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The geopolitical tension between Russia and Ukraine has led to global supply disruptions affecting many countries, including India. The steep increase in prices of global crude oil, gas, edible oils, and fertilisers is making countries redraw their import and export strategy. At the same time, neighbouring Sri Lanka is facing the worst ever economic crisis and prices of food items are skyrocketing.
These two major developments have once again brought food security, inflation, and the global supply chain at the center of discussions.
However, the Food Corporation of India’s (FCI) packed godowns and rising foodgrain production indicates that India does not have to worry as far as food security goes.
As seen in the accompanying graph, ‘trend in buffer stocks with FCI’, the norm for buffer stock with FCI has been at 40 million tonnes since 2015-16. But the stocks in godowns have been consistently high. In 2020-21, the buffer stocks amounted to 97.2 million tonnes, 143 per cent higher than the norm.
As per the Second Advance Estimates for 2021-22, the total foodgrains production is estimated at a record 316.06 million tonnes. This is higher by 5.32 million tonnes as opposed to the production of foodgrain during 2020-21. Further, the production during 2021-22 is higher by 25.35 million tonnes than the previous five years (2016-17 to 2020-21) average production of foodgrains. Much of this surplus production is flowing to FCI godowns through government procurement.
Given the heavy cost being incurred by the FCI in procuring, storing and distributing the food grain, there are questions being raised about the need to maintain such high level of stocks. Is there any way to reduce the cost incurred by FCI?
The Heavy Cost
The FCI implements the Government’s food programme without being involved in any commercial venture. The FCI procures foodgrains at a Minimum Support Price (MSP), stores the food grains, transports it from surplus to deficit States, and issues it to States under Public Distribution System (PDS) at a price decided by the Government.
It has to depend on the Government subsidy and also maintains buffer stocks of foodgrains as mandated by the government and intervenes in the domestic market to control the rising prices of the food grains. Along with heavy subsidies, the FCI is also raising loans from various sources to manage operational costs.
The FCI’s operations come at a heavy price for taxpayers and the majority of farmers, say section of experts.
FCI is heavily dependent on the Government subsidy with money raised through sales proving insufficient to fund its operations. With government unable to give subsidy regularly, FCI had to fund its losses on account of food subsidy, with loans from the National Small Savings Fund (NSSF) – the money of small depositors. But the debt was shown in the FCI’s name and not the Government. In 2021 the union government ended this practice and discontinued NSSF loan to FCI and provisions were made in 2021-22 budget.
“The economic cost of FCI for acquiring, storing, and distributing food grains is about 40 percent more than the procurement price – an addition of around Rs 1200 per quintal for rice and Rs 800 per quintal for wheat” the Supreme Court appointed Committee on farm laws stated in its report.
Excessive procurement beyond PDS requirements has not only led to wasteful locking of precious money but also led to various negative environmental externalities including depletion of water resources in the North-Western part of India. Besides with surpluses in cereals emerging, there seems to be little need for policies suitable for scarcities, says the report.
Intervention and Infrastructure Investment
“The Government is confused. On one hand, it wants that farmers should be self-reliant and on the other it is intervening in the market to keep the middle-class vote bank happy” says Seema Narode, a Shetkari Sanghatana leader in Maharashtra. “When prices of tur or any other foodgrain go up in the market and farmers receive a higher price compared to the MSP, the government begins importing and releases FCI stock,” says Narode.
Despite a surplus in most agri-commodities, farmers are unable to fetch better prices as there is no basic infrastructure like cold storage, warehouses, and processing due to a lack of investment. The amount locked in FCI stocks could be used to create this infrastructure and make farmers self-reliant.
The Supreme Court-appointed Committee cited the example of the excess central pool stocks. As of 1 July 2020 the stocks were valued at around Rs 1.89 lakh crore. “ This is a valuable amount locked up at a huge opportunity cost – compared to the recently announced Rs 1 lakh crore Agricultural Infrastructure Fund and Rs 500 crore Price stabilization fund” the Committee report observed.
Storages and Damage
The FCI has storage capacity of 793.07 LMT which includes government’s own storage and rented godowns. In 2020-21 FCI paid Rs 3,079.05 for rented godowns. The FCI claims that it has enough storage but it is depending more and more on private players to increase the storage capacity. As per the government’s action plan, steel silos will be constructed on Public Private Partnership (PPP). As of March 31, 2022 silos with a capacity of 29.25 LMT have been awarded across the States. Silos of a capacity of 11.125 LMT is complete and the remaining 18.125 LMT is under construction. The construction of silos with a capacity of 111.123 LMT in PPP mode is on the anvil.
During the year 2020-21, FCI handled a quantity of 688.57 LMT foodgrains, out of which 0.02 LMT has been declared as damaged in its godowns and its estimated value is Rs. 2.77 crore.
However the Standing Committee on Food, Consumer Affairs and Public Distribution (2020-2021) in its report ‘Procurement, Storage and Distribution of Foodgrains by Food Corporation of India’ observed that “The matter is being approached in a very casual manner by the government in a country where the incidence of hunger and malnutrition are still reported, and hence, such careless losses are a matter of grave concern”
The Committee also felt that the movement of foodgrains to distribution centres is also very slow. As a result, huge piling of foodgrains and rotting takes place, thereby causing heavy losses.
Cash Transfer
Some experts have been demanding freedom of choice to beneficiaries of the PDS to choose cash transfers equivalent to the MSP, with an additional 25 per cent for every kilogram of grain entitlement or get it in kind (wheat or rice).
The scheme is optional for States and UTs and at present, DBT-Cash Transfer Scheme is being implemented in Chandigarh, Puducherry from September 2015 and in urban areas of Dadra and Nagar Haveli from March 2016.
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