Food Corporation of India dominates wheat procurement
India’s private sector has nearly exited the country’s foodgrain markets, pushed out by high levies and bonuses on wheat and rice, and resulted in a virtual monopoly of state-run Food Corporation of India (FCI), latest procurement figures of wheat show.
This leaves farmers with little incentive to grow crops other than rice and wheat in food bowl states like Punjab, Madhya Pradesh and Haryana.
High taxes and extra bonuses in some states, offered as a top-up to federally determined minimum support prices (MSP), are the main reasons for the private sector being “crowded out”, leaving FCI as the only buyer in the grain bowls of Punjab, Madhya Pradesh and Haryana, analysts say.
According to official figures as on May 24, procurement of wheat by government agencies has touched 34.1 million tonnes, which is slightly more than last year’s levels.
Experts say FCI, India’s main grain handling agency, is burdened with mountains of wheat and rice stocks, often beyond its capacity. For instance, total food stocks owned by FCI exceed its total capacity for protected and scientific storage, technically called covered and plinth, or CAP.
Take for instance this year’s rate of procurement, or the buying of wheat at statutory minimum support prices by the FCI. Punjab has procured 12.65 million tonnes of wheat against market arrivals of 12.7 million tonnes, which is 99.5% of total stocks offered by farmers for sale.
In Madhya Pradesh, government agencies have procured 11.33 million tonnes, which is nearly 99% of the total arrivals of 11.40 million tonnes. In Haryana, the state’s agencies have procured 7.06 million tonnes, nearly 95% of market arrivals.
“Private buyers have almost completely withdrawn from Punjab. One reason is taxes and arhatiya commission of about 8.5% on the wheat purchase,” said Siraj Hussain, a senior visiting fellow of the think-tank ICRIER. Hussain is the country’s former agriculture secretary.
According to Hussain, Punjab stores some of its wheat in an unscientific manner that is prone to damage due to rains.
FCI’s general manager of procurement, KC Sahu, did not take calls. An email containing queries were sent to him.
The exit of the private sector from grain markets was highlighted by a high-level committee headed by former food minister Shanta Kumar. The Narendra Modi government formed the panel in 2015 to overhaul the 50-year-old FCI.
“The HLC [high-level committee] also notes that private sector has been crowded out not only in states that give extra bonus but also those that charge very high statutory levies and commissions, which vary from 3.6 percent in Rajasthan to 14.5 percent in Punjab in case of wheat in 2012-13,” the panel said in its report to Modi.
Crowding out refers to a situation where increased government involvement in a sector affects other players, including the private sector.
“With the government procuring only wheat, what is the incentive for farmers to grow crops such as maize, channa or mustard? Farmers, who are able to sell wheat, paddy or sugarcane at prices fixed by the government, do not deserve Rs 6,000 a year as cash hand-out under PM-KISAN. Farmers, whose crops are not procured, should receive at least Rs 10,000 under PM-KISAN. The farmers in rain-fed areas should get even more,” Hussain said.
The Shanta Kumar committee report had said “bonuses distort the market, encouraging farmers to produce and sell more of wheat and rice to the government agencies, crowding out the private sector from that state”. In some states, it said, the “procurement by government agencies goes to 60-80 percent of marketed surplus”. “This is nothing short of a monopolistic situation in the market, with just one large buyer [the state agencies].”
To get private companies back to grain markets, the committee recommended that “state-level bonuses [some states declare bonus over and above the MSP declared by the central government] must be contained, taxes and statutory levies made uniform at 3% of MSP, levies on rice millers abolished and quality of grain be adhered to through mechanical and transparent processes.”
The government never took up the report for implementation. “Some of its proposals, such as restricting subsidised grains to 40% of the population were politically risky,” a retired food ministry official said, requesting anonymity.