Good advice

The government should follow the good advice of its Expenditure Reforms Commission ERC and reform the Food Corporation of India which undertakes the procurement and storage of foodgrains and also trades in them at home and abroad. The idea is not to abolish the FCI but to make it a leaner, more efficient organisation by introducing competition from the private sector and state government agencies or corporations. No one can quarrel with this; it is an excellent idea. The FCI has grown into a leviathan. It will handle foodgrain in the region of 40 million tonnes this year. It seriously needs to be cut down to a more manageable size. The kind of functions the FCI is required to perform arise from the Union government8217;s assumption of support price obligations and responsibilities for maintaining the public distribution system PDS and a minimum national buffer stock of food. But there is no reason why all the jobs involved should be performed exclusively by the FCI. For example, in warehousing the governmentwould surely find far better alternatives in the private sector to some of the structures that pass for FCI godowns and where the losses year after year through theft, rodents and decay are scandalous, an estimated Rs 200 crore a year. Similarly, state governments can conveniently take on procurement and marketing responsibilities.

Piecemeal change, of course, would not bring about dramatic cost cutting. As inefficient and corruption-ridden as it is, many of the FCI8217;s shortcomings are the result of gravely flawed policies. This is essentially because successive governments, succumbing to pressure from farm lobbies, have raised procurement prices to levels close to market prices. A vicious circle has set in. High procurement prices mean high issue prices, the price at which the Centre provides foodgrain for fair price shops. High prices in the shops mean people buy less and indeed there has been a declining trend in offtake for several years. The last straw was the hike in PDS prices in the last Union budget which depressed offtake even further. So the upshot is the FCI carries twice as much foodgrain as is needed and cannot offload it in the open market without suffering large losses. Things cannot carry on like this.

Starting in the mid-1980s, the Centre8217;s procurement policy has led to the FCI regularly buying more foodgrain than is required for the PDS and buffer-stocks put together. Consequently, interest, transportation and handling charges are higher than necessary, the food subsidy bill is artificially inflated and all the while the mountain of foodgrain grows and grows. This worrying situation can be avoided in future if the government goes back to the beginning and segregates support price/procurement activities from PDS requirements. The ERC8217;s bid to redo the arithmetic shows how much the two activities have got blurred in recent years to the detriment of the PDS. Some experts recommend a separate price support fund for farmers 8212; to which they can contribute 8212; as a way of reducing subsidies. It is worth thinking of together with a policy overhaul.