The report of the high level committee (HLC) for restructuring of the Food Corporation of India (FCI) demolishes some of the myths that have perpetuated in the national psyche. The common perception that farmers are enormously benefiting by MSP procurement of wheat and rice by government agencies is negated by the HLC observation (determined on the basis of 70th NSSO—National Sample Survey Office) that only 5.8% agricultural households are currently beneficiary from this system. It, inter alia, implies that the FCI has outlived its procurement related utility and requires resurrection.
The operational efficiency of the FCI is “dis-economy of scales”—that with rising volumes of procurement and distribution, costs are ascending and not descending. The cost of handling wheat is 61% and rice is 40% of MSP in 2014-15 (average 50%), as against 48% and 28% (average 38%), respectively, in 2009-10. The leakage percentage of grains of about 47% through the public distribution system (PDS) is again evidenced.
The constraints in the quantum and quality of storage are well highlighted. The hoarding of grains far in excess of buffer norms (see graph) either due to imprudent policies or inaction or missing export opportunities has blocked thousands of crores of rupees every year, leading to wastage and high inflation. These conclusions are supported by robust data. HLC’s advice in some cases is extremely critical, others cosmetic and some are missing.
HLC recommends shelving of the National Food Security Act (NFSA) of 2013 in states where its implementation has yet to commence; reduce coverage to 40% of population to stem the tide of climbing subsidies (see graph) and introduce income transfer mode through the Jan-Dhan Yojana. Shanta Kumar, the chairman of the HLC, briefed the media that the BJP’s endorsement to the NFSA in the UPA’s regime was driven by the politics of “vote convenience” prior to the general elections. In fact, 90% subsidy on 5 kg grains per person per month for 67% of population under the NFSA will amplify PDS diversions (beyond 47%), for which the FCI will continue to be blamed. If NFSA is allowed to continue, the FCI will become a bottomless pit of subsidies because MSP will be revised upward annually and release price will remain unchanged at R3/2/1 formula.
The report profoundly provokes the NDA to overhaul framework of the NFSA. Savings in handling cost combined with reduction in mandi taxes, etc, can significantly reduce subsidies. Contentious WTO subventions can be set right by reinventing the NFSA.
The concern of the HLC on high statutory and arbitrary levies (mandi taxes, etc) by the states, ranging from 3.6% (Rajasthan) to 14.5% (Punjab), is also crucial for levelling out market prices and for active participation of the private sector. This is extremely challenging for the Union government till such time the GST issue remains unresolved. How state governments, the Punjab government and BJP-ally Shiromani Akali Dal will react at political level needs to be watched.
Another view of the HLC is to let the states, which are adept in wheat and paddy procurement, such as Punjab, Haryana, Madhya Pradesh, Andhra Pradesh, Chhattisgarh and Odisha, undertake purchasing operations through their own nominated agencies. In 2014-15, the FCI share in wheat and paddy procurement is 12.61% and 1.41%, respectively (FCI website). The rest of the acquisition is done by state government agencies (SGAs). The FCI has, thus, substantially exited itself out of direct procurement and moved over to procurement by SGAs. The committee, thus, endorses the direction already in practice and gives a cosmetic touch to the existing policy profile.
Furthermore, the HLC suggests that the FCI may activate itself in regions such as eastern Uttar Pradesh, Bihar and West Bengal, Assam, etc, that is contrary to the process of mitigation of the FCI’s direct engagement. When the report maintains that the FCI’s procurement system has outlived its utility, then to replicate the same scheme for marginal farmers in such areas is contradiction to the conclusion that MSP benefits to a minuscule percentage of farmers.
Food policies and politics are intimately interlinked. The idea of abandoning the FCI’s procurement from the two most productive states of India—Punjab and Haryana—can have discordant overtones especially from the Jat community who owe allegiance to the Shiromani Akali Dal. Its implementation, though cosmetic, may be controversial.
The food ministry has already reduced levy rice obligation from 75% to 25% and the HLC view of zero levies is a further progression to that very prescription. Likewise, refusing/limiting procurement from the states gifting bonuses too is in line with the policy adopted by the food ministry.
Giving six months’ ration to beneficiaries at the end of each procurement season is debatable. Upfront one-time payment may be difficult for consumers. The percentage of leakages in the market will also escalate much beyond 47%.
The page 21 of the report reveals that the FCI will buy rice only from the state governments. Millers will be totally excluded. The onus of any mismanagement of conversion of paddy into rice through millers devolves upon the SGAs. The FCI may be out of the noose of negligence—but it amounts to shifting the problem from the FCI to the SGAs. The financing of paddy operation by the government agencies should have been dispensed and direct rice procurement would have been the right step forward. There could be procedural issues in arriving at the rice price—but that is what is missing in the report.
The report does mention of lack of alertness and bureaucratic dithering in undertaking grain exports from the FCI stocks. However, it could have given some guidance on the trigger points on this issue. Just as essentiality of imports is activated once stocks fall below buffer norms, what should be the “excess”—when stocks exceed the buffer limits for initiating exports on the basis of MSP plus freight costs and handling expenses at ports or any other formula? Of course, such an “excess” would have accounted for the domestic necessities. This could have strengthened the hands of the food and commerce ministry for exploiting the niche opportunities in international trade with extremely short-time horizons.
The HLC has not commented on the trifurcation of the FCI into three distinct agencies—procurement, distribution and storage companies—as suggested by the Prime Minister during the election campaign. Another step that will transform the FCI functioning will be the least or minimal usage of gunny or PP bags so that modern silo/hopper wagons system is introduced and handling shifts to “machine back” from “human back” to which the HLC has referred. Now let us watch to what extent the food ministry, PMO or states accept the wisdom of the HLC.
The author is a grains trade expert