Public Distribution System - 2 | Agriculture Optional Notes for UPSC PDF Download

Concerns about FCI

• The operations of the Food Corporation of India (FCI) are widely perceived as expensive and inefficient, raising long-term concerns about the sustainability of food subsidies.
• FCI has accumulated substantial debts, reaching an estimated 55 lakh crore in March 2020, in the form of National Small Saving Funds Loan.
• Serious storage issues plague FCI, including the absence of modern storage facilities.
• In the 1970s and 1980s, inadequate storage conditions resulted in significant grain losses to pests, particularly rats.
• Reports indicate widespread grain diversion and high leakage losses within the FCI.
• FCI lacks a proactive approach to liquidating excess stocks, contributing to market distortions in certain instances.
• The subsidized distribution of grain is sometimes criticized for depressing food prices and adversely affecting farmers.
• Some experts argue that, given the increasing prominence of the market economy, the FCI has surpassed its utility and may no longer be necessary.

Measures to Restructure FCI

• Recognizing the effectiveness of road transportation for emergencies and remote areas, the FCI acknowledged that only 24% of grains were transported by road in 2019-2020, indicating the need for increased prioritization of road transport.
• FCI should prioritize road transport to ensure the cost-effective and efficient distribution of grains, particularly in remote areas with the highest need.
• In the current scenario, maintaining stocks at block headquarters, panchayats, or remote areas would benefit both the State government and the FCI through decentralized storage.
• To alleviate the fiscal burden, the central government should release excess stocks under the PDS and Pradhan Mantri Garib Kalyan Yojana at its own expense instead of transferring the financial responsibility to the states.
• Leveraging the vibrant network of self-help groups formed under the National Rural Livelihoods Mission (NRLM) can enhance last-mile distribution of food aid beyond the PDS.
• The FCI typically follows the First In, First Out (FIFO) principle in its guidelines, prioritizing the distribution of earlier procured grain. However, abandoning this strategy could streamline movement, requiring less time, money, and effort.
• Collaboration between the FCI and the National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED) can harness logistics expertise to facilitate direct outreach from farmers to consumers. Expanding this role to assist Farmer Producer Organizations (FPOs) in moving various commodities, including agricultural inputs and packing materials, is worth considering.

Issues in Procurement and Distribution

Procurement

• Open-ended procurement, accepting all incoming grains, even when buffer stock is depleted, can lead to shortages in the open market.
• Implementation of the National Food Security Act is expected to increase procurement, potentially raising grain prices.
• Discrepancies between required and available storage capacity pose a challenge.
• Minimum support price imposition has prompted farmers to shift from producing coarse grains to rice and wheat, impacting the poor.

Storage

• CAG audits repeatedly highlight insufficient storage capacity within the FCI.
• Food grains stored in CAP or Cover & Plinth storage risk spoilage or damage.
• Food grain storage imposes significant carrying costs on the government.

Food Grain Distribution

• Beneficiary identification at the state level is not foolproof, leading to errors in exclusion and inclusion of families in poverty categories.
• Lack of good quality regular data and absence of official estimates on household income exacerbate targeting issues.
• True beneficiaries may not receive allocated food grains, while ineligible recipients receive excessive benefits.
• Instances of ghost cards in several states indicate diversion of grains from deserving households to the open market.
• Illicit Fair Price Shops contribute to leakage, where owners exchange government-provided high-quality goods for lower-quality items from general stores.

Transportation

• Leakage and diversion of food grains during transportation pose challenges.
• Uneven distribution of food production, procurement, and distribution, with logistical challenges, especially in remote areas.
• Geographic disparities, such as the distance between North-eastern states and wheat procurement centers in Punjab and Haryana, result in costly and time-consuming transportation.

Conclusion

To positively influence open market prices, it is essential to increase the quantities procured annually, as incremental Minimum Support Price (MSP) raises may have minimal impact. It's crucial to note the prolonged surplus in agri-commodity production. Exporting excess produce rather than reintroducing it into domestic markets through the Public Distribution System (PDS) is one approach. Another option involves selling surpluses to the private sector for food processing. Alternatively, enabling food processors and exporters to buy crops at MSPs and reimbursing the price difference with the market price is a viable strategy. In summary, a rationalized approach to both MSP and PDS implementation is necessary to equitably benefit farmers at all levels.