State control over the trade in consumer goods becomes necessary when there is a shortage of these essential items. Even when the food situation is comfortable, state trading in food grains and other consumer goods continues to be necessary for various reasons. For one thing, the available food supply is not distributed properly among the people. There are big businessmen who keep big stocks of food grains in their godown. Hoarding state trading in Food grains of food grains yields them huge profits. People suffer a lot due to this antisocial activity of there.
So the problem before the Government is twofold. First, the food production must be increased secondly, hoarding and profiteering must be checked and the available food grains must be distributed properly. This cannot be done unless there is some central organization to undertake the work of distribution. This makes the need and importance of state trading in food grains quite apparent.
The Central Government announced the scheme of state trading in food grains as early as April 2, 1956. As the Government could not undertake full scale state trading immediately, so the whole scheme was split up into two parts. First, there was an interim scheme. Secondly, the interim scheme was to lead to full scale state trading and was to be the ultimate pattern.
Till 15th April, 1973, the government followed only the interim scheme. It did not undertake the purchase of the entire market surplus. It gave licenses to the wholesale traders to make purchases. The licensed dealers made purchases of food grains on their own behalf and payee fixed minimum price to the farmer.
The government purchase, if necessary, stocks at controlled prices from these dealers. It took the whole, or a part of the stock. If there were free to sell that remaining part to the retailers. Maximum selling price for them was the controlled price. They maintained proper accounts which were checked by government officers. If at some places, the price of wheat, and other food grains fell below the fixed price, the food corporation, established by the government, itself entered the market and made purchases at the fixed price. This happened in Haryana and Punjab in 1971, where, following a bumper crop, the prices had crashed down.
But in April 1973, the government was obliged to introduce full scale state trading in food grains. It was announced that the food corporation would purchase all the wheat and rice produced that season. A number of factors obliged the government to take this drastic step. There was widespread failure of rains in 1972.the result was drought and famine in several state of the country. The coming of about a core of refugees from Bangladesh, and the following Indo-Pak war, also put undue strain on the Indian economy. Anti-social elements began to exploit the situation. Big traders began to hoard on a large scale. The price rose, and the people suffered.
The government was left with no alternative but to take the entire wheat and rice trade in its own hand. Necessary laws were enacted in order to put to put an end of hoarding. Nobody was to stock more than ten quintals at a time. In other words, the retailers were to carry on their business, but there was to be no hoarding on the part of the moneyed businessmen. Arrangements were also made for the proper distribution of food grains purchased by the food corporation.
Thus, the objective of state trading in food grains is to eliminate the middleman. Through it the farmers are given a fair price for their produce. Consumers also get food grains at a reasonable price throughout the year. In this way, the difference between the price received by the farmer and prices paid by the consumer are reduced to a minimum. The consumer and the producer both gain by this scheme.
The government had to face many difficulties in implementing the scheme. The opposition parties criticized it and put obstacles in the way. The farmers were misguided. They were persuaded not to sell their produce to the food corporation as they could get higher price in the open market. The result was that they held back their stocks. The rich traders were also critical of the scheme and did their best to misguide the people, and make it a failure.
The scheme did not work well in practice. The traders did not cooperate with the government. They took full advantage of the situation arising from the scarcity of food-grains, and there was profiteering and hoarding on a large scale. The result was that price soared up causing untold hardships to the common man. The government remained helpless to control the situation. It became obvious that no half-measures would do. It was realized that full state trading in food-grains was a necessity.
State trading in food-grain is necessary even in times of plenty. Government control over grain trade is necessary and essential for the success of planning. The public distribution system must be strengthened. The government must have a large buffer stock to control the prices of food-grain. Population explosion makes state trading in food grains a necessity. The scheme has been extended to small towns. Fair price shops sell a large number of new items. It is also proposed to exclude the income tax payers from the scope of the public distribution system, fictitious ration cards which run into thousands are to the carefully identified and done away with. In this way no effort is to be spared to see that the benefits of the scheme reach the poorest of the poor.