Need for Procurement Reforms

What is the issue?

Due to the government’s policy of open-ended procurement at MSP, the Food Corporation of India (FCI) suffers from a problem of excess.

In October 2021, FCI was holding 86 million tonnes of grains (including unmilled paddy) against a buffer requirement (October 1) of 30 million tonnes.
Notably, the annual requirement of foodgrains for distribution under the National Food Security Act is only 65 million tonne.
While there is increased procurement of grains, the off-take has not moved much over the past 5-6 years.

Such massive procurement is wasteful, given the lack of storage capacity.
It also risks making India’s procurement for food security seem market-distortionary.

The FCI has been conducting open market auctions for part of its excess holdings.
But this is hardly enough to take care of the problem of the excess.
A “micro-analysis of state-wise requirements and buffer norms” is being done by the FCI.

Given the pandemic induced income losses, the government gave beneficiaries a fixed quantity of extra grains, over the NFSA entitlement, under the Garib Kalyan Anna Yojana.
This raised the off-take from 65 million tonnes annually to 93 million tonnes.
If the pain from job-losses in the unorganised sector is prolonged, the government may still be able to justify such a move. But it is less likely to happen.

Paddy/rice seems to be the main reason (especially procurement from Punjab) with untold economic and environmental consequences.
The Centre and Punjab must work together to incentivise the state’s farmers to switch from paddy to maize and even fruit and vegetables.
The government can also consider limiting open-ended procurement, say, by capping procurement as per size of individual land-holding.
Another option is moving from price-support to a pure cost-support regime; but this will need significant political will.
Government can also donate surpluses to food programmes locally and overseas.
But, without reforms, FCI’s burden will only grow.

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