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OR
HEIST OF GRAINS AT
FCI RECONFIRMS FLAWED PDS POLICY.
(FCI
should shun “paddy” procurement, instead procure “rice” from millers for PDS)
Tejinder Narang
The disappearance of rice worth
Rs 10000 crores ($1.6 billion)–approx.
6million tons—from four eastern states, Bihar, Odisha, Jharkhand, and
Chhattisgarh reported in FE of 1.12.2014 suggests the apparent criminality of
conduct of the manipulators in a string. It is symptomatic of the inherent malaise
of PDS--Public Distribution System—undertaken through FCI and State Government
Agencies (SGAs). The PDS system in which
purchase is made at MSP (Minimum Support Price)—above the market price—and sale
is made below bazaar price (termed subsidized price), naturally warrants
leakages. In this specific instance which is the tip of an iceberg, merely “visible
and known” losses can be inferred. What about disappearances that have remained
mysterious or gone unreported since PDS’s inception in 1965?
There are also “invisible” losses
which cannot be readily detected during bulk procurement and distribution. For
example over- weighing of bags with impermissible foreign matter (stones,
grass, dust, mud, threads, rags, pins)-which means 50kg bag may contain net
grains of 48-49kg or less; sacks of grains of non –conforming quality
parameters like higher broken percentage for rice or damaged discoloured
cereals; packages reflecting excess weight when “moisture weight” is injected by
spraying water on bags. There are thousands of Arthiyas and commission agents,
surveyors involved as intermediaries in this system.
When bulk cargos are moved by
rail or road, shortages due to torn or missing bags can be amplified for
justifying illegal diversion. Three
million tons grains stacked in CAP (cover and plinth) storages are “roofless ware
housings”—with plinth below, and plastic sheets above. A pictorial view of state
of affairs of CAP storage published by
CAG in its report on FCI date 7th May 2013 is reproduced here. Chapter 5 of CAG report on “internal controls”
mentions that actual audit coverage against planned was between 67 to 85
percent during 2006 to 2012. (Para 5.3.1.)
There is no single point
accountability regarding availability of grains due to involvement of multiple
agencies (Para 2.2.3). Since official procurement has far exceeded the
requirements under PDS, wastage/ losses/ disappearance have also expanded. Thus
existence of “more” phantom stocks, that is, difference between paper stocks
and physical stocks cannot be ruled out.
PDS bucket has leakage of 40%-45%. Thus nominal efficiency of this model in
quantitative terms is 55%-60% but when adjusted to handling/carrying cost and other
administrative expenses economic efficiency may be 30%. Against average economic
cost of Rs 24000/mt ($387) of wheat and rice and about 60 million tons of
annual procurement, the budgeted estimates are 1,44,0000 crores ($23 billion)
while expenses and losses are (100-30) = 70% or one lakh crores ($16 billion).
The Government order of 20th August 2014 on High Level committee (HLC)
for restructuring of FCI reads --“FCI is plagued today with several functional
and cost inefficiencies, which need to be removed for efficient management of
food grains and saving costs”. That is a very candid admission of the messy
situation of food grains management. The concept of PDS conceived in 1960s has
run out of its utility. If farmers and consumers after 50 years of “price support”
are not deemed well off, then definitely a new arrengement, has to be put in
place in a phased manner before “income support” system can be fully operationalised.
What needs to be done for rice now?
The commonly held view that
farmers will be deprived of MSP if PDS model is disbanded is devoid of facts. The
chart below reveals that only 8% of the farmers are the beneficiaries of this
system. If 92% of India’s farmers can dispose of their produce in open market
what is the rationale of retention of such a discriminatory arrangement.
National Food Authority--NFA
(Philippines) and Bulog (Indonesia) also undertake procurement, storage and
distribution of “rice” in their respective countries, but they do not deal with
purchase and processing of paddy. They deal in “rice” alone. Thailand dealt with
“paddy” in last three years and has landed itself in irretrievable mess.
FCI & SGAs have dual policy
of rice procurement – 25% levy rice for all states, except Punjab and Haryana wherein
FCI/official agencies make payment to farmers for procurement of paddy at MSP
and stocks are stored with rice millers under Custom Milling of Rice (CMR)
agreement. As of 1.01.2014, about 23 million ton of paddy (eq. to 15 mill tons
of milled rice) was held by millers alone, that costs Rs. 31000 crores ($5
billion) @ MSP of Rs 13450pmt ($217). There is an extended lifting period of
rice from the millers (see chart).
(Source –FCI)
Millers act as Bailee of state
agencies —having possession but not ownership of paddy. Since long term
stocking of paddy is challenging—they dispose of paddy or milled rice in market
and replenish FCI when demanded, by purchasing it back from the market. This
amounts to unchecked misuse of official funding / leakages/ breach of trust and
unreasonable enrichment.
The remedy is that FCI may limit itself to procurement of “milled rice”
and dispense dealing with paddy purchases, which should be left to millers.
There may be fresh/revised Custom Milling of Rice agreement with approved
millers in which funding and responsibility of paddy procurement will be of
millers. Present procedure of distribution and subsidization to
beneficiaries will continue. Thus official agencies will remain insulated from
the paddy operations/ bungling/ diversion in market; double handling will
cease, transportation cost will be economised. Rice reform will mean 50%
restructuring of FCI operations.
Vested groups will cry
wolf—saying that farmers will realize below MSP from millers under new CMR arrangement.
To offset such rare situations, Government can vest itself with power of intervention
as in the case of Maize & Cotton.
Wheat
Unless concept of polypropylene
or gunny bags is dispensed and bulk handling with seamless rail connectivity
linked to steel silos is thought of, there cannot be any real reform in wheat
in respect of pilferages and shortages. For lower procurement by FCI & SGAs,
Government may upgrade some selective specifications, so that general purpose
wheat is automatically diverted to the market. But that may be a bitter pill to
swallow politically.
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