Challenge for Food Corporation of India: Rising stocks, cost, & push to procure

The economic cost is what the FCI incurs in procuring, transporting, storing and distributing every kg of wheat or rice.

The estimated Rs 29.94/kg economic cost for wheat in 2021-22 includes a “pooled cost” of Rs 19.21 (roughly what the farmer gets), “procurement incidentals” of Rs 3.20 (gunny bags, market fee, arhtiya commission, labour and other mandi-level expenses) and “distribution cost” of Rs 7.53 (freight, handling, storage, interest and other administrative charges). In the case of the Rs 42.94/kg for rice, the pooled cost is Rs 27.90, with procurement incidentals at Rs 4.85 and distribution cost at Rs 10.19.

Under NFSA, enacted during the previous United Progressive Alliance regime, the Rs 2-3/kg PDS issue prices for wheat and rice were valid for up to three years from the date of commencement of the law on July 5, 2013. The Narendra Modi government has not raised these rates so, even as the Finance Ministry’s latest Economic Survey has pointed to the need to consider a revision in the Central issue prices of PDS grain “to reduce the bulging food subsidy bill”.

Meanwhile, rice and wheat stocks in the Central pool remain at way above necessary levels, despite the Modi government implementing special schemes for alleviating the widespread economic distress resulting from the Covid-19-induced lockdown.

As against 65.91 million tonnes (mt) of grain offtake from public godowns in 2018-19 and 62.19 mt in 2019-20, the Modi government has allocated a total quantity of 94.37 mt in the current fiscal. That includes 57.15 mt under NFSA (at Rs 2-3/kg), 4.31 mt under other welfare schemes (at higher rates of Rs 4.15/kg for wheat and Rs 5.65/kg for rice) and 32.91mt under the Pradhan Mantri Garib Kalyan Anna Yojana. The latter scheme involved providing an extra 5 kg grain per month, free of cost, to NFSA beneficiaries (for eight months from April-November 2020) and 8 crore returning migrant labourers (for two months from May-June).

But notwithstanding these extraordinary liquidation measures, total grain stock in the Central pool stood at 82.18 mt as on February 1, compared to 75.17 mt a year ago (see table). The 82.18 mt included 31.83 mt of wheat, 24.36 mt of rice and 38.79 mt of un-milled paddy (whose milled rice equivalent, at 67 per cent, was 25.99 mt).

The continued buildup of public stocks is largely due to procurement. Government agencies had, as on February 11, bought 63.63 mt of paddy during the ongoing 2020-21 kharif marketing season (October-September), 16.1 per cent more than the 54.80 mt in the corresponding period of 2019-20. The political pressure from the farmer protests may force similar stepped-up purchases of wheat, too, in the ensuing rabi marketing season from April.