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Business News/ Opinion / FCI reforms: prescription to cure or kill?

The report of the high-level committee on reorienting the role and restructuring of Food Corp. of India (FCI) is a pointer to the government’s thinking on matters of agriculture and food security. Among the key recommendations of the committee are: winding up of the activities of FCI in traditional procurement states; reducing the coverage of the National Food Security Act (NFSA) from 67% to 40%; raising the issue price of public distribution system (PDS) grains to 50% of minimum support price (MSP) for all except Antyodaya (poorest) households; shifting to a cash transfer-based food security programme; and abolition of input subsidies by introducing direct-income support. Notwithstanding the smokescreen of promoting efficiency that the report seeks to build, there are enough grounds to argue that if accepted, the recommendations would not bode well for our agriculture and food security.

FCI is one of the most important pillars of the public stockholding-based food security programme in India. India, along with other developing countries of the G-33, has been seeking reforms in World Trade Organization (WTO) rules to be able to use such programmes more effectively, and rightly so. It only showcases the muddle-headedness in our policy perspective when government-appointed committees shower praises on monolithic policy prescriptions advocating a cash transfer-based food security programme, which is in conformity with extant WTO rules, thus jeopardizing the very merit of our argument in WTO. It needs to be asked why the committee has not looked at a plethora of literature, including the reports of the United Nation’s special rapporteur on the right to food, which have underlined the importance of procurement-based programmes for safeguarding food security in developing countries. Evoking leakages to discontinue such a programme is akin to throwing the baby out with the bath water.

The abolition of a procurement-based programme would undermine the very raison d’être of FCI rather than bringing about any restructuring as the committee wants us to believe. After all, what would procurement be for if the government does not have to distribute foodgrains through PDS? This makes most restructuring recommendations redundant in the long term. When seen together with its prescription for making subsidies crop-neutral, such a regime would discourage farmers to grow cereals, which can lead to twin hazards: a drastic fall in cereal cultivation and increased vulnerability of farmers to price volatility in commercial crops. These, in turn, can seriously undermine food self-sufficiency and rural well-being.

The fundamental premise of such conclusions is that there is a glut of cereal production in the country because of high MSPs and procurement. While the committee has rightly pointed out that MSP for wheat and rice in India is much lower compared with other countries, it would have done well to look at per capita availability of cereals in India, which is much lower than in countries such as China and has displayed a downward trend throughout the post-reform period. This—along with the fact that cereals still account for more than 60% and 50% of both calorie and protein intake in rural and urban areas—in a period of declining nutrition levels points towards a squeezed demand-led glut rather than any excess production. This is something the Planning Commission had acknowledged in the 12th Five-Year Plan document. Given the wide acceptability of the positive relation between MSP and cereal production, any dilution of procurement can undermine our food self-sufficiency.

An important reason for this squeeze in demand has been the dilution of PDS into targeted PDS, which excluded a large population by denying them subsidized food when the issue prices for above poverty line households were raised significantly in the late 1990s. Not only did it adversely affect food security, it also led to a pile-up of food stocks with FCI due to a large fall in offtake. NFSA was an attempt to address this criminal exclusion. Seeking its dilution by restricting coverage and increasing issue prices will take us to the status quo ante of hungry people and overflowing food stocks.

Roshan Kishore is pursuing his PhD in economics looking at food security in South Asia.

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Updated: 27 Jan 2015, 06:52 PM IST
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