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Govt can save over Rs 30,000 crore food subsidy with FCI rejig

Government's food subsidy bill can come down by over Rs 30,000 crore a year by reducing coverage of beneficiaries to 40 percent under the food law and outsourcing major work of FCI to states governments and private players, a high-level panel said Thursday.

New Delhi: Government's food subsidy bill can come down by over Rs 30,000 crore a year by reducing coverage of beneficiaries to 40 percent under the food law and outsourcing major work of FCI to states governments and private players, a high-level panel said Thursday.

BJP MP Shanta Kumar, the head of eight-member panel that has submitted its suggestions on restructuring of FCI to Prime Minister Narendra Modi, termed the recommendations as "pro-farmer and "pro-poor" and said that their "implementation would have miraculous results".

"The government can save by Rs 30,000-40,000 crore food subsidy a year," he told reporters here.

"Despite FCI in operation for last 50 years, only six per cent of the nine crore farmers are getting the MSP and most poor people are not receiving subsidised grain under PDS due to 40-60 percent leakages," he said, adding the suggestions have made keeping these issues in mind.

Among the key recommendations, the panel has suggested direct cash transfer of Rs 3,000 per person a year as food subsidy and Rs 7,000 per hectare as farm input subsidy besides revisit of minimum support price (MSP) policy with more focus on pulses and oilseeds.

The key role of Food Corporation of India (FCI) is to buy foodgrains to ensure MSP to farmers, and distribute it to the poor under the public distribution system (PDS).

Kumar said that the panel has suggested "revisit" of the National Food Security Act -- which the UPA government had rolled out in 2013 -- as the coverage of beneficiaries is higher and not targeted well.

It has suggested lowering the coverage of beneficiaries under the food law to 40 percent, from 67 percent, to cover more BPL families and increase the quantity of foodgrains supply to 7 kg per person from the existing 5/kg.

The foodgrains to the poorest of the poor (Antoyodaya households) can be supplied at Rs 1-3 per kg for the time being but the pricing for priority households must be linked to 50 per cent of the MSP, the panel's report said.

The panel said that the government should defer implementation of food law in states that have not done end-to end computerisation, have not put the list of beneficiaries online and have not set up vigilance committee to check pilferage from PDS.

Finance Minister Arun Jaitley had allocated Rs 1.15 lakh crore for food subsidy this year, of which Rs 92,000 crore is for FCI. The implementation of food law across the country is expected to increase the food bill to Rs 1.30 lakh crore.

Asked why the panel has suggested a relook at the food law, enacted by the UPA government, which the BJP had supported as the then Opposition, Shanta Kumar said, "When the Act came, people in our party felt 67 percent coverage was higher. Ahead of elections, the food law was implemented for vote security and not for food security.

"As an Opposition party, we had to support it due to political compulsion. It was our thinking that when we would come to power we would correct this and balance the coverage," he said.

Asked why the panel has looked beyond its agenda on the FCI restructuring issue and dealt on food law, Kumar said, "All issues are inter-connected and efforts are made to reorient the role of FCI for the present need."

To check leakage of PDS grains, the panel has recommended gradual introduction of cash transfers in PDS, starting with large cities with more than one million population and later extending it to grain surplus state and then giving option to deficit states to opt for cash or physical grain distribution.

Elaborating on the recommendations, Ashok Gulati -- former CACP chief and member of the panel -- said the cash transfers be routed through the Prime Minister's Jan Dhan Yojana and give six months of physical grains to beneficiaries in one go immediately after the procurement season ends.

"This will save consumers from various hassles of monthly arrivals at ration shops and also save on the storage costs of agencies," he said.

On procurement side, Gulati said, "Majority of farmers in the country are not aware of MSP and existence of procurement agencies. So, we have recommended that the FCI should focus more in eastern states like Bihar and West Bengal where farmers do not get MSP and suffer from distress sale."

FCI should hand over all procurement operations of wheat, paddy and rice to six states -- Punjab, Haryana, Chhattisgarh, Madhya Pradesh, Andhra Pradesh and Odisha -- which have reasonable infrastructure for procurement.

Suggesting revisit of the MSP policy, the panel said that currently, MSPs are announced for 23 commodities, but effectively price support operates primarily in wheat and rice and that too in selected states.

"Pulses and oilseeds deserve priority and the government must provide better price support operations for them, and dovetail their MSP policy with trade policy so that their landed costs are not below their MSP," it said.

With states imposing higher mandi taxes on wheat and rice, the panel favoured uniform tax of minimum 3 percent and maximum 4 percent and the same to be included in the minimum support price (MSP). In Punjab, this tax rate now on wheat and rice is 14.5 percent.

The panel recommended that the government take up negotiable warehouse receipt system (NWRs) on priority.

"Under this system, farmers can deposit their produce to the registered warehouses, and get say 80 percent advance from banks against their produce valued at MSP. They can sell later when they feel prices are good for them," it said, adding that this will bring back the private sector, reduce massively the costs of storage to the government.

On buffer foodgrains stock, the panel said, "A transparent liquidation policy is the need of hour, which should automatically kick-in when FCI is faced with surplus stocks than buffer norms."

It also pitched for greater flexibility to FCI with business orientation to operate in local and export markets.

To strengthen stocking and movement of foodgrains, the panel recommended that FCI should outsource it to various agencies such as Central Warehousing Corporation, State Warehousing Corporation, Private Sector under Private Entrepreneur Guarantee (PEG) scheme, and state governments.

"It should be done on competitive bidding basis, inviting various stakeholders and creating competition to bring down costs of storage," it said.

It also recommended that Covered and plinth (CAP) storage should be gradually phased out with no grain stocks remaining in CAP for more than three months.

"Silo bag technology and conventional storages where ever possible should replace CAP. Movement of grains needs to be gradually containerized which will help reduce transit losses, and have faster turn-around-time by having more mechanized facilities at railway sidings," it added.

The report concluded that the FCI should be an innovative food management agency with a primary focus to create competition in every segment of foograin supply chain, from procurement to stocking to movement and finally distribution in TPDS, so that overall costs of the system are substantially reduced, leakages plugged, and it serves larger number of farmers and consumers.

The committee has finalised the report in five months. Initially, it was asked to submit the recommendation in three months, but it sought two-month extension.

Other members of the committee include FCI Chairman-cum- Managing Director C Viswanath and electronic and IT secretary Ram Sewak Sharma.