Given that grain stocks with the Punjab government’s procurement agencies have improved in recent weeks, the Reserve Bank of India (RBI) may go soft on its advice to the consortium of lenders to immediately provide for
potential losses from its past exposure to the agencies.
Official sources told FE that the food ministry will shortly write to the finance ministry, urging it to prod for an easing of the RBI stance on the issue on the condition that the state government must reconcile its grain accounts with the actual stocks forthwith.
Concerned that the banks’ exposure to Punjab’s procurement agencies have not been backed by adequate foodgrain stocks with them, the RBI had, digressing from practice of letting banks to treat such lending to state government agencies as recoverable, asked banks to provide at least 15% of the loans for the current and last quarters. Banks are reluctant to do so and it will show their balance sheets in poorer light.
“We are writing to the finance ministry to approve the cash credit limit for Punjab so that procurement is not hampered. We have asked the state government to reconcile its food account,” a food ministry official said.
Meanwhile, Punjab chief minister Parkash Singh Badal was scheduled to meet Prime Minister Narendra Modi over the issue late on Monday.
“The procurement of wheat by Punjab agencies is going on smoothly and farmers would be paid as soon as the cash credit limit is sanctioned to the state government,” the food ministry official said. More than 3.5 MT of wheat has already been purchased from the farmers in Punjab till Monday in the ongoing 2016-16 rabi marketing season, he added.
The issue of missing stocks, the sources said, pertained to the pre-2014-15 period when the Food Corporation of India (FCI) used to reimburse Punjab’s agencies like Pungrain and Punjab State Civil Supplies Corporation for purchasing wheat and paddy from the farmers and deliver the grain to the corporation for running the public distribution system. Since the 2014-15 rabi marketing season, the FCI had been paying the banks directly against the cash credit limit availed by the Punjab government for procurement of wheat and paddy.
Punjab is the biggest contributor to the central-pool grain stocks; it contributed more than 10 million tonnes (mt) of wheat to the cental pool in the 2015-16 rabi marketing season out of the total purchase of 28 mt by the FCI and other state government agencies. Out of the 30 mt of rice purchased so far by the government agencies across the country in the past year, Punjab has contributed 9.2 mt.
For the 2015-16 kharif marketing season for paddy procurement, the FCI has paid `20,000 crore to the accounts held by the Punjab government with banks. While this was against 9.2 mt of rice purchased from the farmers, another `2,500 crore is likely to be paid by the FCI after final settlement of accounts.
As per the guidelines, in Punjab and Haryana, state agencies procure wheat and paddy from the farmers. While the wheat is stored with state agencies, the paddy is handed over to millers for conversion into rice. Subsequently, the FCI takes over the stock for the dispatch to the consuming states (mostly for the PDS) as per the requirement after meeting all the expenses such as Minimum Support Price (MSP), storage, milling (for conversion to rice) and transportation cost to the state agencies.