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Cash crisis threat to record harvest

india Updated: Jul 25, 2011 02:08 IST
Samar Halarnkar
Samar Halarnkar
Hindustan Times
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Less than a week after India announced a record harvest, Hindustan Times has learnt that the nation’s main grain-buying agency is running out of money for its massive nationwide purchase operation.

Over the last month, the state-run Food Corporation of India (FCI) has twice stopped payments to state governments, various grain-purchasing agencies and rice millers who buy wheat and rice, the main food crops, from millions of farmers, a senior government source told HT on condition of anonymity.



"If this financial crisis continues, FCI and state agencies funded by it will not be able to procure grain. There is no money for August and September," said the source. "This is a serious situation, and it is being brought to the notice of the finance minister."http://www.hindustantimes.com/Images/HTEditImages/Images/25_07_11_pg1a.jpg

Pointing to possible farmer unrest, the FCI has urgently asked the Cabinet Committee on Economic Affairs — the country’s key ministerial decision-making body — for about Rs 38,000 crore, in addition to the Rs 47,239 crore received through the annual budget, the source said. A finance ministry official only said the request had been received.

In India’s granaries — Punjab and Haryana — about 99% of the harvest is bought by state-run agencies.

With no income of its own except government subsidies — and since it cannot legally refuse to buy produce from the farmer — the FCI is ensuring salaries to employees and workers who heft sacks of grain, freight charges and interest payments to a consortium of 59 banks are kept going so that procurement does not immediately stop.

India’s record harvest of 241 million tonnes, and the government's announcement of a Rs 50 per quintal bonus to wheat farmers in April has further strained the FCI’s resources at a time when it is preparing to dramatically enhance procurement to stock up for the impending right to food legislation due to be introduced in Parliament next month.

Every three months the finance ministry releases subsidy to the FCI which is also supposed to be paid by the ministry of rural development for social-security programmes that involve foodgrain, such as the mid-day meal scheme that aims at keeping children in school.

So tardy were those payments that food subsidy defaults from the government to the FCI grew 800% over the last six years, according to a March 2011 bulletin issued by the ministry of agriculture.

Over the same period, the support price — the money paid to the farmer — for wheat and rice has almost doubled.
From Rs 6,800 crore when the fiscal year ended in March 2010, subsidy arrears exceed Rs 11,000 crore today.

The FCI tides over annual shortfall by borrowing from banks. But its annual government-secured credit limit of Rs 35,000 crore has been breached. In March, the State Bank of India, the agency's lead banker, refused short-term loans.

Set up 47 years ago, the FCI looks after the economic interests of farmers by paying government-mandated prices; distributes the bulk of India's grain through the public distribution system; and stocks vast warehouses for current and emergency food needs.

As of last month, it held foodgrain valued at Rs 51,000 crore.