Procurement Policy for Food Corporation of India Modifications and Implications

29 Pages Posted: 22 Sep 2012

See all articles by Rajluxmi V. Murthy

Rajluxmi V. Murthy

Indian Institute of Management (IIMB), Bangalore

T. Ramanayya

Indian Institute of Management (IIMB), Bangalore

Date Written: January 30, 2007

Abstract

The National Objective of growth with social justice followed by Government of India involves assured supply of food grains at affordable prices to different sections of society. In this connection, the Government of India has introduced a scheme called Targeted Public Distribution Systems (TPDS) effective from June 1997. A number of schemes to deal with people above poverty line (APL) and below poverty line (BPL) are put into practice. Food Corporation of India (FCI) is entrusted with the responsibility of procuring, storing and distribution of food grains throughout the country. The total subsidy associated with the entire operation to provide food grains to the needy sections of the society amounts to about Rs.25,000 crores per annum. Data indicates that transportation cost account for one-third of the subsidy. This paper aims at minimizing this component of subsidy without affecting the delivery of the scheme to different sections of society.

Currently, the procurement operations of rice are limited to only 5 states even though 14 states of India produce substantial quantities of rice. Similarly, wheat is produced in large quantities in 10 different states whereas the procurement is limited to only 3 states. This process results in creation of large amount of storage capacity in procurement states and additional cost of transportation of this food grains to different states. A perusal of procurement and operational policy of the Food Corporation of India suggests that the entire country could be divided into 5 different zones for the purpose of analysis. Analysis of data provided by Food Corporation of India reveals that the south zone comprising of Andhra Pradesh, Karnataka, Tamilnadu and Kerala as a group is producing enough rice for its consumption as well as export to other needy states. However, because procurement is limited to Andhra Pradesh lot of rice movement is taking place within the zone as well as from the North zone to the South zone. A similar observation is made in the procurement and distribution of wheat in North East and Northern zone. Under the assumption that it is feasible to procure about 30% of the production in any state, a substantial reduction in the movement of food grains across different zone could be achieved. In financial terms this amounts to a saving of Rs.1000 crores per annum for the South Zone alone. Procurement process in different states especially Punjab, Haryana, Andhra Pradesh show that substantial amounts are appropriated to the state exchequer through the levy of Mandi tax. Punjab is generating about Rs.1000 crores per annum through this tax. If states increase their procurement levels they could benefit similarly. However, procuring 30% of production involves creation of infrastructure at Mandi level which could be created through soft loans provided by NABARD. In addition this will also go a long way in the enhancing value addition to the farming community. Thus a zonal procurement policy could bring about several benefits without impacting the delivery of the scheme.

Keywords: Food Corporation of India, Procurement Policy, Transportation and Distribution Costs, Food Subsidy

Suggested Citation

Murthy, Rajluxmi V. and Ramanayya, T., Procurement Policy for Food Corporation of India Modifications and Implications (January 30, 2007). IIM Bangalore Research Paper No. 250, Available at SSRN: https://ssrn.com/abstract=2147608 or http://dx.doi.org/10.2139/ssrn.2147608

Rajluxmi V. Murthy (Contact Author)

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

T. Ramanayya

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

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