SUGGESTIONS FOR THE
HIGH LEVEL COMMITTEE FOR FCI’S RESTRUCTURING
Tejinder Narang (former Director PEC
Limited)
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Fully aware that the new Government will initiate reform process on FCI,
I have already made some suggestions in the recent past. These have appeared in
Economic times, Financial Express, Business line. A synoptic view of the ideas is given below. Details
can be accessed from the URL defined in each para.
1
FCI should procure Rice only and not
paddy http://goo.gl/j9PDHI-- FCI and State
Government Agencies (SGA) of Punjab /Haryana under current dispensation first
procure paddy and then get it custom milled from rice millers by paying fixed
tolling charges. This system is exposed to massive abuse that needs correction
by the new Government without affecting farmers’ interests.
FCI may limit
itself to procurement of “milled rice” and dispense dealing with paddy
purchases, which should be left to millers. Procedurally FCI may need to work
out a fresh/revised Custom Milling of Rice agreement (CMR-REV) in which
responsibility of paddy procurement at MSP will be of millers. Obligation of
FCI will be to source predetermined tonnage of milled rice at a price notified
and based upon MSP of paddy. Financing for the paddy to “approved” millers can
be provided by banks, based upon letter of comfort from FCI. Present procedure
of distribution and subsidization to beneficiaries will continue.
2
GRAIN Storage--Can
we take remove Arthiya and avoid Audit objections for superior silo storages? Can we afford grain
handling without bags? Can we synchronize rail connectivity with silos? http://goo.gl/7g4lmH
-- There are about 45000 arthiyas in Punjab alone who are intermediaries with
procurement agencies for disbursement of payments to farmers (less
commission). Reduction in mandis or
clustering thereof for silos may rattle their business of bagging/ weighing/
quality manipulation (to some extent) as handling/cleaning will be
mechanized. They are also financiers to
the farmers. Bank loans require
procedures, collateral security and therefore are a deterrent to farmers.
An expert
committee in Punjab listed several malpractices by commission agents: evasion
of market fees; over weighing of agricultural produce of farmers; illegal
gratifications to the procurement agency and the marketing staff at the expense
of farmers and illegal commissions. (World Bank report 2003). Unless political
will is demonstrated to break FARMER-ARTHIYA-PROCUREMENT- AGENCIES NEXUS, silo
systems may not be easily workable and viable
3
NORTH –SOUTH divide in wheat prices
http://goo.gl/ja5l56
----In
Punjab/Haryana cities wheat is at Rs 1400/1600 per qtl while in
Chennai/Hyderabad/ Bengaluru it is between Rs 2300/2750. Wheat in South is
70-90% costly than in North. Is wheat
indicative of a commercial divide with in a country that distinguishes forces
of supply/demand in the North and the South? The odd feature is the
multiplicity of prices for wheat on per qtl basis—MSP Rs 1400; economic cost Rs
1993; OMSS Rs 1500/1570; APL Rs 610; BPL Rs 415 in addition those applicable
under FSA. At macro –policy level,
does not Indian Government need to consider “south-centric policy” for wheat?
It is worth pondering to bridge north-south divide.
4
FCI needs professional advice, procedure to sell in
open market and for exports. http://goo.gl/2vloRi ---FCI lacks
expertise in export marketing, which is outsourced for contracting and shipping
operations to trading PSUs. Is canalizing exports through three PSUs is the
only way out? Why instant price
discovery for export not possible? Should there be hedging operations? Why
price discovery be done by the Government and not by the market?
Surely there is a need for complimenting the
system of discovering the selling price in open market through expertise of an
agency like CACP or a formal committee of reputed agricultural economists, FCI
and traders, who like MSP, assess real
time dynamics of domestic and overseas markets and decide the modalities of
intervention-- including exports strategies whenever deemed necessary.
Even the differential pricing for old/new/damaged crop can also be
recommended for intervention or exports.
5
USA CANADA wrong on wheat export subsidy http://goo.gl/XIQFTB --The
principle is to take the cost sans local taxes—as taxes cannot be considered
for determination of export price. And “basis”—logistical expenses are added to
the cost for arriving at FOB value at the port. A government notification on methodology
of fixing export pricing needs to be issued in which local taxes should be excluded,
transport cost from the shortest route should be taken and system of
calibration of fob values with relevant international values should be defined.
6
USDA MATH ON INDIAN AGRO SUBSIDIES
WRONG
USDA’s tabulation of data
to arrive at $85 billion (table below) as government support to agriculture is
out right questionable. It covers -- capital and revenue expenditure on rural
development (road, drainages etc.); major and minor irrigation, agro research;
financial institutions’ support, export promotion boards, soil and water
conservation, forestry/ wild life/animal husbandry etc. These add up to
“extra” of $47 billion and do not constitute subsidies to farmers or traders by
any stretch of imagination.
Reasonable calculations
of support can include funding for FCI, fertilizer, power and state
bonuses. This amounts to $(85-47)=$38 billion for or Rs.2,20,000
crores-- about 13% of Agro GDP of $284 billion and certainly not 29% projected
by USDA. (See amended table). Gulati-Huda study on Indian agricultural
subsidies around 10% is vindicated.
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