Agriculture Reference
In-Depth Information
ies and that the rate of leakage varies widely across states, from an average of
17 percent in the state of Andhra Pradesh to about 63 percent in the state of As-
sam. There are disputes about the methodology used in this study, especially
with regard to wide variations across states. However, even the Planning Com-
mission's estimates suggest that the leakage would fall within the range of
32-40 percent and 27-35 percent for wheat and rice, respectively.
15
Even if the accuracy of estimates is questionable, that leakage is high
should not come as surprise to Indian people. Stories of diverting public grain
frequently appear in the national newspapers, as well as in reports of indepen-
dent watchdogs. According to an August 18, 2004, article, on August 15, 2004,
officials of the Department of Civil Supplies and Tamil Nadu government seized
2,400 tons of rice loaded in 40 railway wagons, each containing 1,176 bags
weighing 50 kilograms each. The rice had been diverted from distribution un-
der the Public Distribution System (PDS) in Tamil Nadu. The sheer scale of this
scheme suggests that it was not the first time that the alleged companies (and
perhaps many others) attempted such a diversion.
EFFICIENCY OF FCI
'
S OPERATION
. To examine the efficiency of FCI's oper-
ation, some studies have compared its per unit costs of distribution with that of
the private sector (Gulati and Kahkonen 1996; Jha and Srinivasan 1999, 2004;
Chand 2002). These studies conclude that despite enjoying various preferential
treatments, FCI operates at higher costs than the private sector. Gulati and
Kahkonen (1996) estimate that, while private traders earn profits of 9-10 percent,
FCI incurred losses that ranged from 29 percent for rice to 68 percent for wheat.
Similarly, Chand (2002) suggests that FCI's per unit trading cost is twice as much
as private traders for wheat and about 20 percent higher for rice. More strikingly,
Jha and Srinivasan (2004) report that not only have FCI's unit costs been larger,
many studies suggest that the gap between the two has been widening.
Proponents of the procurement-stocking-distribution paradigm argue that
FCI's costs are not comparable to those of the private sector because, unlike pri-
vate traders, FCI has a social mandate, a large part of its costs are policy deter-
mined (for instance, procurement prices and distribution prices are centrally de-
termined), and FCI has to transport its grain over long distances to reach the
most remote parts of the country (GOI 2002b). However, the facts do not sup-
port these claims. The system has not been successful in transferring income to
the intended beneficiaries, “policy-determined” variables are found to be dic-
tated by special interests, and some of the readily comparable FCI cost items
have been larger than in the private sector. For example, available estimates
suggest that, compared to the private sector, FCI's per-unit storage costs are
30 percent higher; per unit labor costs are almost 4 times higher for rice and
7 times higher for wheat; and interests payments are 4 and 2.5 times higher, re-
spectively, for rice and wheat (Chand 2002, as reported in Jha and Srinivasan
2004).
15. See Dev et al. (2004) for further details of leakage.
