The Food Corporation of India was setup under the Food Corporations Act 1964 , in order to fulfill following objectives of the Food Policy. Since its inception, FCI has played a significant role in India’s success in transforming the crisis management oriented food security into a stable security system.
It was formed with a larger plan directed toward National food security and self-sufficiency and simultaneously distribution of foodgrains throughout the country for a public distribution system.
Other major institution was CACP. These two institutions along with MSP regime and Public distribution system were expected to work in tandem.
(The CACP is an attached office of the Ministry of Agriculture and Farmers Welfare. It is mandated to recommend minimum support prices (MSPs) to incentivize the cultivators to adopt modern technology, and raise productivity and overall grain production in line with the emerging demand patterns in the country.)
Functions of FCI
- To procure foodgrains
- To Maintain operational stock and buffer stock for food security
- Allocation of grains to state
- Selling grains to state at ‘Central Issue Price’
- Distributing and transporting grains to state
For what purposes FCI maintains stock of food grains?
- All countries maintain some backup to tackle any possible food crises due to drought or any other natural calamity.
- At times there can be violent fluctuations in prices of important commodities due to macroeconomic imbalances for e.g. due to short term price rises in production can soon shift from essential food crops to cash crops.
- In the aftermath of LPG reforms, India stuck to its policy of maintaining sufficient physical stocks, in spite of pressure from developed countries in forums such as WTO.
- Another major reason for stocking of food is to serve the world’s largest public distribution system. As already said, passage and implementation of FSA is expected to raise procurement upside, which in turn will raise the need for stock maintenance.
- Last but not least, FCI under an open ended policy has no option but to buy whatever is offered to it by farmers.
Operational Stock :
- Operational Stocks are defined as the minimum quantities required for running the TPDS/NFSA and ‘Other Welfare Schemes’ until quantities procured from the new crop. These are made out of current year production and are meant to be consumed in following year.
- While maintaining Operational stocks ‘intra-year variations’ are taken care of and in case of buffer stocks, ‘inter year’ variations are considered.
- FCI maintains stocks of grains in excess of what is needed for meeting operational needs, and these stocks are called strategic stocks. Buffer stocks are part of strategic stock.
- The government fixes the buffer stock norms, prescribing the minimum quantities of food grains (wheat and rice) to be maintained in the central pool at the beginning of each quarter.
Open market Sale Scheme
This is a price control mechanism. As we know Central Pool of foodgrains has been created primarily to maintain a minimum buffer stock for meeting the unforeseen exigencies like drought, flood and other natural calamities and also for providing foodgrains required for Public Distribution System and the other foodgrains based welfare program of the Government.
- In addition, the FCI on the instructions from the Government has been resorting to sale of foodgrains i.e. wheat and rice at predetermined prices to the open market from time to time to achieve the objectives as under:-
- To enhance the supply of foodgrains especially during the lean season and thereby to have a healthy and moderating influence on the open market prices.
- To offload the excess stocks in the Central pool and to reduce the carrying cost of foodgrains to the extent possible.
- To save the foodgrains from deterioration in quality and to use foodgrains for human consumption.
- To release valuable storage space for stocks procured during the ensuing marketing season of wheat / rice
The Central Government extends price support for procurement of wheat, paddy and coarse grains through the FCI and State Agencies. All the food grains conforming to the prescribed specifications are procured by the public procurement agencies at the Minimum Support Price (MSP) plus incentive bonus announced, if any.
Under the Decentralized Procurement Scheme (DCP), introduced in 1997-98, food grains are procured and distributed by the State Governments themselves. The designated States procure, store and issue food grains under Targeted Public Distribution System (TPDS) and other welfare schemes of the Government.
FCI meets the requirements of TPDS through grains procured which are issued at Central Issue Price fixed by Government to fulfill the objective of helping the economically vulnerable sections of society.
FCI delivers food grains to State Govt./ State Agencies from its base depots for distribution by the latter through Fair Price Shops.
PDS is operated under the joint responsibility of the Central and the State Governments. The Central Government, through FCI, has assumed the responsibility for procurement, storage, transportation and bulk allocation of food grains to the State Governments.
The operational responsibilities including allocation within the State, identification of eligible families, issue of Ration Cards and supervision of the functioning of Fair Price Shops etc., rest with the State Governments.
The Revamped Public Distribution System (RPDS) was launched with a view to strengthen and streamline the PDS as well as to improve its reach in the far-flung, hilly, remote and inaccessible areas where a substantial section of the poor live.
The Targeted Public Distribution System (TPDS) was launched to benefit the poor and to keep the budgetary food subsidies under control to the desired extent following failure of the earlier PDS system.TPDS aims at providing food grains to people below the poverty line at highly subsidised prices from the PDS and food grains to people above the poverty line at much higher prices than the poverty line.Thus, the TPDS adopted by the Government of India maintains the universal character of the PDS but adds a special focus on the people below the poverty line.
National Food Security Act, 2013 (NFSA)
The National Food Security Act, 2013 (NFSA) has been notified which provides for all India coverage of upto 75% of the rural population and up to 50% of the urban population of the country for receiving highly subsidized foodgrains.
Why need of reforms:
- The Food Corporation of India has succeeded in improving the overall availability of foodgrains but it has failed to target the distribution of foodgrains to poor consumers and regions, make its operations economically efficient, and maintain the buffer stocks at levels stipulated by the government.
- In particular, it has failed to cover its costs by its revenues. The gap between the costs and revenues of the Food Corporation of India has been sharply widening over the years, leading to spiralling government subsidies. This financial imbalance is largely due to excessive cost of its operations. The per unit costs of its operations have been substantially higher than those of private traders.
- The lack of accountability within the Food Corporation of India and the knowledge that the government will cover the costs, if necessary, have made the inefficient operations possible.
Government of India (GoI) set up a High Level Committee (HLC) with Shri Shanta Kumar as the Chairman to suggest restructuring or unbundling of FCI with a view to improve its operational efficiency and financial management.
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.
- 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.
- 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
- FCI at the Centre should enter into an agreement with states before every procurement season regarding costing norms and basic rules for procurement
- 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
- Quality checks in procurement have to be adhered to, and anything below the specified quality will not be acceptable under central pool.
- 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.
- 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.