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Monetisation of FCI warehouses seems good, but stalls real reforms

The Financial Express
Monetisation, FCI,FCI warehouse, warehouse lease out, food corporation of india, food corporation, economy news, food grain

With the Centre proposing a leasing out of the covered warehouses of the Food Corporation of India (FCI), the carrying costs of the public sector grain-procurer is likely to come down. The FCI’s annual carrying cost is set to rise 43% to Rs 16,411 crore in FY 20. As on July 1, it was holding a total of 37.5 million tonnes (mt) of rice and wheat, against a total covered warehousing capacity of just 12.7 mt. The total central pool stock stood at 74.2 mt, against the buffer+strategic reserve requirement of 41.1 mt. The excess is estimated to amount to an economic cost of over Rs 1.25 lakh crore. Given the rot at uncovered storage facilities, the wastage that happens due to FCI procurement and holding is appalling. Against such a backdrop, the FCI leasing out its storage facilities to private players for management, a boost for storage efficiency, and using these for a fee should seem a great idea, especially since it is to use the lease money to build new warehousing infrastructure. But, it isn’t, as it disincentivises FCI from undertaking real reforms.

Thanks to poor cost management, exacerbated by the need for fulfilling the Food Security Act (FSA) provisions and to redeem the Centre’s pledge to double farmers’ income by 2022, FCI has had to borrow from the National Small Savings Funds as the Centre has deferred subsidy payments repeatedly. In such a scenario, scaling back FCI operations drastically, by giving direct cash transfers to both FSA beneficiaries in areas with easy access to markets and farmers, is advisable; at the very least, allowing the FCI to sell off the excess stock could help relieve its pain. But policy support for such measures is absent. The benefits of a systemic overhaul far exceed those of ad hoc measures, and if the FCI/Centre opts for just band-aid solutions, the problem just lingers.