FCI's rising debt stock

India's food management system needs a revamp

The growing indebtedness of the Food Corporation of India (FCI), which bodes ill for its financial health, is essentially the consequence of recurrent under-budgeting of food subsidy by the Union government, excessive stockholding and flawed grain procurement and distribution policies. Inadequate provisions for food subsidy in successive Union Budgets in the past few years have been compelling the FCI to borrow from the National Small Savings Fund and other sources. Open-ended grain procurement at the minimum support prices (MSPs) has, on the other hand, caused excessive accumulation of food stocks, requiring needless expenses on their upkeep. Furthermore, the annual increase in the procurement prices without a simultaneous increase in the sale prices has pushed up subsidy on the food grains supplied under the national food security law. The per-kg subsidy at present is estimated at Rs 33.10 for rice and Rs 24.45 for wheat. Even this year’s Budget leaves a gap in the subsidy reimbursement of Rs 1.74 trillion, which the FCI has to cover through borrowings. This, together with the previous years’ outstanding loans of Rs 1.45 trillion, is anticipated to raise the FCI’s total debt burden to nearly Rs 3.2 trillion at the end of 2019-20. Well-advised reforms in the FCI and the food management system are, therefore, urgently needed.

Several cogent proposals to this effect were mooted by the high-level committee headed by former food minister Shanta Kumar in its report in 2015. It had suggested that the FCI should hand over all procurement operations for wheat and rice to the states, which have developed adequate infrastructure for this purpose. This would allow it to concentrate more on the areas not covered under any price support mechanism, resulting in widespread distress sales. But this sane counsel has gone unheeded. The FCI still picks up grains largely from the same set of states where it has been doing so in the past. This has distorted the cropping pattern, tilting it in favour of cereals at the cost of other food crops that are in short supply and often face price volatility.

The Shanta Kumar committee had also called for carrying out labour reforms in the FCI to bring down the grain handling costs. This recommendation has been implemented only partially and needs to be taken forward without delay. Another critical recommendation that has been totally disregarded pertains to amending the food security law. The committee had favoured a reduction in the population coverage but an increase in the monthly food grain quota of the beneficiaries to make this law truly helpful for the poor. For this, it suggested the population coverage to be curtailed from the present 67 per cent to 40 per cent, which would cover all below-poverty line households, and raising the quota to 7 kg per head, instead of 5 kg, which is inadequate to meet their food needs in full.

Going by the recent indications from Food Minister Ram Vilas Paswan, the need for revamping at least some aspects of the food management system has finally dawned upon the government. But how far it is willing to go is yet to be seen. Nothing short of radical systemic changes in the FCI and the management of food economy would suffice.