How India’s grain policies stoked Food Corporation of India’s debt binge

By Mayank Bhardwaj and Rajendra Jadhav

NEW DELHI/MUMBAI (Reuters) – (FCI), the state grain procurement agency, buys rice and wheat from growers every season at guaranteed prices but farmers fear that those purchases may end under new agricultural laws at the centre of recent protests.

Farmers say the new laws will shut the regulated wholesale markets they depend on to take their produce. But FCI has racked up huge debts from the purchases required to meet its role as a buyer of last resort and to supply India’s food welfare program.



For years, India’s federal government, across different administrations, has ordered FCI to purchase grain in excess of its requirement to run the world’s biggest food welfare programme as a buyer of last resort to placate farmers.

FCI’s safety net encourages farmers, especially from states such as Punjab, Haryana, Madhya Pradesh and Chhattisgarh to grow tonnes of rice and wheat.

FCI supplies grain to more than 800 million beneficiaries entitled to receive 5 kg (11 pounds) of rice and wheat every month at 3 rupees (4.1 U.S. cents) and 2 rupees a kg, respectively.

Robust output in many states and rising purchases by FCI have led to overflowing warehouses.

By the end of the crop year to June 2020, FCI’s rice and wheat stocks surged to 97.27 million tonnes against its requirement of 41.12 million tonnes.

According to official estimates, the value of the extra grain lying at state warehouses comes to about $39 billion.

FCI cannot export the grain as its rice and wheat are more expensive than world prices. Also, World Trade Organization rules restrict exports of grain meant for welfare programmes.



Punjab and Haryana were at the forefront of India’s Green Revolution in the 1960s and have traditionally accounted for the bulk of FCI’s purchases.

But in the past two decades farmers from other states such as Madhya Pradesh and Chhattisgarh have ramped up rice and wheat output, increasing FCI’s purchases.

In 2020, Madhya Pradesh sold 12.94 million tonnes of wheat to FCI against 351,000 tonnes in 2000/01. FCI’s purchase of rice from Chhattisgarh totalled 5.2 million tonnes this year, up from 857,000 tonnes two decades ago.



In the past decade, FCI’s expenses have risen as the guaranteed price for common rice has climbed by 73% and for wheat by 64%.

However, the prices at which FCI sells rice and wheat to India’s food welfare programme have remained unchanged.

The government is supposed to pay the difference between FCI’s procurement prices and sales prices. But for the past few years, the government has not fully compensated FCI, forcing it to borrow every year. FCI’s total debt has ballooned to 3.81 trillion rupees ($51.83 billion).

For the current fiscal year to March 2021, the government earmarked 1.15 trillion rupees in food subsidies, but FCI is likely to spend about 2.33 trillion rupees, partly because of free grain distributions during the coronavirus lockdown, stretching its debt further.

($1 = 73.50 rupees)


(Reporting by Mayank Bhardwaj and Rajendra Jadhav; Editing by Christian Schmollinger)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Source link