Economics · Governance · Law · Public Policy

Redefining the Role and Functions of FCI

The backdrop has changed dramatically. But where does India stand today?  India has emerged as the largest exporter of the rice in the world. In the Financial Year 2013, total cereal exports amounted to 22 MMT and in FY 2014, it amounted to 21 MMT. So, in 2 years it amounted to 43 MMT which India has never achieved in its entire recorded history. In brief, there is a paradigm shift on food (cereal) front, between the time when FCI was created and today. The production has increased substantially; India has emerged as net exporter of cereals with more than comfortable stocks with public agencies and reasonably good foreign exchange reserves giving ample cushion to leverage global markets for imports, as and when the need arises. On top of all this, consumption patterns are shifting away from cereals; the per capita consumption of cereals is falling over time and this is now happening even in the lowest expenditure decile groups. With rising incomes, as one would expect, people are consuming more of non-cereals food products, ranging from oils and fats, to fruits and vegetables, milk and milk products, and eggs, fish and meat.

The role of Food Corporation of India (FCI) becomes even more important in the backdrop of National Food Security Act, 2013. Performance of any institution should be judged against the objectives it was supposed to perform. As elucidated in the last chapter, The Food Corporation of India came into existence in 1965 under the Food Corporation’s Act of 1964 to fulfill the following objectives of the food policy:

  1. provide effective price support operations to safeguard the interests of the farmers;
  2. to distribute food grains through-out the country for public distribution system(PDS);
  3. to maintain satisfactory level of operational and buffer stocks of foodgrains to ensure National Food Security.

It is important to understand these three objectives for a proper evaluation of the FCI because it is time to re-examine its role and functions in the light of substantial changes on food front, especially cereals.

FCI is the nodal agency for procurement of food grain and its distribution through the Public Distribution System. The High Level Committee for restructuring of the Food Corporation of India (FCI) chaired by senior Bharatiya Janata Party leader Sh. Shanta Kumar submitted its report to the to the Prime Minister for complete overhaul of the food economy.

There are a lot of issues relating to the internal working of the FCI, one of the major issues is related to the procurement operations of wheat, paddy and rice to different States. FCI was procuring 12% of the the wheat produced and 70% of the rice. Rice millers are usually at the mercy of the FCI Officials, but according to my perception States should be given equal opportunity to procure not only wheat but also rice. There is corruption within the FCI which is frightening. There is a dire need to remove the root causes of corruption. Also, it is said that the scope for corruption will reduce when the work is simplified. The procedure for quality control should be transparent and mechanized which will also help in reducing corruption. The maximum corruption is in the quality control specification and checking. Right now, food grains are manually checked, someone picks up a fistful of grain and says the moisture level is 5 per cent or 10 per cent.

Also it has suggested that there should be a cash transfer of food subsidy. It is believed to have recommended that food subsidies be transferred in cash for the 52 cities having a population of more than a million, over the next two years. This system of cash transfer will definitely support both the poor farmer and the poor consumer. Even if this system would be followed, it will not be possible for the subsidized food to reach all the beneficiaries. In the case of fertilizer subsidy, the cash transfer of Rs 7000 per hectare will result in savings of Rs 15,000-20,000 crore. In the case of food subsidy, the government will save Rs 30,000 crore. Cash transfers would be beneficial for those farmers who don’t get subsidized rations because of leakage, they have to buy from the market and are not compensated for it. But, it is said that Minimum Support Price (MSP) is essential to provide relief to the farmers. MSP will have no meaning if we don’t procure.

In the short run, the panel has suggested that the National Food Security Act be curtailed. Instead of providing subsidized grain to at least 67 per cent of the population across the country, the law should provide 7 kg of grain per person (instead of 5 kg) at a much lower subsidy to a maximum of 40 per cent of the population. But, one criticism that can be leveled against this is that on one hand we are reducing the coverage from 67% to 40%, on the other hand we have recommended increasing allocation to 7 kg per person from 5 kg. This report is both pro-farmer and pro-poor.

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. One of the loopholes is the incentive system in notified depots and widely used proxy labour. This aberration should 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. Secondly, conditions should be improved by providing them with better facilities like health, sanitation, water supply, etc.

The terms of reference of the committee were:

  1. To examine the present day administrative, functional and financial structure of FCI.
  2. To examine the modus operandi of its various operations.
  3. The unwieldy size of FCI- The work should be outsourced for example its stocking operations to various agencies such as Central Warehousing Corporation (CWC), State Warehousing Corporation (SWC), Private Sector under Private Entrepreneur Guarantee (PEG) scheme.
  4. At present, the leakage in the Public Distribution System (PDS) is estimated at 13.7%. There is a dire need to curb the leakages which can be done through end to end computerization of the entire food management system, starting from procurement from farmers, to stocking, movement and finally distribution through PDS.

I believe restructuring the FCI is essential as it will be a huge relief especially for those poor farmers who are driven to suicide. Secondly, when the 40-50 per cent of poor consumers who do not get subsidized food because of leakages in the Public Distribution System (PDS) get money in their bank accounts, they will also benefit.

Country has made a lot of economic progress but social justice is still lacking. This proposal might run into problems as this requires amendment to the Act, which only the Parliament can do. Many of the parties will not agree to it so it might not receive the political backing.

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 food grain supply chain, from procurement to stocking to movement and finally distribution in PDS, 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.

References:

  1. Report of the High Level Committee (HLC) on Reorienting the Role and Restructuring of the Food Corporation of India, January 2015 with Shanta Kumar as its Chairman. HLC set up by GOI on 20th August, 2014.

Available at <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> [Accessed on 2nd February, 2015]

  1. Article by Seetha “Corruption in FCI is frightening; revamp report addresses root causes: Shanta Kumar”.

Available at

 <http://www.firstpost.com/business/corruption-in-fci-is-frightening-revamp-report-addresses-root-causes-shanta-kumar-2062185.html> [Accessed on 3rd February, 2015]

About the Author

AshnaAshna Narain Singhani is pursuing her LL.M. (Human Rights) from National Law School of India University, Bengaluru. Her core areas of interest are Women and Child Rights under National and International Laws. Her motivation to pursue LL.M. in human rights stems from her interest in International Law, particularly regarding the need to promote human rights. She has a keen interest in Legal Research as it helps in promoting awareness amongst the masses regarding the core issues. In the rare hours when she is free, she enjoys listening to music and travelling. With this interest in mind, she is currently interning with the Model Governance Foundation.

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