The point is that the cost of carrying these stocks has increased the subsidy bill of the government substantially, from Rs.12125 crore in 2000-01 to Rs.17,612 crore in 2001-02 and a budgeted Rs. 21,200 crore in 2002-03 (Chart 6). The government could have saved much on these subsidies by diverting stocks to a food-for-work programme, which would have helped build rural infrastructure and spur growth.
Chart 6 >>

But paralysed by its internalisation of the obsession with the size of the fiscal deficit, the BJP-led government has not merely chosen to forsake this opportunity, but to use the large foodstocks to launch an attach on the farming community. There are two ways in which the government has decided to rid itself of the food stocks that provide the above opportunity: first, it is choosing to dispose as much of these stocks. The Finance Minister has listed a number mechanisms through which he plans to reduce the level of stockholding. These include increased allocations for BPL families; launching of a major food for work programme; allocation of 30 lakh tonnes of free foodgrain to the states for relief works in areas affected by natural calamities; open market sales of 30 lakh tonnes; and enhanced incentives for export of foodgrains.
 
Of these the budgeted allocation of food for employment programmes in 2002-03 totals Rs. 1221 crore as compared with Rs. 800 crore in 2001-02, indicating the rather limited increase on this ground. The real effort at disposal is likely to occur through provision to the trade at extremely low prices for sale either in the domestic or export market.
 
The second, medium and long term strategy for reducing the embarrassing level of foodstocks is to curtail the level of procurement. The Finance Minister has declared that: “The current situation of open-ended procurement by FCI at a high price and disposable at a heavily subsidised price is not sustainable.” This is nothing but a misleading justification of a decision to dismantle the system of procurement and distribution. The reason why stocks with the government are high as they are is its decision in recent times to repeatedly increase the issue price of foodgrains, which resulted in a fall in offtake. This not only increased stocks with the government but also resulted in large outlay on “subsidies” aimed at covering the carrying costs of the FCI.
 
In response to that problem the government is seeking to limit its procurement so as to reduce the accretion to its stocks. This would leave farmers to their own resources and expose the farming community to fluctuations in market prices at a time when international prices of agricultural commodities are falling. The impact of the latter is intensified by the removal of quantitative restrictions and the Centre’s hesitation to raise tariffs on agricultural imports substantially, though the evidence of protection for agriculture in the G-7 is overwhelming. Further, at a time when competition from exports from abroad is intensifying, the ability of domestic producers to face up to international competition is being undermined by the decision to cut fertiliser subsidies which would raise fertiliser prices by at least 5 per cent.
 
Thus it is not just that the budget misses a major opportunity to spur growth in a slowing economy, but it imposes or seeks to impose new burdens on those most effected by the global and domestic slowdown. One are where this can have extremely debilitating consequences is in the evolving fiscal relationship between the Centre and the states. The budget threatens to accelerate the slowdown in the economy by increasing the fiscal squeeze applied on the states. Out of the Rs.30,000 crore shortfall in tax revenues as a result of the Centre’s fiscal reform, close to Rs. 10,000 crore would have accrued to state governments as their share of devolved taxes. This loss would only intensify the fiscal crunch that the states have been facing. In addition, the government has decided to use these financial difficulties of the states to force them to adopt World Bank and IMF type reform. Thus as much as Rs. 12,300 crore is being provided as “reform-linked assistance” to states and another Rs.2,500 crore for policy reforms in sectors which are constraining growth and development. This totals close to Rs. 15,000 crore or as much as a third of the budgeted central plan assistance to the state governments of Rs.46,629 crore for 2002-03. Thus a major chunk of statutory central transfers are now being linked to the willingness of the states to implement neoliberal reform. After putting the states in a fiscal bind through its own policies, the BJP government is now using what are constitutionally warranted transfers to impose its own failed economic ideology on the state governments. This effort to impose deflationary and contractionary policies that are generating a crisis at the central level on state governments as well is a sure means of widening and intensifying the crisis facing the economy today.