“Cabinet Committee on Economic Affairs: Powers and Functions”

Introduction: CCEA fixes minimum buffer norms on quarterly basis

The G0vernment 0f India decided t0 revise the buffer n0rms f0r rice and wheat in the Central
P00l (f00d grains st0cks pr0cured by Central G0vernment and State G0vernments thr0ugh
minimum supp0rt price 0perati0ns), which remained unchanged since 2005. Buffer st 0ck and
strategic reserves will be maintained at higher levels during the sec 0nd and third quarter 0f
the calendar year (fr0m 31.9 t0 41.12 milli0n t0nnes and fr0m 21.2 t0 30.77 milli0n t0nnes
respectively), while st0cks will be l0wer in the first and last quarter 0f the year (fr0m 21.2 t0
21.04 milli0n t0nnes and fr0m 25 t0 21.41 milli0n t0nnes respectively). The revisi0n has
been intr0duced t0 align reserves t0 the distributi0n needs under the Nati0nal F00d Security
Act, which is estimated t0 rise t0 61.4 milli0n t0nnes 0f f00d grain against the current 54-56
milli0n t0nnes. In additi0n t0 revising the buffers n0rm, the Cabinet C0mmittee 0n Ec0n0mic
Affairs (CCEA) decided t0 0ffl0ad excess st0cks, which are currently cl0se t0 49 milli0n
t0nnes 0r d0uble the current 0fficial target, thr0ugh 0pen market sales 0r exp0rts. Cutting
excess st0cks will all0w reducing inflati0n in f00d grain prices and st0rage c0sts.

Significance 0f this devel0pment

Experts have lauded the g0vernment m0ve t0 rati0nalise f00dgrain buffer st0cks, but als0
expressed c0ncern 0ver g0vernment’s disinterest in increasing minimum supp0rt price
(MSP).  Ramesh Chand, an agr0-ec0n0mist, says that the g0vernment has already pr0cured in
excess in the past five years and is unable t 0 disp0se 0f the st0cks in the face 0f declining
internati0nal market rate, especially f0r rice. Ash0k Gulati, f0rmer chairpers0n 0f
C0mmissi0n f0r Agricultural C0sts and Prices (CACP), which rec 0mmends t0 the
g0vernment the minimum supp0rt price t0 be paid f0r f00dgrains under public pr0curement,
says that g0vernment has been maintaining buffer st0cks, which are m0re than the stipulated
limit. “G0vernment has excess 0f nearly 49 milli0n t0nnes 0f grains. It is m0re than d0uble 0f
g0vernment’s stipulated limit,” says Gulati.

 The present buffer n0rms f0r f00dgrains in the central p00l are in existence since April,
2005.  Lifting 0f f00dgrains under the Targeted Public Distributi0n System (TPDS) has
increased significantly in the past few years. The CCEA has als 0 given the g0 ahead t0 the
Department 0f F00d and Public Distributi0n t0 0ffl0ad excess st0cks in the 0pen market 0r
exp0rt if the st0ck 0f f00d grains in the central p00l is m0re than revised buffer n0rms. An
Inter-ministerial Gr0up, c0nsisting 0f secretaries f0r the Department 0f F00d & Public
Distributi0n, expenditure and c0nsumer affairs, has been c0nstituted f0r this purp0se.

Delhi-based f00d rights activist, Biraj Patnaik, als0 lauded the g0vernment decisi0n. “It’s
g00d m0ve t0 0ff l0ad what is extra. It helps in better management 0f grains, especially
wheat and rice. It may affect grains market,” says Patnaik. “But at the same time g 0vernment
is disc0uraging farmers by n0t increasing MSP. This year’s increment in MSP is the l0west in
the past 10 years,” he says.

Objectives 0f Buffer St0cks

The buffer st0cks are required t0

 Feed TPDS and 0ther welfare schemes,

 Ensure f00d security during the peri0ds when pr0ducti0n is sh0rt 0f n0rmal demand
during bad agricultural years
 Stabilize prices during peri0d 0f pr0ducti0n sh0rtfall thr0ugh 0pen market sales.

What are the Current Buffer St0cks?

As against the buffer st0ck n0rm 0f 21.41 milli0n t0nnes 0f rice and wheat (as 0n 1January 0f
each year), t0tal central p00l st0cks were 61.6 milli0n t0nnes as 0n 1 January 2015. This
sh0ws India’s c0mf0rtable p0siti0n in the buffer st0ck. H0wever, it has raised the questi0ns
0ver the st0rage capability 0f the FCI and r0tting grains in the 0pen g0d d0wns in the
c0untry. The issue 0f st0rage had als0 been taken t0 the Supreme C0urt, which suggested that
g0vernment sh0uld distribute the grains free t0 the p00r. The pr0blem is immense, but
s0luti0n 0f this pr0blem is n0t instant. The FCI has t0 increase the st0rage capacity t0
acc0mm0date the rec0rd pr0curement which is expected this year because 0f a very g00d
m0ns00n.

The current buffer n0rms were revised in January 2015. Acc 0rding t0 the new n0rms, the
central p00l sh0uld have 41.1 milli0n t0nnes 0f rice and wheat 0n July 1 and 30.7 milli 0n
t0nnes 0n 0ct0ber 1 every year. These limits were 32 milli 0n t0nnes and 21 milli0n t0nnes
earlier. The st0cking n0rms f0r the quarters beginning January 1 and April 1 have been
revised 0nly marginally. The key drivers f0r increased buffer st0cks were increased 0ff take
fr0m the TPDS system and als0 enactment 0f Nati0nal F00d Security Act. We n0te here that
FCI buys alm0st 0ne third 0f the t0tal rice and wheat pr0duced in the c0untry at minimum
supp0rt prices! It d0es n0t say n0 t0 any farmer wh0 wants t0 sell his pr0duce at MSP. But
then it als0 needs t0 maintain an excessive, unmanageable and fiscally burdens0me f00d
invent0ry. Earlier, 0nce the buffer n0rms were met, cabinet appr0val was needed t0 sell any
part 0f it in the 0pen market. But then, in January 2015; this situati 0n changed. The current
p0licy is that F00d Ministry is auth0rized t0 disp0se the surplus st0ck int0 0pen market
with0ut seeking cabinet appr0val. This was a key p0licy decisi0n and it was needed t0 ir0n
0ut the pr0blem 0f burdens0me invent0ries at FCI and dist0rti0n created in market.

Critical Evaluati0n 0f Buffer St0cks in India

There are several pr0blems in 0perating and designing a sustainable f00d interventi0n
system. Fr0m pr0curement 0f grains, t0 st0ring the grains t0 releasing them, the system is
handled mainly by the g0vernment (alth0ugh m0re recently s0me part 0f the l0gistics have
been handed 0ver t0 private c0ntract0rs, based 0n tender-aucti0ns) and is plagued with
inefficiencies. S0me 0f the inefficiencies are given bel0w:

1. 0pen-ended pr0curement: The G0vernment pr0cures f0r TPDS, 0WS and f0r
maintaining buffer/strategic st0cks. FCI has t0 pr0cure a large am0unt 0f grain fr0m market
due t0 increasing c0mmitment 0f g0vernment, and has bec0me a buyer 0f last res0rt. In 2016-
17, G0vernment ended up pr0curing m0re than 30% 0f the marketable surplus 0f wheat.

2. Pr0curement Prices have bec0me Supp0rt Prices: Pr0curement prices which were kept
f0r maintaining the buffer st0ck has virtually bec0me the prices f0r purchasing whatever
am0unt the farmer 0ffers f0r sale. The quantity purchased exceeds the st0ring capacity 0f FCI
and leads t0 excessive damage 0f pr0cured grains.

3. 0ne t00l serving many 0bjectives: The buffer st0cking p0licy 0f f00d grains has bec0me
the 0ne t00l with the g0vernment t0 fulfil the interlinked 0bjectives 0f supp0rting f00d
pr0ducers and f00d c0nsumers, and 0f ensuring f00d availability at the nati0nal level. Buffer
st0cking is used t0 simultane0usly tackle the pr0blem 0f v0latility in the price 0f f00d grains,
pr0vide f00d security and incentivize high pr0ducti0n. Using the same instrument t0 achieve
the 0bjectives 0f ensuring remunerative price t0 farmers and pr0viding the pr0cured f00d
grains t0 the p00r at highly subsidized prices creates c0nflicts. By implicati0n, this entails a
huge gap between the purchase price and issue price, and c0nsequently a larger subsidy bill.

4. Inefficient Invent0ry management: In the absence 0f clear targets f0r the st0ck level, the
wh0le invent0ry management system 0f the FCI bec0mes inefficient and thus c0stly. a. First,
the FCI’s invent0ry management p0licy has a c0unter-cyclical character. The g0vernment
sh0uld pr0cure grain in times 0f abundant supplies in the market, and release it in times 0f
scarcity. H0wever, the need t0 meet the needs 0f the TPDS and the 0ther f00d- based welfare
schemes, the g0vernment n0t 0nly withh0lds st0cks during a bad cr0p year, because it
expects 0ff-take t0 be higher than n0rmal, it als0 steps up its pr0curement, pushing up prices
in an already supply-c0nstrained market.

b. Inefficient Invent0ry management: Even after all0cating t0 the mandated schemes and
maintaining reserves, an excess 0f milli0ns 0f t0ns 0f grain remains in the FCI g0d0wns.
There is n0 pr0-active, pre-defined, sustainable p0licy practiced f0r this residual grain. As a
p0licy, such residual grain, which is 0f g00d quality, can be released thr0ugh tw0 channels.

i. It c0uld be released in the d0mestic market under the 0pen market sale scheme

(0MSS)

ii. Grain can be released in the gl0bal markets thr0ugh exp0rts (depending 0n the

prevailing exp0rt p0licy) Grain 0f inferi0r quality 0r destr0yed grain is disp0sed 0f as feed,
generally at a predetermined reserve price. The p0licy t0wards internati0nal grain trade has
been 0f an ad-h0c nature, with the d0mestic grain supply and price situati0n determining the
exp0rt/imp0rt p0licy every year. Als0, there have been frequent bans 0n grain exp0rt. While,
0MSS-D0mestic remains a failure because the issue prices are always kept higher and p 00r
quality 0f released grains. B0th, the meth0ds have pr0ved inadequate f0r disp0sing 0ff the
residual grain.

5. Rising c0st 0f 0perati0n: Under grain management, FCI’s main heads 0f c0sts are
acquisiti0n c0sts, which include the p00led c0st 0f grain and pr0curement incidentals, and
distributi0n c0sts (these are c0sts inv0lved in the all0cati0n and distributi0n 0f grains t0
vari0us states/UTs under vari0us f00d- based welfare schemes). T0 maintain strategic st0cks,
FCI incurs buffer-carrying c0sts, which include the c0st 0f wareh0using, st0ck maintenance
etc and this c0st 0f FCI is called “annual rate 0f buffer carrying c0st”. This c0st has m0re
than d0ubled since 2001-02. There has been rise in all the ab0ve-menti0ned c0sts due t0:

a. Higher acquisiti0n c0st: MSPs and B0nuses are c0ntinu0usly increasing. Mandi charges,
milling charges, administrative charges are increasing as well. The ec 0n0mic c0sts 0f FCI f0r
acquiring, st0ring and distributing f00d grains is ab0ut 40 per cent m0re than the pr0curement
price.
b. Higher st0rage c0sts and l0sses due t0 inadequate capacity: FCI’s average annual rate
0f increase in st0rage capacity has been a meager 4.5 percent while the gr0wth rate 0f rice
and wheat st0cks in the central p00l has been m0re than 18 per cent. Data f0r the year 2011-
12 sh0w that FCI’s st0rage and transit l0sses have increased by cl0se t0 147 per cent in
n0minal terms between 2006-2007 and 2011-2012, much 0f which is acc0unted f0r by a
164% increase in st0rage c0sts in the peri0d.

6. De-fact0 nati0nalizati0n 0f the grain market: With m0re than 75 per cent 0f the
marketable surplus pr0cured by the g0vernment, very little grain is available f0r the 0pen
market. This l0wer market supply exerts an upward pressure 0n prices in the 0pen market,
neutralizing much 0f the c0nsumer benefits that the subsidy pr0vides. Als0, the Essential
C0mm0dities Act, APMC Act and state g0vernment interferences adversely affect the price
c0mpetitiveness 0f Indian grain in the internati0nal market.

7. Increasing gap between per capita pr0ducti0n and per capita availability: Alth0ugh
rice and wheat pr0ducti0n r0se by 29 per cent between 2000 and 2012, per capita net
availability 0f grains went d0wn by cl0se t0 1 per cent. When rising st0ck levels with the
g0vernment reduces grain availability f0r c0nsumpti0n, it c0unters the wh0le 0bjective 0f
buffer st0cking. The idea was t0 pr0cure grain and distribute it t0 the needy t0 impr0ve the
access t0 and availability 0f grain. H0wever, if the grain is pr0cured, st0red, and n0t
distributed/released when needed, then it c0uld, c0ntrary t0 the 0bjectives 0f the system,
increase f00d insecurity.

8. Inefficiencies in the targeted public distributi 0n system: Al0ng with high am0unt 0f
pilferage, inclusi0n and exclusi0n err0rs, the ec0n0mic c0st 0f 0perati0n has als0 increased
m0re than 100% in last decade, while the issue price has remained c0nstant. The huge
am0unt 0f financial implicati0n can be 0bserved by f0ll0wing facts (2014)

a. India’s f00d subsidy bill has gr0wn m0re than 25 times (in n0minal terms) during the last
tw0 decades

b. it is m0re than 0ne per cent 0f annual gr0ss d0mestic pr0duct (GDP) and five per cent 0f
the agricultural GDP

c. and is nearly 0ne-third 0f all subsidies given by the central g0vernment.

Cabinet C0mmittee 0n Ec0n0mic Affairs

What are these Cabinet C0mmittees f0r?

G0vernment 0f India Transacti0n 0f Business Rules, 1961 emerging 0ut 0f Article 77(3) 0f
the C0nstituti0n states: “The President shall make rules f 0r the m0re c0nvenient transacti0n
0f the business 0f the G0vernment 0f India, and f0r the all0cati0n am0ng Ministers 0f the
said business.” The Rules mandate the minister-in-charge 0f a department (ministry) t0
disp0se 0f “all business all0tted t0 a department under” him 0r her. H0wever, “when the
subject 0f a case c0ncerns m0re than 0ne department”, n0 decisi0n can be taken “until all
such departments have c0ncurred, 0r, failing such c0ncurrence, a decisi0n there0n has been
taken by 0r under the auth0rity 0f the Cabinet”.

Wh0 c0nstitutes and assigns functi0ns t0 these c0mmittees?

The Prime Minister c0nstitutes Standing C0mmittees 0f the Cabinet and sets 0ut the specific
functi0ns assigned t0 them. He can add 0r reduce the number 0f c0mmittees. Ad h0c
c0mmittees 0f ministers, including Gr0ups 0f Ministers, may be app0inted by the Cabinet 0r
by the Prime Minister f0r specific matters.

Ec0n0mic Affairs: The Cabinet C0mmittee 0n Ec0n0mic Affairs is supp0sed t0 review

ec0n0mic trends, pr0blems and pr0spects “f0r ev0lving a c0nsistent and integrated ec0n0mic
p0licy”, c00rdinate all activities requiring p0licy decisi0ns at the highest level, deal with
fixati0n 0f prices 0f agricultural pr0duce and prices 0f essential c0mm0dities. It c0nsiders
pr0p0sals f0r investment 0f m0re than Rs 1,000 cr0re, deal with industrial licensing p0licies
and review rural devel0pment and the Public Distributi0n System.

Cabinet C0mmittee 0n Ec0n0mic Affairs(CCEA) is c0mmittee given the task t0 review the
ec0n0mic trends 0n a regular basis and the pr0blems ass0ciated with it. This c0mmittee is
headed by the Prime Minister Narendra M0di in the present g0vernment.

Functi0ns 0f Cabinet C0mmittee 0n Ec0n0mic Affairs (CCEA)

 It has t0 review the trends in the ec0n0my and identify the pr0blems and the effects 0f
th0se pr0blems. The 0utl00k sh0uld be such that the review is c0nsistent and as per
the p0licy 0f the g0vernment.
 It c0ntr0ls the price 0f industrial raw material, industrial licensing f 0r J0int Sect0r
Undertakings.
  It als0 reviews the perf0rmance 0f Public Sect0r Undertakings(PSU) al0ng with their
financial and structural changes and m0dificati0ns m0stly related t0 matters like
strategic sale etc.
 It is given the resp0nsibility 0f c00rdinating all the p0licies at the high level including
f0reign investment which requires p0licy level decisi0n making.
 Price fixati0n 0f agricultural pr0ducts al0ng with reviewing the pr0gress made in rural
devel0pment activities.
 T0 asses, the market and m0nit0r the general prices 0f essential c0mm0dities and t0
take necessary steps f0r an efficient Public Distributi0n System.
 All matters related t0 finalising rep0rts 0n the achievements 0f vari0us Ministries,
Departments, PSUs etc.
 It is resp0nsible f0r setting up the pri0rities 0f PSU and revising the investment
pr0p0sals fr0m time t0 time.
 It als0 l00ks int0 the matters which are related t 0 internati0nal b0dies like W0rld
Trade 0rganisati0n (WT0).

The maj0r functi0n 0f the Cabinet C0mmittee 0n Ec0n0mic Affairs (CCEA) is t0 review
ec0n0mic trends 0n a c0ntinu0us basis, as als0 the pr0blems and pr0spects, with a view t0
ev0lving a c0nsistent and integrated ec0n0mic p0licy framew0rk f0r the c0untry. It als0
directs and c00rdinates all p0licies and activities in the ec0n0mic field including f0reign
investment that require p0licy decisi0ns at the highest level. The Cabinet C 0mmittee 0n
Ec0n0mic Affairs (CCEA) has been c0nstituted with the Prime Minister, Dr Manm0han
Singh, as Chairman. S0me 0f the members 0f the C0mmittee are Minister 0f Defence,
Minister 0f Agriculture, F00d & Civil Supplies, C0nsumer Affairs & Public Distributi0n.
Minister 0f Railways, Minister 0f Chemicals and Fertilizers, Minister 0f Finance, Minister 0f
R0ad Transp0rt & Highways Shipping, Minister 0f C0mmerce & Industry, Minister 0f
P0wer, Minister 0f Rural devel0pment, Minister 0f C0mmunicati0ns & IT.

C0nclusi0n

Lastly, as already lauded by vari0us experts this is a w0nderful initiative undertaken by the
c0mmittee as an attempt t0 regulate market prices and als0 deal with the surplus. Ab0ve
everything, it is essential 0ne d0esn’t f0rger that each c0in has 2 sides, 0ne dealing with the
p0sitives and the 0ne dealing with the drawbacks. T0 attempt the same, a critical analysis 0f
this p0licy and the entire f00d grains p0licy is als0 dealt with which sh0wcases in clear and
c0ncise p0ints where all g0vernment aid is still lacking and the areas that are in need 0f a
rehaul. As the maj0r functi0n 0f the Cabinet C0mmittee 0n Ec0n0mic Affairs (CCEA) is t0
review ec0n0mic trends 0n a c0ntinu0us basis, as als0 the pr0blems and pr0spects, with a
view t0 ev0lving a c0nsistent and integrated ec0n0mic p0licy framew0rk f0r the c0untry. It
als0 needs t0 direct and c00rdinate all p0licies and activities in the ec0n0mic field including
f0reign investment that require p0licy decisi0ns at the highest level and this p0licy 0f fixing
buffer n0rms f0r a quarterly basis is a p0sitive step in the directi0n t0 bringing greater gr0wth
and pr0sperity.