FCI revamp panel may propose limiting grain purchase to just buffer need

Revamp panel might also give corporation a cushion of 10-15 mt of strategic reserve above its buffer requirement to enable swifter offloading in market

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As the government gets down to restructuring Food Corporation of India (FCI), a high-powered committee, headed by former Union minister Shanta Kumar, is considering limiting FCI’s procurement of wheat and rice only to the extent needed to meet buffer stock requirement, to reform the corporation’s working. The committee, which was to submit its report by November 21, was recently granted an extension of two months.

Officials said the committee, in its final recommendation, might also give FCI a cushion of 10-15 million tonnes  (mt) of strategic reserve over and above its buffer requirement, to enable swifter offloading in the open market as and when required. The current requirement for strategic reserve is five mt.

“Foodgrain purchased over and above the buffer requirement is a drain on the national exchequer and has led to wastage of grains, apart from straining the corporation’s storage capabilities,” said a senior official.

At present, FCI’s buffer requirement stipulates the government maintain a minimum level of foodgrain stocks at the end of each quarter to meet the requirement of public distribution system. However, usually at the end of the April-June and August-October quarters, grain stored in FCI warehouses is much more than the required quantity due to bumper procurement of wheat and rice by state agencies and the corporation. This not only burdens the state exchequer by inflating the storage and holding charges but also strains the available storage facilities. On July 1 each year, FCI is required to hold 31.9 mt of grains (buffer plus strategic reserve); on October 1, it is 21.2 mt.

Recently, a high-powered panel of experts has favoured this requirement be altered in view of higher purchase.

The proposed norm suggests that FCI hold 41.1 mt as on July 1 (buffer plus strategic reserve) and 30.7 mt on October 1. The recently-suggested revised norm is, however, much less than an earlier proposed buffer norm, formulated on study by Ramesh Chand, director of National Centre for Agricultural Economics and Policy Research (NCAP). The NCAP study had recommended food stocks of 53.37 mt on July 1 and 43.51 mt on October 1.   

“The fresh analysis is perhaps based on an assumption that the government might move towards partial cash transfer of food subsidy in the near future,” another senior official said. Such an exercise to alter the buffer norm was undertaken in 2005, too. An extra five mt of wheat and rice were added as strategic reserve from 2009 onwards.

The committee is also likely to suggest FCI be split into three entities —one handling procurement, the second focused on storage, and the third one for distribution — officials said. When contacted, committee chairman Shanta Kumar said the panel had met a wide cross-section of people and discussed options but was yet to reach a conclusion on any suggestion.

Although it will lessen burden on the exchequer, any move to limit foodgrain procurement or split FCI might face resistance from workers and trade unions.

“We are fundamentally not opposed to FCI limiting its grain procurement but it is not a practical solution, as no one can deny a farmer his right to sell grain to FCI when market prices fall below the MSP (minimum support price),” said V K Duggal, president of one of the biggest employee unions in FCI.

He said any move to tri-furcate FCI will be met with strong resistance and they will launch nation-wide agitation against it.

“Instead, of doing all this, the government should empower the Board of FCI to take independent decisions,” Duggal said.

A FCI spokesperson said that the Corporation would not like to comment on the matter until the final report of the high-powered committee is submitted.