Shanta Kumar Committee 2014, FCI, Recommendations, Criticism

The Shanta Kumar Committee was a High Level Committee (HLC) set up by the Government of India on 20 August 2014 to recommend restructuring of the Food Corporation of India (FCI). It was chaired by Shanta Kumar. The committee submitted its report to the serving Prime Minister Narendra Modi in January 2015. Its core objective was to improve efficiency, financial management, procurement, storage and distribution under India’s foodgrain management system.

Shanta Kumar Committee Background

The Shanta Kumar Committee was constituted to address inefficiencies in foodgrain management and reorient FCI’s role in procurement, storage and distribution systems.

• Objective: The Government of India set up the High Level Committee in August 2014 to suggest restructuring or unbundling of FCI to improve operational efficiency, financial management and integration of foodgrain supply chains across the country.
• Consultation Process: The committee held extensive consultations with Chief Ministers, Food Secretaries and stakeholders across states and also invited public suggestions through newspapers and electronic media for wider participation.
• Historical Context: FCI was created in 1965 when India faced acute grain shortages, with wheat imports of 6-7 MMT against domestic production of 10-12 MMT and limited foreign exchange reserves.
• Changing Food Scenario: India transitioned from shortages in the 1960s to surplus production post 2010, yet inefficiencies persisted in foodgrain management, requiring structural reforms in FCI’s functioning.
• Limited Farmer Benefits: NSSO data (2012-13) showed only 6% of total farmers benefited from procurement, with just 13.5% paddy and 16.2% wheat farmers selling to procurement agencies.
• PDS Leakages: Diversion of foodgrains from the Public Distribution System reached 46.7% in 2011-12, highlighting major inefficiencies in distribution and targeting mechanisms.
• Surplus Stocks Issue: India held excessive grain stocks beyond buffer norms, even after exporting over 42 MMT cereals during 2012-13 and 2013-14, indicating poor stock management policies.

Food Corporation of India (FCI)

Food Corporation of India is the central agency responsible for procurement, storage, movement and distribution of foodgrains to ensure national food security.

• Establishment: FCI was established in 1965 under the Food Corporations Act 1964 to address food shortages and support India’s goal of self sufficiency in foodgrains.
• Core Objectives: FCI has three main roles: providing price support to farmers, supplying grains for PDS distribution and maintaining buffer stocks to stabilize foodgrain markets.
• Procurement System: FCI follows open ended procurement, buying unlimited quantities of wheat and rice at MSP, which often leads to excessive accumulation of stocks beyond buffer norms.
• Role in Food Security: It plays a critical role in ensuring food availability for vulnerable populations through PDS and acts as a stabilizing force in grain markets.
• Storage Challenges: Lack of adequate warehousing infrastructure leads to wastage of grains, increasing inefficiency and contributing to higher food subsidy burdens.
• Financial Burden: Excess procurement and storage inefficiencies have led to rising debts, estimated at around ₹2.55 lakh crore by March 2020, reflecting structural inefficiencies.
• Operational Issues: Inefficient liquidation policies, high storage costs and outdated systems like CAP storage contribute to losses and inefficiencies in FCI operations.

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Shanta Kumar Committee Recommendations

The Shanta Kumar Committee proposed comprehensive reforms across procurement, PDS, storage, subsidy systems and institutional restructuring to improve efficiency and reduce costs.

• Decentralized Procurement: FCI should transfer procurement operations to capable states like Andhra Pradesh, Chhattisgarh, Haryana, Madhya Pradesh, Odisha and Punjab and focus on eastern states where farmers face distress sales.
• Rationalizing MSP Operations: States offering bonus over MSP should not be allowed excess procurement under central pool and statutory levies should be reduced to 3-4% to create uniformity.
• Negotiable Warehouse Receipts: Introduce NWR system allowing farmers to store produce and receive 80% advance against MSP value, enabling better price realization and reducing government storage burden.
• MSP Policy Reforms: MSP should be better aligned with trade policy and expanded effectively to pulses and oilseeds, which currently lack adequate price support despite national shortages.
• PDS Reforms: Coverage under NFSA should be reduced from 67% to 40% and allocation to priority households increased from 5 kg to 7 kg per person per month.
• Cash Transfer System: Gradual introduction of cash transfers in PDS could save over ₹30,000 crore annually while reducing leakages and improving efficiency in subsidy delivery.
• Stocking and Storage Reforms: FCI should outsource storage to agencies like Central Warehousing Corporation, State Warehousing Corporations and private players through competitive bidding.
• Infrastructure Modernization: Shift from CAP storage to silos, promote mechanization and adopt containerized grain movement to reduce transit losses and improve efficiency.
• Transparent Liquidation Policy: Establish automatic mechanisms to offload surplus stocks through open market sales or exports when buffer norms are exceeded.
• Labour Reforms: Address inefficiencies in labour costs where departmental workers earned up to ₹79,500 per month, compared to ₹26,000 (DPS) and ₹10,000 (contract workers), by rationalizing incentives and increasing mechanization.
• Direct Subsidy to Farmers: Replace fertilizer subsidies with direct cash transfers of about ₹7,000 per hectare to improve efficiency and reduce misuse of subsidized inputs.
• End to End Computerization: Implement real time digital tracking of procurement, storage, movement and distribution to reduce leakages and improve transparency in the food management system.

Shanta Kumar Committee Criticism

The recommendations of the Shanta Kumar Committee attracted criticism due to concerns over food security, federal structure and potential exclusion of vulnerable populations.

• Reduction in NFSA Coverage: Proposal to reduce coverage from 67% to 40% was criticized for potentially excluding many poor households from food security benefits.
• Shift to Cash Transfers: Concerns were raised that cash transfers may not ensure food security in areas with weak banking infrastructure or volatile food prices.
• Privatization Concerns: Increased role of private sector in procurement and storage raised fears of reduced government control over foodgrain management.
• Impact on Farmers: Limiting procurement and restructuring MSP operations could adversely affect farmers dependent on assured government procurement in certain states.
• Federal Concerns: Delegating procurement responsibilities to states may create disparities due to varying capacities and infrastructure across regions.

Shanta Kumar Committee Impacts

The recommendations of the Shanta Kumar Committee  influenced policy debates and highlighted the need for structural reforms in India’s foodgrain management system.

• Policy Discussions: The report triggered extensive discussions on reforming FCI, PDS and MSP systems, focusing on efficiency, transparency and fiscal sustainability.
• Emphasis on Decentralization: It strengthened the case for decentralized procurement and state level participation in foodgrain management systems.
• Focus on Technology: Highlighted the importance of end to end computerization and digital systems to curb leakages and improve monitoring of foodgrain flows.
• Reform Oriented Approach: Encouraged gradual movement towards market oriented mechanisms like cash transfers and private sector participation.
• Long Term Food Security Vision: Provided a framework to transition from crisis driven food management to a more efficient, sustainable and farmer inclusive system.