With India continuing to be plagued by malnutrition, it is foolhardy to use the changed food production situation in the domestic economy as a reason for dismantling the FCI

Within months of assuming office, the BJP-led National Democratic Alliance government set up a High Level Committee (HLC) in August 2014 to restructure, reorient and reform the Food Corporation of India (FCI). The eight-member HLC was chaired by senior BJP leader, Shanta Kumar, and included prominent economist Ashok Gulati. On January 22, 2015, the HLC submitted its report to the government and made its recommendations public.

In the short run, the committee recommends that the > National Food Security Act (NFSA) 2013 be curtailed. In particular, the NFSA entails providing subsidised food to about 67 per cent of the population, and the committee recommends that the coverage be brought down to 40 per cent. In the medium run, the committee recommends that the current public distribution system (PDS) be replaced by a cash transfer system. This will mean that the state will no longer have to be responsible for distributing food to vulnerable sections of the population. Hence, the state will no longer need to procure food from farmers, and store it. Since the current system of procurement, storage and transportation is primarily managed by the FCI, the medium term vision of the HLC implies that the FCI can, in due course, be folded up.

The overall thrust of the HLC’s recommendations, if implemented, would whittle down the operation of the FCI in the short run and completely dismantle it in the medium run. The HLC has advanced two broad set of arguments as justifications for its recommendations. Critical scrutiny shows that both are fallacious.

Changed situation



The first set of arguments of the HLC relates to changes in the situation in the country as regards food production and consumption since the crisis period of the mid-1960s. Today, India produces more food grains than it consumes, even exporting substantial amounts to the world market. It has a large public stockholding of food grains and is comfortably placed as regards foreign exchange reserves. All this is in stark contrast to the situation in the mid-1960s. Moreover, consumption patterns of households have displayed a shift away from cereals. This changed situation, in the opinion of the HLC, calls for a change in the role of the FCI.

“Excessive stocks of food grains on the one hand, and prevalence of widespread hunger and malnutrition on the other, call for an expansion of the PDS operations ”

The HLC, however, has ignored the fact that India continues to be plagued by large scale hunger and malnutrition. Data from the National Sample Survey (NSS) shows that in 2009-10 the vast majority of the population was consuming less than the 2010 Indian Council of Medical Research calorie norms. If we look at trends over time, the same data also shows that average calorie and protein intake have declined over the past few decades. Evidence on more direct measures of under-nutrition – like the proportion of underweight and stunted children – are equally grim.

Fulfilling its objectives



Given these well known facts and trends on hunger and malnutrition, it seems foolhardy to use the fact of a changed production situation in the domestic economy to argue for the dismantling the FCI. A more sensible route would be to use increased domestic production to directly address the problems of hunger and malnutrition. In this strategy, the FCI is bound to play a more rather than less important role.

The second set of arguments given by the HLC as justification relate to the claim that the FCI has not been fulfilling its three key objectives in recent years: providing price support to farmers, delivering food through the PDS, and reducing volatility of food prices (and addressing food security) through public stockholding. According to the HLC, failure to meet the objective of providing price support is shown by the fact that in 2012-13 only six per cent of agricultural households sold any food grains to procurement agencies. Failure on the PDS front is attested by massive leakages from the system. Food grains rotting in FCI warehouses highlight the failure of the system of public stockholding.

The fact that only six per cent of agricultural households sold paddy or rice to any procurement agency in 2012-13 is really striking. The Situation Assessment Survey of Agricultural Households conducted by the National Sample Survey Organisation during the 70th Round (2013) of the NSS – the data source that allowed the HLC to compute the figure of six per cent – shows why. The NSS data reveals that the vast majority of agricultural households were not aware of the existence of minimum support price (MSP), and an even larger proportion were not aware of procurement agencies (about 80 per cent for paddy and 70 per cent for wheat). Of the households that were aware of MSP but did not sell to procurement agencies, a large proportion did so for lack of procurement infrastructure at the local level. Moreover, if we go back 10 years and look at data from the previous (and first) Situation Assessment Survey of Farmers in 2003, we see a large variation across States in awareness of MSP, with Haryana, Kerala, Punjab and Tamil Nadu showing high awareness.

One can see that the reason for low use of procurement is lack of information. The other reason is lack of enabling infrastructure at the local level. States which have managed to put such infrastructure in place and disseminate information about procurement saw greater participation. Thus, the HLC’s conclusion that the procurement system is not working is misleading.

The second claim of the HLC is that the PDS is a failure because of massive leakage. But, what do we know about the extent of leakage, its spatial and temporal patterns?

The existing literature on PDS in India has highlighted three important patterns. First, there is a secular decline in leakage over the past decade. Second, there is a large variation in the extent of leakage across states with some States like Andhra Pradesh, Himachal Pradesh, Karnataka, Kerala and Tamil Nadu consistently reporting low leakage. Third, and more interestingly, many States like Bihar, Assam, Chhattisgarh, Jharkhand and Uttarakhand, have improved considerably over time with respect to leakage from the PDS. The conclusion that would be consistent with the findings of this literature is not that the system needs to be dismantled but that the strategies adopted by successful states are replicated in the other States.

The third claim of the HLC is that the FCI has ended up with excess stocks of food grains. Since storage of food grains is costly, it represents a waste of resources that could have been used elsewhere and in more productive ways. We agree with this and would go further to argue that excessive stocks of food grains on the one hand, and prevalence of widespread hunger and malnutrition on the other immediately call for an expansion of the PDS operations.

To sum up, neither the changed situation with respect to domestic food production nor the functioning of the FCI with respect to meeting its key objectives lends credence to the argument that the FCI, and with it the whole food management system, needs to be curtailed.

(Deepankar Basu is assistant professor in the Department of Economics, University of Massachusetts Amherst, U.S., and Debarshi Das is associate professor in the Department of Humanities & Social Sciences, Indian Institute of Technology, Guwahati.)