Govt sets up high-level committee to restructure FCI

New Delhi: India’s ministry of consumer affairs, food and public distribution on Wednesday created a committee to recommend ways to restructure Food Corporation of India (FCI), which it says is plagued by functional and cost inefficiencies.

The eight-member committee will be chaired by Shanta Kumar, Bharatiya Janata Party (BJP) member of Parliament from Himachal Pradesh, and will have the chief secretaries of Punjab and Chhattisgarh as members.

Restructuring FCI is a campaign promise of the BJP and Prime Minister Narendra Modi as well, as some of his cabinet colleagues have talked about it since taking over the reins of government in late May. The idea is to separate the procurement, storage and distribution activities of FCI to reduce wastage and improve the efficiency of the public distribution system.

The committee will study various models of restructuring or unbundling of FCI and suggest ways to improve its operational efficiency and financial management, the order by the ministry said. It will also suggest measures, within three months, to reorient FCI’s role in minimum support price (MSP) operations and look into efficient storage models, low-cost options of moving grains and upgrading of technology.

MSP is the price at which the government buys grain from farmers.

The other members of the committee are FCI chairman and managing director C. Viswanath; dean of the Indian Institute of Management at Ahmedabad G. Raghuram; Gunmadi Nancharaiah, dean, School of Economics, Hyderabad University; Ashok Gulati, former chairman of the committee of agricultural costs and prices, and Ram Sewak Sharma, electronics and information technology secretary.

FCI is the nodal agency of the Union government set up in 1964 with the objective of procuring foodgrains through a price support mechanism to farmers, distributing it under the public distribution system (PDS) and maintaining buffer stocks to ensure food security.

With the passage of the National Food Security Act, 2013, FCI’s operations need to be streamlined, the Economic Survey 2013-14 noted. “Higher procurement leads to stocks that exceed the buffer norm, which FCI is forced to carry over to the next year. This suboptimal management of stocks leads to wastage of economic resources,” it said.

As on 1 June, FCI had 77.7 million tonnes (mt) in stocks of rice and wheat, against buffer norms of 31.9 mt. The Economic Survey noted that a growing divergence between the economic cost of procurement and the central issue price (at which below-poverty line households buy foodgrains) has led to leakages, fuelled inflationary pressures and added to the food subsidy outgo.

In his budget speech last month, finance minister Arun Jaitley said his government is committed to reforms in the food sector by restructuring FCI, reducing transportation and distribution losses and increasing the efficacy of the public distribution system.

“There is a scope to improve the efficiency of FCI in terms of better management of stocks and movement of grains, but FCI does not decide on how much grains to procure and where to distribute them. Overall foodgrain management (is based on) political decisions and FCI cannot be blamed for these inefficiencies,” said Himanshu, an assistant professor at Jawaharlal Nehru University, Delhi, and a visiting fellow at Centre de Sciences Humaines.

Interestingly, the Union government on 8 August announced a policy decision that curtails the state’s power to declare bonuses over and above MSP, noting that such populist policies distorts markets and cultivation patterns and increases the subsidy burden.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.