Cost of operations going up for no fault of ours: FCI boss

Cost of operations going up for no fault of ours: FCI boss
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First Published: Mon, Apr 16 2007. 12 46 AM IST
Updated: Mon, Apr 16 2007. 12 46 AM IST
Alok Sinha, chairman and managing director, Food Corporation of India (FCI), is a busy man these days, juggling long hours on the road to take stock of wheat arrivals in Punjab and Haryana and giving a personal hearing to suspended workers at the FCI headquarters in Delhi. With food stocks at a low and food price inflation staying firm, the onus on FCI to procure adequate quantities of wheat in the ongoing rabi harvest season is that much more. He talked to Mint on various issues confronting FCI and how they are being tackled. Excerpts:
The entire food procurement process is being computerized on a war footing. How long will it take?
Computerization is helping FCI meet its objectives. As you know, our mission is to provide effective price support to farmers, maintain a buffer stock and to distribute food to the weaker sections of the society at reasonable prices (through the public distribution system or PDS). FCI has 1,426 godowns all over the country and at any given time we handle stocks of at least 250 lakh tonnes of foodgrains. All this was being accounted for manually so far, which was very time-consuming.
Under the integrated information system for foodgrain management, we have been able to link up all the depots. Now, we can access the inventory in these depots with the click of a button. We are now planning to link up with the godowns of state agencies for which we have signed a memorandum of understanding (MoU) with all states except Punjab. We hope to do that within a year.
FCI is also computerizing its accounting system. With a daily cash credit limit of Rs34,000 crore, which actually goes up to Rs40,000 crore at times—as we have to overdraw—and with an annual turnover of Rs70,000 crore, we needed to computerize our accounts. The deadline for that is March 2008.
Why is there no MoU with Punjab?
Other states, as also the Centre, have shortage of money. Punjab is hoping that we will pay for the additional staff needed for computerization. The Central government has not agreed to this as it is already paying for the software and hardware. But I hope Punjab will soon see the merits of being linked up.
How do you think the ongoing procurement has gone so far?
The are two-three differentiating issues this year compared with last year. The minimum support price (MSP) has increased by Rs200 (from Rs650 to Rs850) per quintal. Then we have a much larger stock this year. As on 1 April 2006, total stock of wheat was 20 lakh tonnes, whereas this year it was 49 lakh tonnes on the same day. We almost have 30 lakh tonnes extra. The market prices, to a large extent, are influenced by how much FCI is holding. If the FCI is holding a lot, then trading for a larger profit comes to a stall.
Secondly, this year, our buffer stock has been to the tune of 50 lakh tonnes, compared with 20 lakh tonnes last year. The signal that went to the market was there was not too much of a margin of profit for private traders. Thirdly, it is unanimously being held that the country will produce more than 73 million tonnes of wheat against over 69 million tonnes last year—a jump of four million tonnes.
These three things combined will ensure that there will be bumper procurement.
Because of climatic factors, harvesting was delayed. But in the last one week, procurement in Haryana and Punjab has been rising geometrically—it is something like one lakh tonne in one day, two lakh tonnes on another day and so on. Now the private traders have held back and almost 99% have come through the MSP operations. Based on this, we are hoping to double our stock in these two states alone to 15 million tonnes from the current level of seven million tonnes. We still have to procure from UP, Bihar and Rajasthan.
Do you believe the bonus given this year was worth it? Secondly, has the imported wheat been distributed?
Definitely, the bonus was justified. Of the 53.5 lakh tonnes that arrived from overseas, around 35 lakh tonnes has already been distributed through the PDS.
Is FCI also fine-tuning its approach on procurement?
See, FCI was set up under an Act of Parliament and our purpose is to see that the farmer gets an MSP for his output. That means we have to be in the market and not let the prices fall below the MSP, come what may. So, for instance, when FCI gets 200 lakh tonnes, it has to buy and when the prices are so high and it gets just 100 lakh tonnes, it has to be happy with that.
We have to be there for the farmer. But the second mandate is apparently contradictory, as we have to ensure that consumers get foodgrains through PDS and welfare schemes at reasonable prices. So what should be the MSP is decided by the government. What should be the reasonableness of issue price is also decided by the government. To that extent it is not in our hands. The third mandate is that FCI can take part in trade of food grains to ensure that buffer stocks are adequately maintained. That is why sometimes we are made to release surplus stocks in the market or sometimes import. Within the parameters of these three variables which are usually decided by the government—though FCI officials are consulted—things work. However, if you ask for my personal views, I don't think any government in the near foreseeable future is going to dismantle either the PDS system or the MSP.
Do you think there is any move to set the MSP based on rates closer to the market prices on the recommendations of the National Commission for Farmers?
I don’t think there was any such announcement. Because it is difficult to decide as to what the market price is. Of course, all kinds of calculations take place while working out the MSP, like this year the government decided on Rs850 per quintal.
According to the government estimates, this is the price below which the farmer will suffer a loss. The commission’s report is comprehensive and recommendations are on raising productivity and farm income, among other issues.
What are your plans for the kharif season?
The MSP for paddy has not been announced yet. It’s too early. But in both paddy and rice, the procurement is much more than we need and the market price is pretty low compared with our price. When we say there is a levy on rice mills, it means it is compulsory for rice mills to sell to us. The levy has been 50-60% of the total output of our rice mills, but this year rice mills in Chhattisgarh, Orissa and Andhra Pradesh want us to increase the levy to 100% as they want to sell the entire stock to FCI.
The market is such that they may not be able to sell to outsiders. Besides, in the last two years, the kharif output has been high and international prices have been low. So, rice millers possibly don’t have enough margins in exports.
With all this chaos over land acquisition, putting more farm land under SEZs etc., how do you think output of foodgrains is being affected?
I am curious myself. Anecdotally, the land area under agriculture is decreasing, but the output has been on the rise. That probably means productivity is increasing. But you see things are different in different states. Like, in Punjab, where agricultural land is being taken over by real estate, farm output has been more or less the same. Output is rising in UP, Bihar, Chhattisgarh and West Bengal. Chhattisgarh is an exemplary example where output of rice has grown substantially. Here, more land has come under rice and productivity has gone up.
There was an FCI outstanding of around Rs30,000 crore with the rural development ministry. Part of this has been converted into FCI bonds, but what is happening to the rest? Were the bonds sold off?
Thankfully, the amount has come down to Rs10,000 crore. Besides, from 1 April, the government has asked FCI to disburse foodgrains under the food-for-work and midday meal programmes on a cash-and-carry basis, just like the PDS. The respective state governments will give us a (bank) draft and we will issue food. I can’t say whether this will bring down arrears of Rs10,000 crore, that the government has to decide. But the finance ministry had to regularize it as FCI was paying not just normal interest but also penal interest on Rs10,000 crore.
Because of this, the food subsidy burden is going up and FCI is apparently becoming financially inefficient. The cost of operations is, therefore, going up for no fault of ours. The cash-and-carry system will continue in future as well. We flogged the bonds in the market and raised capital loans against them.
Has FCI’s carrying cost come down? If yes, by how much?
I can’t give you a figure off-hand, but carrying cost has come down largely on account of reduced staff strength. This happened on two counts—one particular recruitment was banned and staff who retired were not replaced. So the staff strength came down by half from 81,000 to 42,000 and volume of operations went up. As a result, the burden of salaries and establishment have come down by half over a decade. Interestingly, our average age profile is 52-plus.
How good is this strategy?
Well, any strategy can be justified. But the government has taken this step on grounds of austerity. Although, we are allowed to hire on highly justified grounds. For instance, we have a shortage of finance people. Now, that is a highly specialised cadre, we can’t pick up somebody from a depot and put him in the finance department. So we will hire people with experience in that field.
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First Published: Mon, Apr 16 2007. 12 46 AM IST