The consultancy firm was hired by the FCI to improve its functioning in 2005.
McKinsey had suggested the creation of an integrated grain regulator for ensuring a level-playing field for government agencies and private players and direct procurement of grains from the farmers, bypassing the mandis.
Due to high taxation rate on grain procurement in mandis of Punjab and Haryana, the biggest contributor to central grain pool, the consultancy firm had suggested an incentive of Rs 10 a quintal for direct procurement at the FCI godowns, bypassing taxes as high as 14.5% imposed at the mandis in Punjab and Haryana. The direct procurement was not a success as farmers still prefer to bring their produce to mandis, FCI had stated in its status report.
An official with the food department of Punjab said middlemen in the mandis extend credit and other support to farmers for carrying out agricultural activities thus farmers prefer the mandi routes to sell their produce to the procurement agencies.
As reported by FE earlier, states such as Punjab and Haryana levy more than Rs 10,000 crore on grain procurement, which is reflected in the food subsidy budget. McKinsey's suggestion for a grain regulator has not progressed further as the FCI, in collaboration with state agencies, purchase major chunk of grain from mandis in states such as Punjab, Haryana, Madhya Pradesh, Chhattisgarh and Orissa, driving out private players from grain trade.
Reorienting the entire food security complex, from open-ended procurement to stocking and distribution through highly leaky PDS, needs to be revisited. It is a big-ticket item and needs some cool thinking within the government, said Ashok Gulati, chair professor (Agriculture), Indian Council for Research on International Economic Relations and former chairman of Commission for Agricultural Costs and Prices said.
Some of the measures suggested by McKinsey had been implemented by FCI include refinancing of buffer stocks and receivables through issue of bonds, introduction of management information system, outsourcing of manpower in non-critical activities to private sector, decentralised procurement states and creation of price monitoring cell.
The BJP in its manifesto promised the creation of three separate entities (procurement, storage and distribution) from FCI to bring efficiency in administration and ensure that non of the three operations supplement each other. In 2011, PM Modi had suggested unbundling of FCI as one of key measures to curb sharp spike in prices. The move to unbundle FCI was initially mooted during the tenure of previous NDA government. However, the proposal did not find favour with NDA allies and others.