Given the National Food Security Act and the government's plan to double farmers' income by 2022, the costs of procurement and storage of grains could rise further in the coming years.
To bridge the deficit in India’s public capacity for food grain storage and cut the carrying cost of Food Corporation of India that inflates the food subsidy bill, the Centre is considering privatising food stock management. Under a plan being formulated, the revenue generated from the leasing of FCI’s covered warehouses to private players would be used by the corporation to create greenfield warehousing infrastructure. The private players, who would be selected through competitive bidding, would get fees for carrying out the stock holding and maintenance operations.
The FCI’s annual carrying cost of grains is roughly 12-13% of the economic cost of grains, and is estimated to rise 43% to Rs 16,411 crore in FY20. The plan, an official said, is to lease FCI’s covered warehouses out to private parties and also simultaneously enhance its storage capacity by 50%. Food stocks held by the FCI stood at 30.62 million tonne (MT) as on March 31, 2019.
A major portion of these stocks were held in private warehouses as FCI’s covered warehousing capacity was only 12.73 MT. It has another 2.6 MT of outdoor storage and plinth or CAP capacity, which often leads to rotting of food grains and loss of hundreds of crores of rupees.
Augmenting the storage capacity is essential to handle the grains being procured to prevent collapse of market prices.
“Besides financing difficulties, project risk is too high in India. So, the FCI is better placed for building greenfield warehouses while private players can upgrade the existing infrastructure of FCI to augment capacities and introduce new technologies in stock maintenance,” the official said.
Officials reckon stock management by the FCI has been poor even though it has high cost manpower. Private players could halve the manpower cost, they feel. Given the National Food Security Act and the government’s plan to double farmers’ income by 2022, the costs of procurement and storage of grains could rise further in the coming years. Of course, poor economic management is one reason for the FCI’s cost escalation which has forced it to tap NSSF loans in a big way in recent years, as the fiscally-stressed government often defers the release of subsidy amounts to the corporation.
The FCI and state government agencies among them were holding excess food grain stock (above the buffer norm) worth Rs 1.25 lakh crore (economic cost) on July 1, 2019, in the ‘central pool’. Food grain stocks with the FCI and other agencies in fact tend to fall to the lowest levels in April as it follows the wheat marketing year and start of the new procurement season.
While offloading the excess stocks appears to be a rational option for the FCI rather than pile up more debt, it lacks a policy mandate to exercise that choice. As FE reported recently, the finance ministry is mulling options to cut FCI stocks, including exports.
On July 1 this year, the central pool had rice and wheat stocks of 35.46 MT and 45.83 MT, respectively, against buffer+strategic reserves levels of 13.54 MT and 27.58 MT.