FCI needs to reinvent itself

Food Corporation of India will need to be completely overhauled as Public Distribution System (PDS) may be scrapped

GN Bureau | August 2, 2017

#Food Corporation of India   #food grains   #PDS  
Photo: Arun Kumar
Photo: Arun Kumar

It is time for the Food Corporation of India (FCI) to take on a new avatar as the prime minister has spoken about scrapping the Public Distribution System (PDS). FCI should ideally lead the food management system, instead of being just an ordinary procurement and disbursal body.
The central government, encouraged by the promising results from Chandigarh and Puducherry, may scrap the Public Distribution System (PDS) of food and essential items in the country, prime minister Narendra Modi has said.
He said that money will be directly credited to the bank accounts of the poor beneficiaries in Chandigarh and Puducherry and they can buy grain from the market. "This model may be implemented in other states," said Modi on July 31 at a meeting of parliamentarians from Delhi, Haryana, Punjab, Chandigarh, J&K, Himachal Pradesh and Uttarakhand.
If there is no PDS, then the FCI may find itself in a spot since all these years, it has aligned itself towards just procuring grain from farmers and passing it on for disbursal. Farmers look towards FCI and other procurement agencies to get a minimum support price for their produce.
Once PDS is done away with, the FCI will staring at a possibility of just procurement of grains and not being able to pass it on. In light of this, FCI must take a serious look at the evolving scenario and see how it can re-emerge as an agency that manages the food system of the country.
The Food Corporations Act, 1964 spells out the function of the FCI and says that it shall be the primary duty of the Corporation to undertake the purchase, storage, movement, transport, distribution and sale of foodgrains and other foodstuffs.
The Act says that the corporation may also, with the previous approval of the central government—
(a) promote by such means as it thinks fit the production of foodgrains and other foodstuffs; (b) set up, or assist in the setting up of, rice mills, flour mills and other undertakings for the processing of foodgrains and other foodstuffs, and (c) discharge such other functions as may be prescribed or as are supplemental, incidental or consequential to any of the functions conferred on it under this Act.
Currently, the FCI maintains buffer stock meant for supplying the public distribution system, in addition to strategic reserve of 5 million MT to meet exigency. The strategic reserves have been built since 2008-09.
An NCDEX report says that in addition to direct procurement by the FCI, the central government promotes decentralized procurement of foodgrains. Introduced in 1997-98, decentralised procurement aims at extending the benefit of procurement to larger section of farmers given beneficiaries of centralized procurement are concentrated in surplus states of Punjab, Haryana, some parts of Uttar Pradesh and Andhra Pradesh.
The decentralized scheme aims to enhance the efficiency of procurement and extend the benefits of MSP to local farmers as well as to save on transit costs. Under the scheme, state procurement agencies directly purchase paddy, wheat and procure levy rice on behalf of the central government and also store and distribute these food grains under welfare schemes. State governments of Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra and Rajasthan also procure local coarse grain. The central government reimburses the entire expenditure incurred by the state governments on the procurement operations.
The functioning of the FCI has come in for repeated criticism in the past. In fact, the Supreme Court was left stunned in January 2016 over the revelation that labourers at the FCI earned a whopping Rs. 4.5 lakh as monthly wages.
A Bench led by then chief justice T.S. Thakur said the revelation was an example of the “malpractices” in the FCI system. It said there was something “seriously wrong” within the corporation and either the government should act or the apex court would be compelled to constitute a committee led by a retired judge to probe and fix liability, reported The Hindu 
But, that is just a part of the problem. There are other serious issues at stake. A high level committee under parliamentarian Shanta Kumar went into what ails the FCI. The panel came up with recommendations, which it hoped would streamline the corporation.
The committee noted that one of the key challenges for FCI has been to carry buffer stocks way in excess of buffer stocking norms.
The Shanta Kumar committee report submitted in 2015 says that during the last five years, on an average, buffer stocks with FCI have been more than double the buffer stocking norms costing the nation thousands of crores of rupees loss without any worthwhile purpose being served. The underlying reasons for this situation are many, starting with export bans to open ended procurement with  distortions (through bonuses and high statutory levies), but the key factor is that there is no pro-active liquidation policy.
“The new face of FCI will be akin to an agency for innovations in Food Management System with a primary focus to create competition in every segment of foograin supply chain, from procurement to stocking to movement and finally distribution in TPDS, so that overall costs of the system are substantially reduced, leakages plugged, and it serves larger number of farmers and consumers. In this endeavour it will make itself much leaner and nimble (with scaled down/abolished zonal offices), focus on eastern states for procurement, upgrade the entire grain supply chain towards bulk handling and end to end computerization by bringing in investments, and technical and managerial expertise from the private sector. It will be more business oriented with a pro-active liquidation policy to liquidate stocks in OMSS/export markets, whenever actual buffer stocks exceed the norms. This would be challenging, but HLC hopes that FCI can rise to this challenge and once again play its commendable role as it did during late 1960s and early 1970s,” said the report on FCI.
On July 18, 2017, Ram Vilas Paswan, minister of consumer affairs, food and public distribution, informed the Lok Sabha that FCI has already handed over procurement operation to State Governments in Andhra Pradesh, Chhattisgarh, Odisha and Madhya Pradesh fully. FCI is participating in procurement operations in Punjab and Haryana on the request of concerned State Governments.
He said: “During KMS (Kharif marketing season) 15-16, total quantity of 70.70 LMT (lakh metric tonnes) rice was procured in comparison to 53.65LMT rice procured during KMS 14-15. During ongoing KMS 2016-17, 65.83 LMT rice has been procured as on 11.07.2017.”
Referring to the Shanta Kumar committee proposals, the minister said that India needs more bulk handling facilities and a Silo capacity of about 100 LMT (together for wheat and rice) should be created in the next 3-5 years.
The government has approved Action Plan for construction of 100 LMT silos upto 2019-20. “Silos with railway sidings at 6 locations (VGF route) for 2.5 LMT have been sanctioned. 25000 MT silo at Kotkapura has been put to use in RMS (Rabi marketing season) 2017-18,” he said.
On July 21, 2015, parliament was informed there is sufficient storage capacity for storing central pool foodgrain. The storage capacity available with FCI and State agencies is 726.43 lakh tons against the stock position of 568.34 lakh ton as on May 31, 2015.
“However, some quantity of foodgrains may get damaged/become non-issuable during storage due to various reasons such as storage pest’s attack, leakages in godowns, procurement of poor quality stocks, exposure to rains, floods, negligence on the part of concerned persons in taking precautionary measures etc. Wheat stocks are sometimes stored in Cover and Plinth (CAP) storage in open, which is also a scientific storage, due to logistic constraints during procurement season.”
Paswan also informed the Lok Sabha on March 17, 2015 that the government was examining the proposals made by the Shanta Kumar committee and “acceptable recommendations will be implemented by FCI in a time-bound manner”.
The committee had asked for a second look at NFSA, its commitments and implementation. “Given that leakages in PDS range from 40 to 50 percent, and in some states go as high as 60 to 70 percent, government should defer implementation of NFSA in states that have not done end to end computerisesation; have not put the list of benefi-ciaries online for anyone to verify, and have not set up vigilance committees to check pilferage from PDS.”
The Shanta Kumar committee had also recommended gradual introduction of cash transfers in PDS, starting with large cities with more than 1 million population; extending it to grain surplus states, and then giving option to deficit states to opt for cash or physical grain distribution.
“This will be much more cost effective way to help the poor, without much distortion in the production basket, and in line with best international practices. The panel’s calculations reveal that it can save the exchequer more than Rs 30,000 crore annually, and still giving better deal to consumers. Cash transfers can be indexed with overall price level to protect the amount of real income transfers, given in the name of lady of the house, and routed through Prime Minister's Jan-Dhan Yojana (PMJDY) and dovetailing Aadhaar and Unique Identification number. This will empower the consumers, plug high leakages in PDS, save resources, and it can be rolled out over the next 2-3 years.”




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