National Food Security Bill and its implication on the functioning of FCI

Abstract

In the light of the current context – the passing of the national food security bill- it is of

interest to us to see how the bill can address the objectives of national food security on all three accounts i.e. food availability, food access and food utilization and how it is to be implemented. It is implicitly assumed that the bill‟s provisions will be executed by the Food Corporation of India (FCI), the Central Government‟s parastatal agency that looks manages the current national food security program. The current mechanism of intervention suffers from many challenges such as excessive state procurement leading to overstocking in the central buffer stock, minimum support prices for wheat and rice distorting production patterns by encouraging farmers to over-produce these grains and excessive buffer stock leading to storage problems resulting in damage and wastage of precious food. Apart from FCI, the TPDS program is responsible for delivering the food security promise from the central government to the HHs via the individual states. The TPDS in its current format requires major reforms to address problems related to leakage, corruption and ineffective identification of beneficiaries leaving the end consumer/ beneficiary high and dry despite the enormous state expenditure on food subsidy and food security.

Given the current mechanism, it is quite appropriate to assess the role that FCI can play in

effectively delivering the promise of food security. Although inefficiencies in delivery form a large part of the food security program operations, they form only 30% of the costs pertaining to the FSB; 70% costs result out of FCI‟s activities pertaining to procurement, storage and transportation.

The report tries to map FCI‟s objectives with expectations of the NFSB to arrive at

recommendations pertaining to the overall role that FCI should play as well as pertaining to its individual operations – procurement, storage and transport. Although the FCI undertakes many other functions such as food allocations, we have restricted ourselves to those functions which affect the delivery of NFSB.

Procurement:

The report recommends a more restricted role for FCI in the future and decentralization of its operations such as procurement in the favor of state agencies and private players. It is further proposed that FCI restrict itself to maintaining the central buffer stock by making timely sales and purchases to maintain stability in food prices and exports and imports of food grains, as and when required. Procurement recommended through the states and other public and private agencies. The main rationale for this is the cost factor as these agencies would have the freedom to purchase grain in the most appropriate manner they find. In addition the report recommends free domestic grain movement within the country to minimize regional variations prices of grains and lower cost of operations of FCI. Stabilizing of prices could be achieved through low cost alternatives such as International trade, subsidy to private storage and use of variable levies and interest subsidy. The report also visualizes a complementary role for private players in the system for ensuring procurement and managing transportation costs as private players are seen to operate at much higher efficiency even at wafer thin margins.

However, it is well understood that some of these recommendations may have adverse effects such as the farmers could take advantage by shifting crops that offer higher market price than rice and wheat. Measures such as subsidy to private storage, loans for private storage, crop insurance, futures contracts and commodity options, commodity programs designed to assist producers in orderly marketing by taking off the pressure to sell at harvest time, interest subsidy are very much necessary to ensure that policy changes affected actually achieve their objectives. Other supportive recommendations include investment in roads and other infrastructure, lower MSP for wheat (just sufficient to act as an insurance in low price years), abolition of the levy on rice procurement and opening up grain markets for trade in grains by encouraging private agents to participate in marketing and investment.

Storage:

The main function of storage is to even out fluctuations in market supply by taking produce off the market in surplus seasons, and releasing it back onto the market in lean seasons, thus smoothening out fluctuations in market prices. Main function of FCI India w.r.t storage is to ensure construction of various warehouses for the storage of the food grains. In the last three years due to heavy procurement of food grains, there has been build-up of stocks with stocks in Central Pool on 1.6.2011 reaching an all-time high of 65.47 million tonnes. Thus, the silos are running at over capacity, leading to storage in open areas without proper protection against the weather. To address this issue, the report recommends creation of warehouses near producing and consuming centre to reduce the post-harvest grain loss. Further, the report envisions a larger role for private players. FCI has begun the process of involving the private sector in handling, transportation and storage of food grains in bulk through BOO mode (Build Own Operate mode). This measure would not only fight the increasing Storage capacity space but also reduce the cost that is incurred by FCI for faulty storage facilities. Other recommendations include partnership with other state Governments to construct various storage facilities with modern amenities, removal of restrictions on private Storage, post-harvest management loan. Supportive measures would include training on storage and warehouse maintenance. Transportation:

FCI is the entrusted with the responsibility of ensuring a steady supply of food grain to the 4.99 lakhs fair price shops (FPS). The distribution and movement takes place in two parts, one from the Centre to the States and the Union territories and second from there to the FPSs. The aim of FCI as a distributor is to ensure that the foodgrains are distributed equitably as per the needs of each region. However, warranting accessibility to food in a country of India's size is a phenomenal challenge that FCI has been facing since years. The movement of grains has been steady with respect to railways and roadways. The railways have been taking the lions share until recently. However, the focus recently has shifted to door-to-door delivery that roadways provide. Poor road infrastructures, constitutional provisions like Article 301, detention of vehicles and painful transport permits have been the main barriers to Inter-state trade. Moreover, NSFB‟s goals in terms of efficient distribution have not been fulfilled by FCI mainly because of a) Transit losses b) Poor IT initiatives c) Restricted entry to private players d) FCI role being broad and e) Corruption in the entire value chain. In order to improve the distribution wing of FCI it is recommended that Global Positioning System should be deployed to track the movement of vehicles carrying the food grains. The IT infrastructure is to be improved to provide granular data about every card holder and his purchases and also provide dynamic data about the quantity of grains being transported to every FSP. On the other front, DoA should do away with zoning system to give way to free trade that will bring efficiency in the distribution. Another radical solution would be to restrict FCI‟s role and decentralize its operations and award the job to companies with core competency in the particular domains.