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Can we conduct an independent audit of Food Corp of India?

It would also be interesting to know what Food Corporation of India has done in terms of improving conditions in existing warehouses apart from building new ones, during the past five years

Since 2004, the present United Progressive Alliance (UPA) government has, on an average, spent close to Rs1 lakh crore, yes, Rs1 lakh crore per year on various anti-poverty schemes. Nothing, really has improved, as poverty remains, and only the money spent on these programmes have simply vanished into the thin air, so to speak.


The interim budget for 2013-14 provides for Rs92,000 crore for food subsidy, which, the Food Corporation of India (FCI), said falls short of the procurement costs by almost Rs40,000 crore.


Our finance minister, P Chidambaram, has estimated the food subsidy bill for FY 2014-15 to be around Rs1.15 lakh crore in his interim budget. But this amount is twice more than India's poverty gap, the cost of pushing all households above the poverty line, if cash transfers were used instead.


According to the survey carried out by the National Sample Survey Organisation (NSSO), the Consumption Expenditure Survey available for 2012-13 is estimated to be Rs57,544 crore, as mentioned in the press.


In fact, a government official is reported to have stated that the reason for food subsidy substantially exceeding the poverty gap is due to the huge costs incurred by the Food Corporation of India in holding the foodgrains. The procurement costs, loading and unloading expenses, transportation from point of collection/ production to storage point, insurance cover, pilferage prevention (security aspects), interest charges and reloading expenses for onward delivery are other factors to be borne in mind. He felt that there is tremendous potential for FCI’s operational costs to be reduced and more efficient restructuring would help. On the top of all these, would be the enormous expense, in terms rent chargeable, that would ultimately increase the costs of the grains stored. One cannot forget the interest charges on all the money spent on these charges.


As the finance minister rightly pointed out that it is not the point to talk about if the food subsidy should be continued or not, but to see if the limited resources that are available be used more efficiently for targeting poverty effectively and ensure that focus is on making the grains at the most economical price. Efforts have to be continuously made to reduce the subsidy burden. At the same time, giving cash transfers would not be helpful as this may be misused and defeat the very purpose to reduce the poverty.


In a recent interview, Chidambaram apparently made these references and felt that these matters need to be sorted out between the FCI and the Ministry of Consumer Affairs on one hand, and with the banks on the other, who make the finance available for such transactions.


Moneylife has carried various stories on the foodgrain situation and the pathetic conditions of storage in the Food Corporation of India's godowns in the country. There are many areas of controls and checks that come to play when exports are involved. Whether it is rice, wheat soya meal or other items that are in demand internationally, the overseas buyer cannot wait indefinitely for price quotations. At the same time, like in the case of raw sugar, it is not possible for the industry to survive unless suitable export subsidy is given.


Time and again it has been reported and evidence have appeared in the press showing details of the poor storage facilities that we have in the country; in fact, in many areas, there are no facilities or what is available is inadequate.

Only an independent study would reveal the problems faced by Food Corporation in dealing with such large volumes of foodgrains that come in and similar amounts that have to be go for shipment. Transportation and equipment handling for maintenance of stored grains are just as important that may hamper the work in these warehouses.


It is time that the government comes forward to make some radical changes in the scene. As a corporate social responsibility (CSR), opportunity may be given to business houses to be allotted adequate land to construct huge warehousing facilities, on long term lease, from where the foodgrains can be distributed locally or taken out for export shipment.


Such a move would become workable if the concerned states make the land available in areas of production; some land near the ports would also help for easy shipments overseas. But in the meantime, it is imperative that an independent audit be done on how effectively FCI is functioning, in terms of purchase, storage and deliveries, besides others matters such as prevention of pilferage, protection from rodents and weather effects. It would also be interesting to know what they have truly done in terms of improving conditions in existing warehouses apart from building new ones, in the last five years.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)



Dr Anantha K Ramdas

3 years ago

Thank you for your candid comment. The Government should only give subsidy if it can be proved that without assistance an industry cannot survive; and that too, for a short period of time, like parents helping a child to stand up on his/her feet.

Everybody wants the government to give "subsidy" to increase their profits. The government must wake up and stop this subsidy business once and for all, particularly for FCI and other similar organisation.

I have always wondered why we need STC, MMTC and PEC to be involved in export foodgrains? Why should they call for tenders? These organisations do not go on a aggressive sales campaigns to sell our foodgrains or other products.

Ask how many of them have gone to Myanmar, Bangladesh, Sri Lanka, Saudi Arabia, Iraq and Iran to sell our agricultural or other products? There would be none. Everyone wants to jump into a plane (even a bucket-seat) if it can take them to London or European city!


3 years ago

The FCI is a hugely corrupt organisation that continues to preside over the most criminal act of theft, damage and destruction of millions of tons of food every year. FCI officials get away with it because there is rampant corruption in the whole food supplies sector run by the government. The scale of irregularities in this organisation probably exceeds all other scams in the country thanks to the scale at which they are being conducted.

Are policies of developed countries responsible for turmoil in EM?

Are the US and other developed countries responsible for the emerging market issues? Or in the alternative, are the all the emerging market troubles home grown? It will be interesting to see who the developed countries blame when the problems they created for emerging markets return home

There is going to be trouble down under. Australia is hosting the latest G-20 meeting. Finance ministers from most G20 countries will travel to Sydney. Christine Lagarde, the IMF’s managing director will be there as will the new chairwoman the Federal Reserve (Fed), Janet Yellen. The meeting might be a bit more contentious than most. The recent turmoil in emerging markets (EMs) has many pointing fingers at the Fed as the cause of their problems.


One of the most articulate is Raghuram Rajan, the governor of the Reserve Bank of India (RBI). Last month he accused the developed countries (DMs) of ignoring the issues of the EMs. He said, “Industrial countries have to play a part in restoring that [co-operation], and they can’t at this point wash their hands off and say, we’ll do what we need to and you do the adjustment.” He accused the DMs of ingratitude. “Emerging markets tried to support global growth by huge fiscal and monetary stimulus”. He was upset that developed countries, particularly the US, were insensitive to the problems created by the end of their stimulus programs specifically the quantitative easing (QE) program in the US.


Janet Yellen confirmed his view. She is focused on the US economy and that is it. She said, “Our sense is that at this stage these developments do not pose a substantial risk to the US economic outlook”. So as long as an EM melt down does not affect the US, it is their problem. Mr. Rajan thought that this view was too narrow. He warned that the DMs including the US “may not like the kinds of adjustments we will be forced to do down the line”.


Who is right? Are the US and other developed countries responsible for the emerging market issues? Or in the alternative are the all the emerging market troubles home grown?


One view is that since 2008, the central banks of the US, Europe and now Japan were irresponsibly flooding the world’s markets with cheap money. This led to an artificial devaluation of the dollar and recently the yen. Printing money to debase your currency may help exports, the cause of the Japanese market rally. But it also unleashes a flood of money into emerging markets as investors search for yield. This produced a credit boom. The boom created deficits and is turning into a bust. The deficits have lead to lower exchange rates, inflation, higher interest rates and inevitably slower growth.


There is another view. It is that the developed countries’ stimulus packages were valid attempts to stimulate their economies. Any spill over into emerging markets should have been dealt with by a change of government policies. India’s problem stems from a misguided agricultural policy that drives up food prices and increases inflation. The government has not been able to reform these subsidies, cut the budget deficit or reform the labour market. Turkey’s recent battering has been due to political turmoil and risk of flight capital.


I find any finger pointing at emerging economies failure to reform as enormously hypocritical. The developed countries have not been able to make substantive changed in their policies. Neither the EU nor Japan has had any luck in reforming their labour policies. Japan has one of the most bizarre agricultural regimes anywhere while the US just passed a trillion dollar farm bill with large subsidies.


In fact, the reason why central bankers in developed countries stepped in with their massive money printing stimulus programs was that their governments could not agree on a comprehensive program of fiscal stimulus and policy reform. Rather than limit themselves to what they are reasonably good at, delivering low inflation and some level of financial stability, central bankers embarked on huge experimental programs with unknown and unintended collateral consequences.


I would put all of the blame on arrogant and short sighted DM central bankers with one caveat. Almost a trillion dollars from developed countries flowed into emerging markets between 2007 and 2012. But this number is dwarfed by the $3 trillion rise in assets under management (AUM) by EM governments. Sovereign Wealth Funds and developing country central bankers have over $11 trillion under management and much of that is invested in developed countries. Since a great deal of these funds are no doubt invested in US treasuries, the EM countries themselves made it much easier for the US to employ its money stimulating policies.


Governor Rajan is definitely right in his pleas for cooperation. One of the reasons for the Great Recession, in my view, was that Alan Greenspan ignored the effect on US interest rates of China. China by buying large amounts of US treasuries to artificially keep its currency low also helped moderate US interest rates. Greenspan attributed it to his own abilities. The result was a disaster.


It appears that Ben Bernanke and now Janet Yellen are making the same mistake. Ignoring the risk to emerging markets from the beginning of QE was a major mistake. Japan’s central banker Kuroda is only increasing the problems. It all might have been worth it if these programs actually worked, but they haven’t. Growth in the US and Japan remains lacklustre and neither government has had any success in streamlining their policies to create an environment necessary for real and sustainable growth.


Governor Rajan is also correct that central bankers may not like what is coming down the line. John Dunne’s famous observation that no man is an island applies to global economics as well. It will be interesting to see who the developed countries blame when the problems they created for emerging markets return home.


(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)


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