Working capital requirements and credit needs for food grains distribution in India

Abstract

This paper attempts to estimate the working capital required for the procurement and distribution of foodgrains. To arrive at the financial requirements for foodgrains distribution, estimates of the marketed surplus are needed. Instead of assuming a certain percentage of the total foodgrains production as the marketed surplus, a different technique was employed to estimate the marketed surplus. Based on the prices and stocks of foodgrains required at the beginning of the months and the marketed surplus of foodgrains, the working capital requirements were estimated for different years. The estimates of working capital for foodgrains show that the available bank credit met only 38 per cent of the maximum working capital required in 1972-73. Hence bank credit cannot be blamed for making possible the hoarding of foodgrains. In fact, by not supplying the necessary working capital for foodgrains, the banking system has forced foodgrain distribution to depend on non-banking sources. It has thus increased the cost of financing the working capital and helped the price increase of foodgrains.