In 1964, the Food Corporation of India (FCI) was incorporated with several objectives such as, to maintain buffer stock and ensure national food security, to procure food grains from the farmers at Minimum Support Price (MSP) and distribute among the poor as per the public distribution scheme (PDS).
Successive governments have subsidised farm inputs and provided cheaper bank credits. The farmers have also responded to such policies and made India self-sufficient in food; that needs applause.
Somehow, the average income of farmers is miserably low compared to other persons who are engaged in the industry and service sectors. This is mainly due to low sale prices at farm gates and the surplus production of food grains. Few farmers get a MSP. This helps them survive.
In general, there is perennial distress among framers causing suicide and agitations. Here, we are not discussing about perishable agri-produce for which separate policy is needed.
So far, India has kept the food price under check for protecting the poor and middle class. Hence, the rich class also enjoyed cheaper prices of food grain compared to peer nations. In a sequel, the poverty among farmers has aggravated. The question arises; why should the poor farmer subsidise the rich class by selling its produce below MSP?
If the entire food grain is sold at MSP, the farmer’s distress can be almost resolved. Currently, Union Government, in the Financial Year 2020-21, procured barely 26 per cent (by value) food grain under MSP out of the total 22 crops eligible for MSP. This might be below 15% of all crops. Even with such low-level procurement, currently, unsold stock with Food Corporation of India (FCI) is about 32.0 million tonnes (excluding 24.0 million tonnes with states) and the debt of FCI has exceeded Rs 4.0 lakh crore incurring interest and storage cost.
Hence, it is not feasible for the government to buy entire production and hence; the trade channel must be promoted. For this, the market price must be economically viable after meeting the cost of transport and storage. More so, the farmers don’t have bargaining power with trade channels without government support. Allowing farmers for open market sale and legal binding of MSP on trade channels are incomplete and unviable solutions.
Considering complexity, the role of FCI should be modified in totality, as discussed below. By which, the farmers will sell the entire produce almost at MSP. After stabilisation, the farmers might get a higher price than MSP. The fiscal and debt burden on the Government and FCI shall reduce except during initial years. More so, another private mandi, as proposed in the new law may not be needed.
*The buffer stock limit with FCI may be reduced to 20-25% of the public distribution system (PDS) requirement. As per demand, part stock may be sold in the open market. Balance may be exported directly or through trade channels and processing industries. While exporting, the loss to FCI and trade channels may be compensated through need-based export incentive. By this, the debt of FCI shall reduce and the storage capacity shall be available for fresh arrival of crops. More so, trade channels shall also participate.
* Considering the huge difference between PDS and market prices, the PDS price must be gradually increased. Such a large difference is causing leakages and the PDS quantity is diverted into the market which artificially reduces market price. For arresting leakages, it is better to adopt “direct cash transfer.” The targeted beneficiary must be restricted to poor and marginal class which might be maximum 40% of the total population. By this, the food subsidy bill shall be moderated.
*During crop arrival season, the trade channel and processing industries may be pursued to purchase food grain stock brought by farmers in APMC mandis. FCI must assist for such sale transactions through auction. The floor price may be kept at about 93-95 per cent of MSP. FCI should fix quality standards and provide testing facility to avoid any arbitrary deduction on quality ground by purchasers.
*Unsold stock must be essentially stored by FCI and a “Goods Receipt” (GR) may be issued to farmers mentioning the quantity, quality and loan amount. The validity period of such GR may be 5-6 months. FCI shall extend loan to farmers up to 90% of stock value at MSP price. Same can be refinanced by banks to FCI at Statutory Liquidity Ratio (SLR) rate. Currently, in absence of such stocking facilities, the farmer is compelled to sell its produce at distress price to trade channels.
*GR must be transferable and tradable in the open market, e-NAM and Commodity exchange. For which, FCI must assist and charge a nominal fee of 0.5% on sale value. The interest and storage charges may be levied maximum 9% per annum on the stock value which may be recovered from the ultimate buyer during delivery of goods. Balance money may be remitted to farmers. This will eliminate interest and storage cost of FCI.
*In general, the price of food grain will increase after crop arrival season till the next crop arrives in mandis. Thus, farmers shall get better prices after storage, as done by the trade channel. With prior consent of farmers, FCI may also purchase stock at MSP as per the needs of PDS scheme. By this, FCI need not keep separate buffer stock, as done now. Hence, it will reduce the debt burden on FCI.
*In case, the stock is not sold by farmers within the validity period of GR, they shall lose selling rights and it shall be deemed sale to FCI at MSP. FCI shall remit balance money after adjusting debt, interest and storage charges.
*No doubt, with the above arrangement, the farmers might get about 95 prices of MSP but they will be protected from selling at a distress price. With the active marketing role of FCI, after one year, there are bright chances for getting higher prices to farmers.FCI shall also be benefited since; its debt burden and storage cost shall reduce. Rather, it might earn gross profit.
*For availing benefit by all farmers across the nation, FCI should increase the network of mandis and storage capacity. It should also build marketing infrastructures. More so, it must disseminate market information to farmers.
* Intermittently, the stock with FCI might increase due to excess production or poor market demand. In such a situation, it must quickly export directly or through trade channels. The government must encourage export and be liberal for giving need-based export incentives to compensate for loss of FCI and trade channel and processing industries.
Simultaneously, India must promote food grain processing industries near to FCI godown.FCI should share logistic infrastructure with processing industries and trade channels for exports and onward marketing. A team spirit between FCI, Government, industries, traders and farmers will certainly deliver the desired outcome.
Currently, India must provide relief to farmers from the prolonged sufferings .Subsequently, the production cost of agro-produce must be reduced through investment in infrastructure and technology.
Farmers may be also pursued for crop diversion; that will reduce Agro-imports and enhance income. Also, the policy may be framed for perishable produce for the overall growth of Agro-sector. India should also develop entrepreneurial skills of farmers; that will fetch rural prosperity.
(The writer is a leading columnist and author of books ‘Turn Around India,’ ‘ Jan-Andolan’ and ‘ Turn Around India-2020’)