Limiting procurement is the only solution
With the Food Corporation of India (FCI) sitting on well over two-and-a-half times the wheat and rice stocks it needs to have, it is not surprising, as FE reported on Monday, that the corporation should have several tonnes of rice that is yet to be returned to it by the millers—the stock is worth over R10,000 crore. Indeed, larger amounts are probably rotting each year in FCI’s godowns since it does not have anywhere near the capacity it needs to store the grain, more so when the procurement season peaks—at its peak in June 2012, stocks had risen to 82 million tonnes. Apart from the wasted stock, there is the money blocked in the procurement, the higher costs of procurement incidentals and the impact on the market prices. FCI had 69.5 million tonnes of buffer in October 2012 compared to the norm of 21.2 million—it had 59.5 million tonnes in October 2013 and 53 million tonnes in October 2013. Over 30 million tonnes of buffer means a locked up value of about R50,000 crore; while higher procurement incidentals drive up the costs of wheat and rice in the market, this is worsened by the fact that with FCI mopping up most supplies in critical states, there is little left for the private trade to buy and sell.
Given how many committees have been set up to suggest how to fix FCI—there was even a study given to McKinsey & Co—there can’t be too many solutions left to be tried. Scientific stocking techniques, more covered granaries, first-in-first-out are obvious solutions that need to be implemented, but the real solution can only lie in limiting procurement by FCI. As long as FCI has 2-3 times the grain it needs, stocking it is going to be costly and a problem. More important, with the direct benefits transfer being tried out, there is no reason why FCI should be carrying out unlimited procurement anyway. NSS data shows there is a big problem in even states such as Chhattisgarh and Tamil Nadu where the PDS is supposed to be running well. While over 71% of the rice bought by the poor in 2011 was from ration shops in Tamil Nadu, it was an impressive 48% in Chhattisgarh—the figures were 50.6% and 18.2% in 2004 for the two states, respectively. What’s important, however, is the quantity bought. Between 2004 and 2011, the poor reduced rice consumption from 11 kg to 9.8 kg in Chhattisgarh and from 8.9 kg to 7.7 kg in Tamil Nadu. So, if the 250 million poor in India were to be given a subsidy of R100 per month—@R20 per kg for 5 kg of wheat/rice that the Food Security Act promises—that would add to R30,000 crore compared to the R1.5 lakh crore spent by FCI on procuring 60-70 million tonnes of foodgrain each year, even half of which does not reach the really poor. Any FCI solution that does not address the issue of procurement is a waste of time.