which has of course been ignored until now, it may be added that in the short run it may now be necessary to use some of the food for work programmes to build godowns immediately, in order to ensure that rats do not get the first bite again.