GoI had constituted a committee under Shanta Kumar to suggest reforms for Food Corporation of India. The report has been submitted. And some major reforms have been suggested. The various domains under which suggestions have been given are discussed below.
Recommendations
• Cash transfer: It has been recommended for cities having 1 million or more population. The government should give deficit states the option of either supplying grain or cash transfer. The panel also suggested the government to gradually move to cash transfer to end the pilferage and black marketing of grains. The panel estimates if food subsidy is transferred in cash, it will save the exchequer around Rs 30,000 crore per annum in subsidies, while giving a better deal to consumers. The benefit of procurement at MSP only reaches to 6% of the 90 million farmers. If farmers are given cash transfers, all of them can get it. The amount could be invested in irrigation , technological enhancement, market development etc. Giving such subsidies will also allow government to decontrol urea which, in turn, will increase its production and also get farmers to use it more judiciously. The committee has also suggested that the fertilizer industry should be deregulated and fertilizer subsidy should be passed on directly to farmers.
• Procurement Operations : FCI should hand over procurement of wheat and rice to state governments in Punjab, Haryana, Andhra Pradesh, Chhattisgarh and Odisha. They have gained sufficient experience and have created reasonable infrastructure for procurement. FCI should concentrate on procurement in the eastern belt ie Uttar Pradesh, Bihar, West Bengal and Assam, where farmers resort to distress sales due to poor state procurement. This is the region dominated by small holdings. This is the belt from where second green revolution is expected, and where FCI needs to be pro-active. If this recommendation is accepted states like Punjab will lose a lot of revenue as they levy mandi taxes on FCI purchases.
• Minimum Support Price : MSP is announced for 23 commodities. In reality, price support operates primarily for wheat and rice and that too in some states. This creates a highly skewed incentive structure in favour of wheat and rice. As a result of high MSPs in wheat and rice, farmers have got incentivised to grow just these crops, and this causes shortages and inflation in other crops like pulses, fruits and vegetables. While the country is short of pulses and oilseeds , their prices often go below MSP without any effective price support. Pulses and oilseeds deserve priority. Also, FCI procures most of the marketable surplus in key states which drives out private trade. Consumer costs are driven up by high inefficiency costs – wheat MSP is Rs 1,400 per quintal but FCI’s economic cost is Rs 2,200 per quintal.
• National Food Security Act : Legal entitlement under the National Food Security Act should be limited to 40 % of the population, as against the current norm of 67% coverage, which is excessive. This 40 per cent will include those covered under the Antyodaya Anna Yojana. Those outside this classification but priority households should get grain at a price which is half the government’s minimum support price. The committee however wants more to be given to households classified as below poverty line (BPL), 7 kg per head instead of 5 kg in a month. Many who should not get cheap food will get it when the Act is fully implemented. It has also been found that foodgrain allocation for the APL category does not get lifted and is sold in the black market. The government should defer implementation of NFSA in states that have not done end-to-end computerisation, have not put the list of beneficiaries online for anyone to verify and have not set up vigilance committees to check pilferage from the Public Distribution System.
• Private Sector Engagement : Grain storage needs to be outsourced to private and government agencies like state-owned Central Warehousing Corporation and State Warehousing Corporations and private organisations. There is a need to encourage competition in this sector, so that the quality of storage improves. FCI must focus on creating bulk grain handling godowns and upgrade the grain supply chain. Storage should be modernized – silos in place of stacking sacks in godowns, elimination of storage in the open . Transport and handling also should be modernized- containers and machinery, instead of gunny bags and loaders. Private investment through PPP mode should be encouraged in logistics and bulk handling of foodgrains could be done through grain trains.
There is criticism that this will encourage backdoor entry of big private logistics companies, at the expense of FCI. But it has been clarified that FCI’s operations are not being privatized under the guise of this report, nor is it being divided.
• Export : The committee has suggested that the food ministry should be quick to export grains or sell them in the local market as soon as FCI procures more than the requirement.
• Taxation : The committee has proposed uniform tax of minimum 3 % and maximum 4 % on wheat and rice and the same to be included in the MSP. In Punjab, this tax rate on wheat and rice as of now is 14.5 percent.
However, it skips the issue of autonomy for FCI, even though it acknowledges that FCI does not operate on business principles. The report is also silent on the role of the artiya (the middlemen) in the whole procurement process.
Barring some minor shortcomings, the report suggests a comprehensive overhaul of FCI . With these major changes in the procurement, stocking, movement and distribution of grains, the FCI will transform itself into an agency for innovations in food management.
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