The central and state governments share responsibilities in order to provide food grains to

the identified beneficiaries.

The centre procures food grains from farmers at a minimum support price (MSP) and
sells it to states at central issue prices.
It is responsible for transporting the grains to godowns in each state.
States bear the responsibility of transporting food grains from these godowns to each fair
price shop (ration shop), where the beneficiary buys the food grains at the lower central
issue price. Many states further subsidise the price of food grains before selling it to
beneficiaries
Existing Policy of Foodgrains Procurement
Extends price support to paddy, coarse grains and wheat through the FCI and the State
Agencies
Producers have the option to sell their produce to FCI/State Agencies at support prices or
in the open market as is advantageous to them.
Foodgrains procured by the State Governments and their agencies are ultimately taken
over by the FCI for distribution through out the country
Objectives of foodgrains procurement
To ensure that farmers get remunerative prices for their produce and do not have to resort
to distress sale.
To service the TPDS and other welfare schemes of the Government so that subsidised
foodgrains are supplied to the poor and needy.
To build up buffer stocks of foodgrains to ensure foodgrain security.
Food Corporation of India (FCI)
Nodal agency at the centre for transporting food grains to the state godowns
Responsible for:
(i) procuring grains at the MSP from farmers,
(ii) maintaining operational and buffer stocks of grains to ensure food security,
(iii) allocating grains to states,
(iv) distributing and transporting grains to the state depots
(v) selling the grains to states at the central issue price to be eventually passed on to the
beneficiaries.
Procurement of food grains
Procured from farmers at MSP
What is MSP ?
The MSP is the price at which the FCI purchases the crop directly from farmers; typically
the MSP is higher than the market price
Why is MSP ??
This is intended to provide price support to farmers and incentivise production.
Who fixes MSP ?

Fixed by the GOI

recommended by the Commission for Agricultural Costs and Prices (CACP)
While determining MSP, the CACP considers the
(i)
cost of production,
(ii)
trends in domestic and international market prices,
(iii)
stock position,
(iv)
changes in agricultural terms of trade,
(v)
inter-crop price parity, prices fixed in previous years, etc.
The prices recommended by the CACP are considered by the Cabinet Committee for
Economic Affairs (CCEA) for approval.
Currently procurement in two ways.
(i) centralised procurement
(ii) decentralised procurement.
Centralised procurement
carried out by the FCI, where FCI buys crops directly from farmers.
The centre procures and stores food grains to
(i)
meet the prescribed minimum buffer stock norms for food security,
(ii)
release food grains under TPDS on a monthly basis,
(iii)
meet emergency situations arising out of unexpected crop failures, natural
disasters, etc., and
(iv)
sell through the Open Market Sale Scheme (OMSS)
The central government introduced the Open Market Sale Scheme (OMSS) in 1993, to
sell food grains in the open market; this was intended to augment the supply of grains to
moderate or stabilise open market prices
Decentralised procurement
State Govt itself undertakes direct purchase on behalf of Government of India.
Purchase centres are opened by the State Govts and their agencies as per their
requirements.
Decentralized Procurement introduced by the Government in 1997-98.
Food grains procured by DCP states are stored and directly distributed by them
under TPDS and OWS.
Why?:
To enhance the efficiency of procurement and PDS and encouraging local
procurement to the maximum extent.
So extend the benefits of MSP to local farmers as well as to save on transit costs.
This also enables procurement of foodgrains more suited to the local taste.
Fund
Central Government undertakes to meet the entire expenditure incurred by the
State Governments on the procurement operations as per the approved costing
Central Government also monitors the quality of foodgrains procured under the
scheme
Reviews the arrangements to ensure that the procurement operations are carried
on smoothly.

Any surplus stock over the states requirement must be handed over to FCI.
Storage of food grains
Food grains procured for TPDS and other contingencies are maintained and stored
as the central pool stock.
Central Pool held by SGAs and DCP states. FCI is also responsible for storage of
the Central Pool stock by taking over the food grains procured by SGAs.
Whereas the food grains procured by DCP states are stored and directly
distributed by them under TPDS and OWS.
According to the storage guidelines of the FCI, food grains are normally stored in
covered godowns, silos, and in the open, referred to as Covered and Plinth (CAP
storage involves storage on elevated plinths with polythene covers specially made for this
purpose)

Keeps buffer stock also . Why?

Buffer stock is meant basically to serve as food security for emergency
situations, uninterrupted supply during inter-seasonal scarcity and price
stabilization in the market which should be maintained at all times.
Buffer stock was first introduced during the IV Five Year Plan (1969-74)
Prescribes only minimum buffer norms for storage of food grains
Physically both buffer and operational stocks are merged into one and are
not distinguishable
While four months requirement of food grains for issue under TPDS and OWS
are earmarked as operational stocks, the surplus over that is treated as buffer
stock.
Centre transports the grains to the depots in each state at CIP

Some of Audit Reports

Delay in revision of buffer norms
Shortfall in storage capacity with FCI against the CentralPoolstock
From 2008-09 onwards, there was a sharp increase in procurement of food grains
FCIs own storage capacity has been insufficient to accommodate the central pool
stock of food grains.
So huge stock left with the SGAs of procuring states even after the prescribed
time frame
As a result, FCI hires space from various agencies such as the central and state
warehousing corporations, state government agencies and private parties
Poor condition of storage facilities
Normally stored in covered godowns, silos and uncovered godowns called
Covered and Plinth (CAP)
Storage of old crops leading to damage of foodgrains.
FIFO was not adhered.
Stocks remained infested, pocket damaged, and formation of atta due to poor
preservation of stocks
Storage of food grains in open space

 Risk of deterioration in quality

Imbalances in availability of storage capacity across state.
Eg: Rajasthan and Maharashtra 13%; Punjab, Haryana, Andhra Pradesh,
Uttar Pradesh and Chhattisgarh 64%
Leakage/Pilferage of food grains
Shortfall in movement of foodgrains
Evacuation of food grains stock from the procuring states was short by 35 per cent to 60
per cent of the food grains procured during the period 2006-07 to 2011-12.
No norms for the maximum and manageable level of stock to be kept in the Central
Pool.
No specific norm was followed for fixing of the Minimum Support Price (MSP) over
the cost of production
Resultantly, it was observed that the margin of MSP fixed over the varied cost of
production (between 29 per cent and 66 per cent in case of wheat, and 14 per cent
and 60 per cent in case of paddy during the period 2006-07 to 2011-12.)
Increase in MSP had a direct bearing on statutory charges levied on purchase of
food grains by different State Governments.
There were also wide inter-state variations both in statutory and non-statutory
charges being charged by the State Governments.
All this resulted in the rising of the acquisition cost of food grains
Recommendations
consider fixing minimum buffer norm together with component wise quantities of food
grains
entrust responsibility of ensuring maintenance of food grains stock at single point
accountability
ensure optimal utilization of existing storage capacity by timely evacuation
establish a formal mechanism involving Ministry of Railways and Department of
Food/FCI to streamline the movement activities
Strengthen supervision and control of FCI headquarters over internal audit and physical
verification
Scan this pic
The food subsidy is the difference between the costs incurred by the centre on MSP (including
additional costs) and the central issue price