High Level Committee (HCL) on restructuring of Food Corporation of India (FCI)
has submitted its report to the Government. It was submitted by Shri Shanta Kumar, Chairman of
the Committee to the Prime Minister, Shri Narendra Modi yesterday. The HCL
was set up by the Government on 20th August, 2014.The major issue
before the Committee was how to make the entire food grain management system
more efficient by reorienting the role of FCI in MSP operations, procurement,
storage and distribution of grains under Targeted Public Distribution System (TPDS).
The Committee had wide consultations with several Chief Ministers, Food
Secretaries and other stakeholders in various States. Suggestions from public
were invited through various newspapers also. Executive Summary of the report
is as follows-
Backdrop:
·
Government of India (GoI) set up a High Level
Committee (HLC) in August 2014 with Shri Shanta Kumar as the Chairman, six members and a special
invitee to suggest restructuring or unbundling of FCI with a view to improve
its operational efficiency and financial management. GoI
also asked HLC to suggest measures for overall improvement in management of foodgrains by FCI; to suggest reorienting the role and
functions of FCI in MSP operations, storage and distribution of foodgrains and food security systems of the country; and to
suggest cost effective models for storage and movement of grains and
integration of supply chain of foodgrains in the
country.
·
The HLC had wide consultations with various stakeholders in its several
meetings in different parts of the country. It also invited comments
through advertisements in newspapers and electronic media. HLC would like to
gratefully acknowledge that it has benefitted
immensely from this consultative process, and many of its recommendations are
based on very intensive discussions with stakeholders.
·
In order to conceive reorienting the role of FCI and its consequent
restructuring, one has to revisit the basic objectives with which FCI was
created, and what was the background of food situation at that time. It is
against that backdrop, one has to see how far FCI has achieved its objectives,
what the current situation on foodgrain front, what are the new challenges with regard to food security,
and how best these challenges can be met with a reoriented or restructured
institution like FCI.
·
FCI was set up in 1965 (under the Food Corporation Act, 1964) against the
backdrop of major shortage of grains, especially wheat, in the country. Imports
of wheat under PL- 480 were as high as 6-7 MMT, when country's wheat production
hovered around 10-12 MMT, and country did not have enough foreign exchange to
buy that much quantity of wheat from global markets. Self-sufficiency in grains
was the most pressing objective, and keeping that in mind high yielding seeds
of wheat were imported from Mexico. Agricultural Prices Commission was created
in 1965 to recommend remunerative prices to farmers, and FCI was mandated
with three basic objectives: (1) to provide effective price support to
farmers; (2) to procure and supply grains to PDS for distributing subsidized
staples to economically vulnerable sections of society; and (3) keep a
strategic reserve to stabilize markets for basic foodgrains.
·
How far FCI has achieved these objectives and how far the nation has moved on
food security front? The NSSO's (70th round)
data for 2012-13 reveals that of all the paddy farmers who reported sale of
paddy during July-December 2012, only 13.5 percent farmers sold it to any
procurement agency (during January-June 2013, this ratio for paddy farmers is
only 10 percent), and in case of wheat farmers (January-June, 2013), only 16.2
percent farmers sold to any procurement agency. Together, they account for only
6 percent of total farmers in the country, who have gained from selling wheat
and paddy directly to any procurement agency. That diversions of grains from
PDS amounted to 46.7 percent in 2011-12 (based on calculations of offtake from central pool and NSSO's
(68th round) consumption data from PDS); and that country had hugely surplus
grain stocks, much above the buffer stock norms, even when cereal inflation was
hovering between 8-12 percent in the last few years. This situation existed
even after exporting more than 42 MMT of cereals during 2012-13 and 2013-14
combined, which India has presumably never done in its recorded history.
·
What all this indicates is that India has moved far away from the shortages of
1960s, into surpluses of cereals in post-2010 period, but somehow the food
management system, of which FCI is an integral part, has not been able to
deliver on its objectives very efficiently. The benefits of procurement have
not gone to larger number of farmers beyond a few states, and leakages in TPDS
remain unacceptably high. Needless to say, this necessitates a re-look at the
very role and functions of FCI within the ambit of overall food management
systems, and concerns of food security.
Major Recommendations of
HLC:
Below is a summary of major recommendations of HLC
keeping in mind how procurement benefits can reach larger number of farmers;
how PDS system can be re-oriented to give better deal to economically
vulnerable consumers at a lower cost and in a financially sustainable manner;
and finally how stocking and movement operations can be made more efficient and
cost effective in not only feeding PDS but also in stabilizing grain markets.
On procurement related issues
·
HLC recommends that FCI hand over all procurement operations of wheat, paddy
and rice to states that have gained sufficient experience in this regard and
have created reasonable infrastructure for procurement. These states are Andhra
Pradesh, Chhattisgarh, Haryana,
Madhya Pradesh, Odisha and Punjab (in alphabetical
order). FCI will accept only the surplus (after deducting the needs of the
states under NFSA) from these state governments (not millers) to be moved to
deficit states. FCI should move on to help those states where farmers suffer
from distress sales at prices much below MSP, and which are dominated by small holdings,
like Eastern Uttar Pradesh, Bihar, West Bengal, Assam etc. This is the belt
from where second green revolution is expected, and where FCI needs to be
pro-active, mobilizing state and other agencies to provide benefits of MSP and
procurement to larger number of farmers, especially small and marginal ones.
·
DFPD/FCI at the Centre should enter into an agreement with states before every
procurement season regarding costing norms and basic rules for procurement.
Three issues are critical to be streamlined to bring rationality in procurement
operations and bringing back private sector in competition with state agencies
in grain procurement: (1) Centre should make it clear to states that in case of
any bonus being given by them on top of MSP, Centre will not accept grains
under the central pool beyond the quantity needed by the state for its own PDS
and OWS; (2) the statutory levies including commissions, which vary from
less than 2 percent in Gujarat and West Bengal to 14.5 percent in Punjab, need
to be brought down uniformly to 3 percent, or at most 4 percent of MSP, and
this should be included in MSP itself (states losing revenue due to this
rationalization of levies can be compensated through a diversification package
for the next 3-5 years); (3) quality checks in procurement have to be adhered
to, and anything below the specified quality will not be acceptable under
central pool. Quality checks can be done either by FCI and/or any third party
accredited agency in a transparent manner with the help of mechanized processes
of quality checking. HLC also recommends that levy on rice millers be done away
with. HLC notes and commends that some steps have been taken recently by
DFPD in this direction, but they should be institutionalized for their logical
conclusion.
·
Negotiable warehouse receipt system (NWRs) should be
taken up on priority and scaled up quickly. Under this system, farmers can
deposit their produce to the registered warehouses, and get say 80 percent
advance from banks against their produce valued at MSP. They can sell later
when they feel prices are good for them. This will bring back the private
sector, reduce massively the costs of storage to the government, and be more
compatible with a market economy. GoI (through
FCI and Warehousing Development Regulatory Authority (WDRA)) can encourage
building of these warehouses with better technology, and keep an on-line track
of grain stocks with them on daily/weekly basis. In due course, GoI can explore whether this system can be used to
compensate the farmers in case of market prices falling below MSP without
physically handling large quantities of grain.
·
GoI needs to revisit its MSP policy. Currently, MSPs are announced for 23 commodities, but effectively
price support operates primarily in wheat and rice and that too in selected
states. This creates highly skewed incentive structures in favour
of wheat and rice. While country is short of pulses and oilseeds (edible oils),
their prices often go below MSP without any effective price support.
Further, trade policy works independently of MSP policy, and many a times,
imports of pulses come at prices much below their MSP. This hampers
diversification. HLC recommends that pulses and oilseeds deserve priority and GoI must provide better price support operations for them,
and dovetail their MSP policy with trade policy so that their landed costs are
not below their MSP.
On PDS and NFSA related issues
·
HLC recommends that GoI has 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, GoI should defer implementation of NFSA in states that have
not done end to end computerization; have not put the list of beneficiaries
online for anyone to verify, and have not set up vigilance committees to check
pilferage from PDS.
·
HLC also recommends to have a relook at the current
coverage of 67 percent of population; priority households getting only 5 kgs/person as allocation; and central issue prices
being frozen for three years at Rs 3/2/1/kg for
rice/wheat/coarse cereals respectively. HLC's
examination of these issue reveals that 67 percent coverage of population is on
much higher side, and should be brought down to around 40 percent, which will
comfortably cover BPL families and some even above that; 5kg grain per person
to priority households is actually making BPL households worse off, who used to
get 7kg/person under the TPDS. So, HLC recommends that they be given
7kg/person. On central issue prices, HLC recommends while Antyodya
households can be given grains at Rs 3/2/1/kg for the
time being, but pricing for priority households must be linked to MSP, say 50
percent of MSP. Else, HLC feels that this NFSA will put undue financial burden
on the exchequer, and investments in agriculture and food space may suffer. HLC
would recommend greater investments in agriculture in stabilizing production
and building efficient value chains to help the poor as well as farmers.
·
HLC recommends that targeted beneficiaries under NFSA or TPDS are given 6
months ration immediately after the procurement season ends. This will save the
consumers from various hassles of monthly arrivals at FPS and also save on the
storage costs of agencies. Consumers can be given well designed bins at highly
subsidized rates to keep the rations safely in their homes.
·
HLC recommends 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. HLC's
calculations reveal that it can save the exchequer more than Rs 30,000 crores 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 (UID)
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.
On stocking and movement related issues
·
HLC recommends that FCI should outsource its stocking operations to various
agencies such as Central Warehousing Corporation, State Warehousing
Corporation, Private Sector under Private Entrepreneur Guarantee (PEG) scheme,
and even state governments that are building silos through private sector on
state lands (as in Madhya Pradesh). It should be done on competitive bidding
basis, inviting various stakeholders and creating competition to bring down
costs of storage.
·
India needs more bulk handling facilities than it currently has. Many of FCI's old conventional storages that have existed for long
number of years can be converted to silos with the help of private sector and
other stocking agencies. Better mechanization is needed in all silos as well as
conventional storages.
·
Covered and plinth (CAP) storage should be gradually phased out with no grain
stocks remaining in CAP for more than 3 months. Silo bag
technology and conventional storages where ever possible should replace CAP.
·
Movement of grains needs to be gradually containerized which will help reduce
transit losses, and have faster turn-around-time by having more mechanized
facilities at railway sidings.
On Buffer Stocking Operations
and Liquidation Policy
·
One of the key challenges for FCI has been to carry buffer stocks way in excess
of buffer stocking norms. 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. DFPD/FCI have to
work in tandem to liquidate stocks in OMSS or in export markets, whenever
stocks go beyond the buffer stock norms. The current system is extremely
ad-hoc, slow and costs the nation heavily. A transparent liquidation policy is
the need of hour, which should automatically kick-in when FCI is faced with
surplus stocks than buffer norms. Greater flexibility to FCI with business
orientation to operate in OMSS and export markets is needed.
On Labour
Related Issues
·
FCI engages large number of workers (loaders) to get the job of
loading/unloading done smoothly and in time. Currently there are roughly 16,000
departmental workers, about 26,000 workers that operate under Direct Payment
System (DPS), some under no work no pay, and about one
lakh contract workers. A departmental worker (loader)
costs FCI about Rs 79,500/per month (April-Nov 2014
data) vis-a-vis DPS worker at Rs
26,000/per month and contract labour costs about Rs 10,000/per month. Some of the departmental labours (more than 300) have received wages (including
arrears) even more than Rs 4 lakhs/per
month in August 2014. This happens because of the incentive system in notified
depots, and widely used proxy labour. This is a major
aberration and must be fixed, either by de-notifying these depots, or handing
them over to states or private sector on service contracts, and by fixing a
maximum limit on the incentives per person that will not allow him to work for
more than say 1.25 times the work agreed with him. These depots should be put
on priority for mechanization so that reliance on departmental labour reduces. If need be, FCI should be allowed to hire
people under DPS/NWNP system. Further, HLC recommends that the condition of
contract labour, which works the hardest and are the
largest in number, should be improved by giving them better
facilities.
On direct subsidy to farmers
·
Since the whole system of food management operates within the ambit of
providing food security at a national as well as at household level, it must be
realized that farmers need due incentives to raise productivity and overall
food production in the country. Most of the OECD countries as well as
large emerging economies do support their farmers. India also gives large
subsidy on fertilizers (more than Rs 72,000 crores in budget of FY 2015 plus pending bills of about Rs 30,000-35,000 crores).
Urea prices are administered at a very low level compared to prices of
DAP and MOP, creating highly imbalanced use of N, P and K. HLC recommends that
farmers be given direct cash subsidy (of about Rs
7000/ha) and fertilizer sector can then be deregulated. This would help plug
diversion of urea to non-agricultural uses as well as to neighbouring
countries, and help raise the efficiency of fertilizer use. It may be noted
that this type of direct cash subsidy to farmers will go a long way to help
those who take loans from money lenders at exorbitant interest rates to buy
fertilizers or other inputs, thus relieving some distress in the agrarian
sector.
On end to end computerization
·
HLC recommends total end to end computerization of the entire food management
system, starting from procurement from farmers, to stocking, movement and
finally distribution through TPDS. It can be done on real time basis, and some
states have done a commendable job on computerizing the procurement operations.
But its dovetailing with movement and distribution in
TPDS has been a weak link, and that is where much of the diversions take place.
On the new face of FCI
·
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.
Full text of the report of HLC is available on
http://fciweb.nic.in/app/webroot/upload/News/Report%20of%20the%20High%20Level%20Committee%20on%20Reorienting%20the%20Role%20and%20Restructuring%20of%20FCI_English_1.pdf
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NCJ/NN