Citizens' Issues
Food Corp -FCI needs to be made answerable and accountable

FCI acts independently, is answerable to no one in particular and has become a mammoth organisation that now needs to be restructured and reorganised to meet the changing needs of the country

According to press reports, in response to an application filed under the Right to Information (RTI) last year, it has been revealed that Food Corporation of India (FCI) has "admitted" that 1.94 lakh tonnes of food grains were wasted, due to various reasons, between 2005 and 2013.


The truth of the matter is that this figure of 1.94 lakh tonnes may be the tip of the iceberg. Only a more detailed investigation by a competent agency can reveal, if at all possible, how much more has been lost due to pilferage, how much ended up as feed for rodents, and how much was damaged due to natural causes of decay. Oh yes, we may never how know much more was "stolen" or "misappropriated" during this period, when these were in "transit".


In a recent meeting that James Bevan, the British High Commissioner had with Harsimrat Kaur Badal, he informed her that a delegation would visit India to extend cooperation and to offer assistance in curbing food wastage in India. Earlier, a US based organisation had estimated that India wastes fruits and vegetables worth around Rs13,000 crore every year, due to poor storage facilities.


A percentage of these perish due to poor transportation, becoming unfit for human consumption and are thrown away, only to be eaten by stray cattle on the road side! Besides, periodic strikes by transporters first "create" an artificial shortage in the market resulting in price rise, during which time an unestimated amount of fruits and vegetables would again be lost due to natural process of damage, and when the situation returns to "normalcy" some more would have perished! All this must stop and Minister Harsimrat Badal plans to revolutionize food processing at the farm level.


In the new NDA government, we have at least four ministries involved in food and related matters, such as:


Ramvilas Paswan - Consumer Affairs, Food and Public Distribution


Harsimrat Kaur Badal - Food Processing Industries


Radha Mohan Singh - Agriculture


Sanjeev Kumar Balyan (MoS) - Agriculture, Food Processing Industries


Besides these, Finance Ministry would also be involved as they are the ones who finance the entire FCI operation!


It may be remembered that the FCI was established exactly 50 years ago, in 1964. The entire operation of FCI is financed by the Government and yet FCI acts independently, answerable to no one in particular and has become a mammoth organisation that now needs to be restructured and reorganised to meet the changing needs of the country.


In the past, various proposals have been made for reorganising FCI operations. Their activities come into public view when shortages occur in the market or when weather conditions cause untold damage to food grains stocked in the open, poorly covered with plastic sheets and tarpaulin etc. After a few explanations and "assurances" of the matter receiving due "attention", promises are made that everything will be taken "care of in the future." The matter slowly dies down from public view and public memory is short, being swamped by newer and newer scams that appear on the TV screen.


What has been going on like this for some 50 years cannot be "fixed" overnight. A strong, independent committee of experts, with a specific term of reference, as rightly outlined by the Prime Minister in his speech in Parliament is the need of the hour. It should work with a time frame, must come up with a possible and workable alternative. They may bear in mind the following needs:


  • - Existing storage and warehousing would most likely need upgrade, modernisation and/or expansion

  • -Rice should be stored and not "paddy"

  • -Surplus rice areas should have milling units nearby (much like onsite milling) so that paddy is converted to rice for easy handling; labour and transportation cost of paddy is more than milled rice.

  • -Fleet of trucks/lorries will have to be owned and operated by the concerned warehouse; FCI cannot and should not "hire" these vehicles

  • -All states must be encouraged to offer land for interested corporate houses to build warehousing facilities

  • -A standardized warehousing design/format to be prepared with varying capacities so that these can be used on a national scale

  • -Officials who run these facilities must be accountable; existing staff must account for the lapses that have occured and action taken against them where dereliction is proved.

  • -Both MSP and PDS procedures to be cleared and outlined atleast 3 months before the harvesting starts

  • -All payments to be directly made into the banking accounts of concerned people - not through intermediaries, who should be eliminated completely

  • -Maintenance, handling, security and regular quality inspection must be done on an in-house basis

  • -Surprise inspections by independent and approved surveyors to be made periodically so as to ensure quality and quantity of food grains stored, and are certified fit for human consumption

  • -The reorganised FCI could expand to take oversea marketing as well instead of using STC (State Trading Corporation), MMTC (Metals and Minerals Trading Corporation) and PEC (Project and Equipment Corporation) for exports


In order to do all these operations, it is naive to assume that a single corporation can handle such a giant enterprise. It may be prudent and desirable that the various operations could be treated as independent companies, by having a holding company. The government can own a 26% share in such operations and let the balance come from the investing public so that the entire operation

become a public enterprise.


(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.)




2 years ago

Currently, FCI make payment to farmers for the procurement of paddy at minimum support price (MSP), while stocks are stored with rice millers under Custom Milling of Rice (CMR) agreement and only milled Rice handed over by the Agencies are stored in FCI godowns.


2 years ago

The author lacks thorough knowledge on the subject and it became a habit now to simply criticising on the functioning of FCI ever since the trifurcation proposal caught the attention. It is to note that FCI procures and stores Rice not Paddy. Also, using owned trucks by the warehouse, not to hire is a comment due to ignorance of FCI operations, since the stock goes out from FCI for which the custodian is the State Govt. only. However, it is the need of the hour that FCI too needs improvement like any other sleeply publich sector unit which need not be through only trifurcation. change is always acceptable.

Dr Anantha K Ramdas

2 years ago

I appreciate your comments and agree with them, mr Warrier.

If an independent study is made by a reputed management consultant who has had experience in such matters, this new government can take up the issue further. But has been happening is that every successive government, which has been mostly controlled by Congress, one way or another, has let the situation continue without much change.

It is time for change, as we can no longer accept such attitudes and loss of food grains which could have fed millions of people.

It is also possible that genuine efforts by hardworking and honest officials may have also fallen on deaf ears. All these have to be rectified and we should try to start with a clean slate. Don't you agree?


MG Warrier

In Reply to Dr Anantha K Ramdas 2 years ago

I fully agree. Moneylife is participating in the efforts being made by 'WE THE PEOPLE' by making the people's voice heard. Thanks

MG Warrier

2 years ago

Several of our public sector organisations with all India and state jurisdictions lack leadership and professionalism at the top. FCI is one of them. While there are several options before the government to revamp these organisations, in the recent past, government/s succumbed to pressures and left all efforts midway making ‘public sector’ the whipping boy of public disgust. Coming back to the limited issue of FCI, government and the tax-payer need to take note of the situation and ensure that the corporation fulfils its mandate at various levels. For the purpose, the responsibility need to be shared by all playing their respective roles:
1. FCI management pointing out to GOI the kind of support needed to make the running of the organisation professional. This is the right time to approach Centre for the purpose.
2. State governments, by monitoring the procurement facilities including a ‘viable’ price for the FCI which will be storing and distributing the stock.
3. Local Self Governments up to at Panchayat level, by ensuring timely procurement and marketing of local farm produce.
4. Centre should have clarity in its policy on support price, subsidy etc and who should be footing the bill in case of losses. The burden cannot be passed on to FCI.

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Rooting for Right Regulation

Dr Raghuram Rajan fittingly took aim at the FSLRC’s ideas on unified regulation. Bank customers hope his rhetoric translates into a push by the RBI to do much more for them

Central bankers are supposed to be obtuse in their speech. Alan Greenspan, the long-serving former chairman of the US Federal Reserve, is quoted to have said, “Since becoming a central banker, I have learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said.”

But there was no room for misunderstanding in the brutal plain-speak with which governor of the Reserve Bank of India (RBI), Dr Raghuram Rajan, demolished the key recommendations of the Financial Sector Legislative Reforms Commission (FSLRC). In what is probably one of the bluntest speeches by any Indian regulator or policy-maker, Dr Rajan opened the doors to a no-holds-barred discussion on financial sector regulation, policy-making and consumer protection. Here are some key issues that he raised.

“If it ain’t broke, don’t fix it,” he said, opposing FSLRC’s logic of merging all regulators under a unified financial agency. No single regulatory architecture had emerged unscathed from the global financial crisis, he said. Instead, “different regulatory architectures have succeeded or failed based on the circumstances of the country and the quality of the regulator.”

He found FSLRC’s recommendations on the appropriate size and scope of regulators ‘somewhat schizophrenic’. He said, “There is no discussion of the synergies gained or synergies lost” in bringing all regulators together under one entity, making the “recommendations seem faddish and impressionistic rather than based on deep analysis.”

Excessive legal oversight and permitting all decisions to be appealed before the Financial Sector Appellate Tribunal could paralyse decision-making and reduce the regulator to a paper tiger.

There was a need to frame regulatory architecture taking into account the multiplicity of roles and functions of regulators.

Of interest to Moneylife readers is Dr Rajan’s admission that FSLRC’s recommendation on effective consumer protection laws had pushed RBI to focus on the issue. We have seen several pro-consumer decisions in the past few months and RBI has also drafted an excellent consumer rights charter. But that is the easy part.

Unless the charter is backed by time-bound decisions on consumer complaints and stringent penalties, it will be yet another righteous, but meaningless, piece of paper, like the BCSBI (Banking Codes & Standards Board of India) code that banks agree to adhere to.
Explaining his worry about excessive regulation,

Dr Rajan gave this example of the class action element in arriving at a decision. “A bank may attract a lot of complaints from its credit card customers. While no single customer may think the case worth taking to court, and while no customer may be able to prove the bank was in the wrong, the large number of complaints will suggest to the regulator that the bank needs to shape up,” he said.

The regulator can gauge if something is wrong by comparing the nature of the complaints it gets from this bank’s customers with those of other’s. Similarly, “if a particular product attracts a lot more complaints than other products, the regulator can ask the industry to modify the product appropriately, or even ban it,” if it is considered risky to the system. If such decisions are open to appeal, it would lead to distortions, he argued.

One agrees with everything that Dr Rajan says. Especially, since he went on to say that a regulator must earn trust by displaying “the greatest competence and integrity.” We also agree that RBI has ‘maintained a reputation for integrity’, despite the ‘general deterioration in the probity of public institutions’.

But we have an issue over his assertion about RBI’s analysis of complaints to arrive at decisions and internal cooperation between departments. Over the years, Moneylife, as a pro-consumer entity, has noticed that it requires persistent efforts and loud media reports to secure action against even the most brazen exploitation of financial consumers. Not because of RBI’s proactive analysis of complaints. The Banking Ombudsman Act (BOA) was amended to include credit cards only after an avalanche of complaints and mis-selling prior to 2008. The mis-selling of third-party products remains unchecked even today, despite thousands of complaints and gross breach of trust by banks’ relationship managers. This remains outside the purview of the BOA.

In fact, insiders have, often, admitted that, in the absence of a clear consumer protection framework, RBI feared it would be defied or dragged into litigation, especially by foreign banks. While RBI has, indeed, pressured some banks to settle an occasional case of gross abuse, there is no penalty, punishment or payment of interest, cost and damages. Thousands of complaints are ignored because neither the victims nor resource-strapped NGOs can afford to fight long and hard battles against powerful banks and cannot get RBI to intervene every time. It remains to be seen if this will be effectively remedied.

Secondly, on FSLRC’s ‘idealistic view of the benefits of reorganisation’ to create synergies and regulatory uniformity, Dr Rajan argued that “silos within a large bureaucratic regulator may prevent synergies from being exploited” while frequent inter-regulatory meetings could work. He said he got together with the SEBI chairman once a month to sort out issues. This again, is correct in theory, but surely Dr Rajan knows that the High Level Coordination Committee (HLCC) of regulators has failed.

The HLCC brings all financial regulators and the finance ministry to the same table, with RBI as the convener. Yet, it neither prevented an unseemly turf war between SEBI and the insurance regulator, nor led to uniformity in rules governing the advertising and promotion of financial products, nor did it prevented mis-selling of insurance and mutual fund products by bankers. On the contrary, his predecessors tacitly supported this by their silence over the high-cost or toxic products hard-sold by bankers who are incentivised to do this, and are often in a position to arm-twist borrowers.  

Thirdly, Dr Rajan needs to examine how silos within the large and bureaucratic RBI are preventing synergies from being exploited. Moneylife Foundation had submitted a memorandum to RBI with regard to credit bureaus. After a one-day credit camp, we discovered that credit histories were not being shared between the four credit information companies (CICs) licensed by RBI. Consequently, credit reports obtained from the newer CICs were incomplete and even inaccurate. Also, poor systems for correcting discrepancies in credit records caused harassment which had to be fixed by paying unregulated ‘debt doctors’. RBI’s customer services department, although sympathetic, could do nothing about it, because the regulation of CICs was under a different deputy governor and each guarded his turf zealously.

While it is true that this problem won’t be fixed by bundling all financial regulators under one roof, we hope that Dr Rajan will order an internal review to ensure that various consumer-related departments within RBI will act cohesively. It would also be a good idea to implement the Cabinet secretary’s note of 5th June, which asks all financial regulators and banks to cut bureaucracy, scrap redundant rules and regulations, reduce decision-making to four layers and ensure that departments collaborate to improve the speed of decision-making. RBI is known for its slow decisions, mainly because senior officials are forever travelling and there are turf issues between departments. The very existence of large and expensive entities like BCSBI and CAFRAL (Centre for Advanced Financial Research and Learning), which are only seen as sinecures for retired bankers, also need to be re-examined, since they operate like clubs with selective customer interface.

Dr Rajan, some internal blunt talk and action will reassure financial consumers that they are soon going to have a system that is just and fair.

Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]



Dayananda Kamath k

2 years ago

if the regulators do their duties tru to the spirit of regulation and exchange information between themselves and act in the principal of public good there is no need of unification of regulators. because each regulator has his specific area and specializations. a simple example how the regulators failed is third party gold imports by nominated agencies continued for almost 5 years. and declared a violation by rbi circular and also obtained data from 96 branches but no action tasken against the bankers. nor matter referred to enforcement directorate. this even after questioning under rti. you have only right to information but not the right information.


2 years ago

Out of the box suggestions from Sucheta Dalal with an incisive analysis as to how deliverance can be strengthened for Consumers from financial regulators(albeit it must be applied to all other Regulators too). I have a good case arising out of the lacustrine or primitive Banking Ombudsman scheme, mired in age old methodologies in dealing with serious complaints of violations of RBI guidelies by Banks. Since presently the case is under Appeal to DY. Governor, I would wait for the outcome before I throw further light on how the Banking Ombudsman fails to safeguard the implementation of RBI norms from Banks.

A Vasudevan

2 years ago

This is a good piece worth reading by every banker and surely by RBI officers in active service. I have one small suggestion to make. There could be implementation committees in each bank and in RBI and these committees could meet once a week in their own organizations providing inputs to either ED or DG in charge of operations about the implementation problems and successes and also suggest areas of inter-organizational coordination. I am not sure whether Ms Dalal would like to reflect over this idea (which in fact is in operation in the Central Bank of Nigeria) and if possible give some orientation to it to suit Indian circumstances.
A Vasudevan
Former ED, RBI

Gopalakrishnan T V

2 years ago

A very well brought out message to RBI. The role of Ombudsman and BCSBI need to be examined in detail and there is ample scope for some synergies to be evolved.The Customer Service Department can play a key role in ensuring that banks are able to render complaints free service and like capital adequacy ratio, banks should be rated for their Customer Servive efficiency.The functioning of Local Boards of RBI also needs a thorugh review as it can do a lot in coordinating and guiding the banks ,NBFCs, NABARD, Cooperative Banks and RRBs in their efforts to achieve Financial inclusion, improved credit to agricultural and rural segment and complaint free services. Local Boards can also be made for effective in Coordinating the actvities of NABARD,, State level Agencies in enhancing agriculttural production, storage, transportation and Distribution to better the supply position of food items to bring down inflation.

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