Food Corporation spent Rs 1.2 lakh crore for ‘excess’ stocks, value down by a quarter

New Delhi | May 28, 2019 6:01 AM

Food grain stocks with FCI and other agencies tend to fall to the lowest levels in April as it follows the wheat marketing year and start of the new procurement season.

sci, food corporation of india, foodWhile 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.

By Prabhudatta Mishra

The Food Corporation of India (FCI) and state government agencies among them were holding excess food grain stock (above the buffer norm) worth Rs 1.18 lakh crore (economic cost) on April 1, 2019, in the ‘central pool’ — theoretically, the government could have built 4,000 km of 6-lane greenfield national highways if these agencies were to monetise the surplus stock.

This was even as fiscally-stressed Centre’s food subsidy dues to FCI were close to a staggering Rs 2 lakh crore at the start of this fiscal and for the third year in a row; it had to force the corporation to tap the National Small Savings Fund (NSSF) loan. FCI borrowed an additional Rs 60,000 crore from the NSSF in April 2019 to ensure its operations under the National Food Security Act are not disrupted.

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. Even if the FCI were to sell the excess stock in the open market now, it would fetch some Rs 30,000 crore less than the cost incurred by it to create it. Besides, the annual carrying cost of grain is roughly 12-13% to the economic cost and this overburdens the FCI and other designated NFSA agencies.

For long, experts have been advocating that that current public procurement+distribution system for food subsidy be replaced with more cost-effective alternatives such as conditional cash transfers and food stamps/vouchers/coupons. Public food stocks could be limited to the extent needed for food security, they have argued.

Food grain stocks with FCI and other agencies tend to fall to the lowest levels in April as it follows the wheat marketing year and start of the new procurement season. On April 1 this year, the central pool had rice and wheat stocks of 39.83 million tonne (mt) and 17 mt, respectively, against buffer+strategic reserves levels of 13.58 mt and 7.46 mt. So, the surplus rice stock on April 1 was as high as 26.25 mt while the excess wheat stock was 9.53 mt.

With the rabi procurement likely to be somewhat robust, the central pool will possibly have even higher surplus stocks by July.

Also read: Reforming FCI not a piece of cake

According to Siraj Hussain, former agriculture secretary, against the buffer norm for wheat for July 1 of 27.58 mt, the actual stock could be as high as 47.6 mt.

The difference between the economic cost of food grains and issue prices (which, under the NFSA are `3/kg for rice and Rs 2/kg for wheat) is incurred by the Centre as food subsidy. In addition to procuring food grains under the NFSA and distributing them through FCI and other networks, grains are procured to meet the buffer requirements in the interest of the country’s food security. So, the Centre’s food subsidy budget also includes carrying cost of the buffer stock.

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