The government, for the first time, has formally invited private sector participation in foodgrain procurement which, until now, has been done by the Food Corp. of India (FCI).
Companies as well as state agencies that qualify will be entitled to a commission of 2.5% of the minimum support price. “The government did involve private and cooperative sector players in procurement in the last couple of years on a case-to-case basis, but this is the first time we have issued guidelines as to who can can be involved in procurement for the central pool,” said a senior food ministry official who didn’t want to be named.
“As FCI staff strength has reduced by 50% in order to make it lean, we do need outsourcing and I hope more companies apply for paddy procurement (which will commence later in the year),” says Alok Sinha, chairman and managing director, FCI. The food ministry guidelines will also extend to cooperatives.
They specify that only private companies or organizations in which either the central government or banks/financial institutions have over 51% equity can participate. Besides, these companies should have been in the agriculture-related business for the last five years, should have had at least 100 employees in the previous year and the paid-up capital of such companies at the end of the last fiscal year should have been more than Rs5 crore.
The food ministry official also clarified that, based on the conditions of the notification, the National Collateral Management Services Ltd (NCMSL) and National Agricultural Cooperative Marketing Federation of India (Nafed) have qualified.
NCMSL is jointly promoted by several banks, the National Commodity & Derivatives Exchange Ltd, the Indian Farmers Fertilizer Cooperative Ltd and other cooperative bodies. Nafed is a cooperative, largely involved in procuring pulses and edible oils, and is supported by the government. Both companies are assisting FCI in procuring wheat in the current season. So far, the government has procured 9.6 million tonnes (mt) of wheat, compared with the target of 15mt for the season.
The new guidelines, however, have drawn sharp responses from some market players who maintain they are too stringent and need to be revised.
Speaking on the condition of anyonymity, an official of a food procurement company said, “The very idea of public-private participation is defeated if the government imposes such stringent conditions.”
Ministry officials, meanwhile, maintain the guidelines will not to be altered. “We don’t want a horde of private companies getting into the government’s procurement business and later establishing a parallel private business using this experience,” said the ministry official. FCI currently competes with established players such as ITC Holdings Ltd and Cargill Inc. in procuring foodgrains from mandis (wholesale markets).