India is one among the few countries in the world having government held stocks of grains, for the following reasons:
- Buffer for meeting natural calamities
- Price stabilization in case of crop failures;
- Providing food grains under public distribution system.
The government has buffer stock norms for different months in a year. At present, the maximum stock of the food grains of wheat and rice are to be held by the government, as buffer stock is T7 million tonnes to meet the aforesaid objectives.
Food Corporation of India (FCI) has the prime responsibility of procuring the food grains and the procurement is done at minimum support price (MSP) and stored in its warehouses at different locations and from there it is supplied to the state governments in terms of requirement. FCI also sells in the open market to stabilize, if their prices turn volatile especially in periods of crop failures.
Certain issues which are around buffer stock operations are briefed as follows:
First, the government is currently holding many multiples more than that required under the norms of around over 50-60 million tonnes, even when higher stocks have been held in the past. Why does the government hold higher stocks than required? It is because of the MSP of food grains and also the procurement price; and at that price government is mandatorily required to procure whatever arrives to FCI. If there is a bumper crop, FCI will have to procure the entire stock. Even if the market price of the food grain is higher, farmers prefer to sell to FCI because it procures in bulk. This leads in a buildup of stocks.
Second, FCI does not have enough storage capacity to hold the high levels of food grain stocks. At present, the entire capacity of FCI is around 60 million tonnes, while actual available storage, will not be more than 50 million tonnes. Even this storage is not appropriate .There is a tremendous wastage of around ₹ 50,000 crore annually by both on account improper and on inadequate storage acilities.