The article highlights the challenge of managing the procurement of wheat and rice at MSP by the FCI and maintaining its financial health.

The problem of surplus in wheat and rice procurement

• While MSP is declared for 23 crops, the biggest financial burden comes from wheat and rice.
• Procurement has increased significantly with states like MP, Chhattisgarh, Telangana and Odisha stepping up their efforts.
• Overall procurement of rice and wheat has gone up to 52 million tonnes and 39 million tonnes, respectively.
• The requirement of PDS and welfare schemes is about 60 million tonnes.
• This leaves a surplus of about 30 million tonnes, in addition to the carry-over stock of about 42 million tonnes (current)—far above the buffer and strategic reserve norms.

Cost of the surplus and its significance

• The subsidy burden for rice and wheat (2020-21) is estimated to be Rs 1.8 lakh crore.
• FCI procures wheat and rice at MSP (some states do so under the decentralised procurement & distribution scheme).
• They incur costs like market fees, labour charges, packing costs, transport, storage charges, etc.
• These are of the order of 9% for procurement, 9-11% for labour and transport, and 15-17% for distribution.
• The sale price is fixed at Rs 2 and Rs 3 per kg for wheat and rice, respectively, under the National Food Security Act.
• In addition, there are releases under LEAN (lower entitlements and higher costs compared to NFSA cards, but subsidised nonetheless) and Open Market Sales (OMSS).
• Cost of holding the buffer for a year is about Rs 5,500 per tonne.
• FCI is holding 39 million tonnes of rice and 55 million tonnes of wheat (July 2020) against the buffer/strategic reserve norm of 13.5 million tonnes of rice and 27.6 million tonnes of wheat, i.e., a surplus of 52 million tonnes.
• The cost of holding this stock works out to Rs 29,000 crore per year.

Financial burden on FCI

• The finance ministry has not been able to allocate adequate funds to meet the full requirement of food subsidy.
• Under-provisioning on this account has been going on, and FCI was being given loans at 8% interest from the National Savings Scheme Fund (NSSF) since 2016-17.
• The outstanding loan on this account (October 31, 2020) is Rs 2,93,000 crore.
• This has meant FCI getting zero budgetary support against current subsidy claims since 2017, thereby, postponing the problem year after year.
• The subsidy burden is rising (with MSP increasing every year, quantities going up and prices under PDS fixed), and is likely to cross Rs 2 lakh crore.

Conclusion

Government need to bring in the reforms in the PDS and MSP regime to stop both the systems from collapsing under their own weights.

Source:-

https://www.financialexpress.com/opinion/union-budget-2021-22-the-burgeoning-food-subsidy-bill-will-be-a-key-budget-worry/2155584/

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