India - Second Foodgrain Storage Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7579 PROJECT COMPLETION REPORT *-NDIA SECOND FOODGRAIN STORAGE PROJECT 'CREDIT 747-IN) DECEMBER 30, 1988 Country Department 1V Asia Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ABBREVIATIONS AND ACRONYMS ARDC - Agricultural Refinance and Development Cooperation ASCI - Administrative Staff College of India, Hyderabad CAP - Cover and plinth (Bagged grain placed on brick plinth and covered with polyethylene sheets) CRORE - 10 million CSS - Central Storage Committee CWC - Central Warehousing Corporation EGS - Employment Guarantee Program FCI - Food Corporation of India FPS - Fair Price Shops GOI - Government of India IR - Indian Railways IRR - Internal Rate of Return ITDP - Integrated Tribal Development Project LAKH - 100,000 MICB - Management Information and Control Branch - of FCI NREP - National Rural Employment Program PCR Project Completion Report PDS - Public Distribution System PID - Project Implementation Division - of FCI RLEGP - Rural Landless Employment Guarantee Program RS - Rupee SWC - State Warehousing Corporation INDIAN FISCAL YEAR April 1 - March 31  FOR OFFICIL USE ONY THE WORLD SANK Washington. D.C. 20433 U.S.A. Oikce of Dmimtv.nal Opratuam EVA"iutim December 30, 1988 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on India Second Foodirain Storage Proiect (Credit 747-IN) Attached, for information, is a copy of a report entitled 'Project Completion Report on India Second Foodgrain Storage Project (Credit 747-IN)" prepared by the Government of India, with an ovevriew memorandum prepared by the Asia Regional Office. Full evaluation of this project has not been made by the Operations EvaltLation Department. Attachment This document has a sricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorizatin.  FOR OMCIL USE ONLY INDIA SECOND FOODGRAIN STORAGE PROJECT (CREDIT 747-IN) Project Completion Report Table of Contents Page No. Preface.. .... ii Basic Data Sheet ..................................................... iv-v Evaluation Summary .... vi Ovevvierview......................................................... viii I. INTRODUCTION .............................................. 1 II. FOOD SECURITY PERSPECTIVE ........ . . . . ......... . ... .. . ........ 2 b III. PROJECT IMPLEMENTATION ......... Original Project Content ............................... 17 Start-up Period ..................................... 17 Revisions in the Scope of the Project Content .......... 18 Final project Content.#.*......................... . .... 20 Implementation Period - Schedule vs Actual............. 21 Factors Contributing to Time and Cost Overruns......... 21 Performance of the Executing Agencies/Materials Suppliers, etc ................................ 0............ 23 Project Monitoring.**..*............................... 25 Role of Consultants .................................... 25 Research and Development, Operations Research and Training*.***.,... .oo ...... . ............... ..........too 26 IV. ECONOMIC APPRAISAL .................... **** .... 27 V. CONCLUSIONS ...................... ....................... 29 Project Performance Evaluation...*.**** ............. 29 Lessons Learnt for Implementation of Future Storage Projects. .. ....... *et 30 ANNEX G TABLES: Table I Production of F oodggs ...... rs .......32 Table 2 Compound Growth Rates of Area, Production and Yield of Foodgrains in India .... .. ...................... 33 of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Table 3 All-India Production, Procurement of Imports and Distribution Foodgrains ............................. 34 Table 4 Net Availability, Procurement and Public Distribution of Foodgrains............................ 35 Table 5 All-India Procurement of Rabi/Kharif Foodgrains (Marketing Year-wise) from 1964-65 to 1985-86 ........... 36 Table 6 Total Offtake (Distribution) of Foodgrains from Government Stocks (Al-India). .. ...9999*... 37 Table 7 Index number of wholesale prices/of food-grains in India 9 ........9...999.99....999999999999999999999999999 38 Table 8 Pattern of Procurement Prices of Foodgrains in India*.*.*.... 39 Table 9 Stocks of Foodgrains with Central and State Governments and Stocks in Pipelines..................... 40 Table 10 Growth Pattern of Storage Accommodation with FCI ............ 41 ANNEX P TABLES Table 1 Details of Proposed and Actually Constructed Storage Capacity.* .................................................... 42 Table 2 Details of Proposed and Actually Constructed Storage Fclte .................................. 43 Table 3 Details of Proposed and Actual Storage Construction and Capacities .......... 46 Table 4 Center-wise Details of Railway Sidings ...................... 53 Table 5 Year-wise Project Implementation Details.................... 55 Table 6 Storage Capacity Built under Retro-active Financing Component ....................................................... 56 Table 7 Statement Showing Financial Sources. ........................ 57 Table 8 No. )f Rail-fed Center where Siding Works are Not .......... . 58  -iii- INDIA SECOND FOODGRAIN STORAGE PROJECT (CREDIT 747-IN) Project Completion Report Preface This is the Project Completion Report (PCR) of the Second Foodgrain Storage Project, for which a Credit in the amount of US$107 million was signed on January 1, 1978. The Credit was closed on February 19, 1986, at which time the final disbursement was made and US$2.5 million were cancelled. The PCR was prepared by Food Corporation of India (FCI). The IDA overview and Evaluation Summary supplements FCI's review with IDA's observa- tions, giving special attention to points and issues not fully covered by the PCR prepared by FCI. The overview has been prepared by Asia Regional Office and is based in part on the PCR, a review of the Staff Appraisal Report (No. 1643a-IN), dated November 3, 1977, correspondence with the Borrower, internal Bank memoranda on project issues as contained in relevant Bank files as well as interviews and discussions with officials from the Borrower, and experience during project execution. Tne draft report was sent to the Borrower on October 31 for coaments; however, no comments were received. The project was not subjected to an audit by the Operations Evaluation Department.  - iv - PROJECT COtlPLETION REPORT INDIA SECOND FODDGRAIN STORAGE PROJECT (CR. 747-IN) Basic Data Sheet Actual or ktual a I Appraisal Estimated of Appraial Key Project Data Estimate ctual Estimate Total Project Cost (USS N) 215.5 230.0 107 Total Project Cost (Rs t) 1.886.2 2,250.0 119 Eligible for IDA Financinq (U5$ 1) 107.0 Credit Amount (US$ O) 107.0 104.5 91.7 Credit Amount (Rs M) 936.0 Date Physical Components Completed 31-Dec-81 31-Dec-85 Proportion Completed by that Date (X) 100.0 91.0 91.0 Economic Rate of Re-urn 1) 19.9 19.7 Project Dates Appraisal 06-Feb-77 Board Approval 15-Nov-77 Credit Agreement 06-iJa-78 Effectiveness It-Nay-il Closing Date 30-Jun-82 31-Dec- Cumulative Disbursement FY78 FY79 FY80 FY81 FY82 FY85 FY84 Appraisal Estimate WUS$ N) 10.00 30.00 54.00 82.00 107.00 107.00 107.00 Actual (US$ ) 1.10 7.40 18.70 26.10 33.60 45.00 53.80 Actual as 2 of Estimate 0.11 0.25 0.35 0.32 0.31 0.42 0.50 Date of Final Disbursement of Credit: 19-Feb-96  v Special- izations Perfor- Types No. handays Repre- mance of Date of in sented Rating Trend Problems Nission Data (molyr) Persons Field 1/ 2/ 3/ 4/ Rev-iew - of Project Prep-ration Jun-76 1 1111 D IIA NA N/A Review of Project Preparation Aug-76 I NA D NA NA NA Appraisal FebiNar-77 5 155 B,C,D NA NA NA Supervision I Feb-78 2 14 0 2 1 N Supervision 2 Jul/Aug-78 3 24 B,0 2 1 K,I Supervision 3 Feb-79 1 7 0 I 1 N Supervision 4 Sep-79 2 10 C,D 2 2 K,D Supervision 5 Nar-Bi 2 28 C,E 2 2 h Supervision 6 Feb-82 4 32 C,D,E 2 3 N Supervision 7 Sep-82 2 20 C,D,F 3 2 NA Supervision 8 Feb-03 2 4 C,F 3 2 1 Supervision 9 Apr-83 2 18 C,E 3 1 N Supervision 10 Sep-83 1 6 E 3 2 O,N Supervision 11 Apr-84 1 6 E 3 2 O,h Supervision 12 Sep-94 1 7 E 3 2 O,D Supervision 13 ?Iar/Apr-85 2 25 D,E 2 1 N Total supervision mandays 201 Other Project Data Borrower: Government of India Executing Agency: Food Corporation of India Fiscal Year of the Borrowoer: April 1 - March 31 Name of Currency: Indian Rupee (Rs.) Currency Exchange Rate: Appraisal Report: US$1.00 Rs. 8.51 Appraisal Year Average 1977: US$1.00 5 Rs. 11.5 Irstervening Years Average 1978-04 US$1.00 - Rs. 9.66 Completion Year Average 1995: US$1.00 = Rs. 12.50 Follow-up Project: None 1/ Specializations represented: A = Agricultural 3/ Trend: 1 Improving 9 a Engineer 2 * Stationary C = Financial Analyst 3 Deteriorating D - Economist E = Agr. Industry Spec. 41 Types of Problems: F = Financial F = Loan Officer N - Managerial T = Technical 21 Performance Rating: 1 = Problem Free or Minor Probleas P = Political 2 5 tlderate Probleas 0 5 Other 3 - Major Probleas  -vi- INDIA SECOND FOODGRAIN STORAGE PROJECT (CREDIT 747-IN) Project Completion Report Evaluation Summary Introduction The Second Foodgrain Storage Project followed the India Wheat Storage Project (Credit 267-IN) which was implemented between 19W and 1979. The Second Project, the subject of the PCR, was intended to finance a four year grain storage public sector investment project. Total project cost, estimated at US$215.5 million, was to be supported with an IDA Credit of US$107 million. At Credit closing, US$104.5 million was disbursed and US$2.5 million cancelled. The credit was closed in February 1986, four years behind schedule. Project Objectives and Rationale The project int-nded to support India's foodgrain policy at the time of appraisal in 1977. There were three major policy objectives: (a) self- sufficiency in production; (b) price stability for consumers; and (c) equitable foodgrain distribution. To support these objectives, IDA funds were intended to increase FCI's storage capacity and reduce storage losses at a time when FCI was handling up to one-third of domestic foodgrain marketing and 3.5 to 7.5 million tons of grain imports annually. Since about half of FCI storage was at rented facilities and often under unacceptable conditions in the open under polyethyline cover, it was decided to have FCI invest in new storage facilities with a target buffer stock of 12 million tons. The p:oject comprised: (i) construction of 3.5 million tons of foodgrain storage consisting of 2.5 million tone bag, 1 million tons bulk, and 75,000 tons port silos for grain loading and unloading; (ii) ancillary facilities for grain handling and transport; and (iii) technical assistance for project implementation; operations research; and training of management and key technical staff. The Bank accepted GOI target "without going into arguments about the 12 million ton target" and agreed to finance both conventional and modern storage facilities. The latter was expected to have a higher rate of return. The alternative of private sector storage was not considered. Project Implementation, Results and Sustainability The project was implemented in eight instead of four years as planned and investments were made only in conventional sagged godowns storage facilities. In total, 3.5 million tons storage capacity was constructed while  - vii - appraisal had foreseen 2.5 million tons godowns, pl. 1.0 millio;. tons bulk warehouses and 75,000 tons silos. The ERR for the godown component was recalculated almost the same as appraised, i.e., 19.92 against 19.72, respectively, even though there was a cost overrun of 51x. However, despite the increase of storage capacity, FCI's dependence on rented storage did not improve in relative terms: it was about half at the beginning and rem2ined the same at the end of the project. Hence the private sector invested at the same pace despite lack of government assistance. Sustainability of the civil works constructed under the project should not be a problem since the godowns constructed are of simple structure; they are used intensively and are expected to be properly maintained. Findings and Lessons The project established the total storage capacity planned (3.5 million tons), but all of this was the traditional, existing type; there was no modernization compound (i.e., bulk warehouses and port silos) as agreed during negotiations. It remains an unanswered question whether India and IDA should have been more determined in modernizing storage facilities. Furthermore, the question of private sector storage support was never considered as an alternative to FCI-owned storage facilities. In IDA's view, an important lesson is that the private sector would have beer more efficient for the establishment of storage facilities and it would have been less costly for Government as far as administrative costs are concerned. Today, there are again plans to invest in bulk storage facilities in India, albeit 10 years later.  - viii - INDIA SECOND FOODGRAIN STORAGE PROJECT (CREDIT 747-IN) Project Completion Report Overview General 1. The Project Completion Report (PCR) on the Second Foodgrain S.orage Project was prepared by the Food Corporation of India (FCI). This overview is intended to supplement FCI's review results with IDA's observations. Special attention was given to points not fully covered by the PCR prepared by FCI (i.e., IDA performance, private sector alternative). 2. The PCR summarizes the implementation and results of the Second Foodgrain Storage project and discusses alternative grain storage issues. The project followed the India Wheat Storage Project which was partially financed with US$5 million each by Sweden and IDA (267-IN) between 1971 and 1979. This took twice the time estimated at appraisal and only half the number of silos were constracted due to cost overrun. However, godowns (reduced from 10 to 9 because of land acquisition problems) were completed ahead of schedule. ERR was estimated at 15% as compared with 25% expected at appraisal. 3. The Second Foodgrain Storage had problems similar to those of the Wheat Storage Project: it took eight instead of four years to implement the project which also suffered from cost overrun problems. Furthermore, only the godown component was executed, while bulk warehouses, port silos Aind the pilot mechanized grain procurement centers were not completed and consultants were only partially used. Notwithstanding the 'bove, the PCR prepared by FCI reports favorably on the project, in that it established 3.5 million tons godown storage capacity as compared to only 2.5 million tons proposed at appraisal. The ERR of this component was reestimated at 19.9%, similar to the 19.7% estimated at appraisal. While this analysis correctly states the ERR per se it does not compare it with different investment storage types to determine desirable or better storage. The PCR also describes the factors contributing to time and cost overruns which were: (a) difficultie: in land acquisition, (b) delays in the execution of railway sidings; and (c) inability of some local contractors to perform work contracts satisfactorily. However, it does not convincingly explain why: (a) only conventional godowns were constructed under LCB procedure; (b) all items foreseen for ICB were not executed; (c) training funds were only used &t one-fourth the finance available; (d) consultants were used only in a small amount (one fifth); and (e) land acquisitions and construction problems occurred, similar to those of the first project, despite the lessons learned. 4. Total project costs were estimated at appraisal to be Rs 1,886 million (US$215.5 million) to finance the corsLIuction of 3.57 million tons of additional public grain storage capacity--2.5 million tons of conventional  - ix - godowns for grain stored in bags, 1.0 million tons of flat bulk warehouses, and 75,000 tons for port silos for handling imported grain. Furthermore, finance was provided for auxiliary facilities for grain handling and transport, technical assistance, operations research studies and training of key staff. An IDA credit of US$107 million was expected to finance 50% of the project cost, net of taxes and duties. Eventually, 3.5 million ton storage capacity was constructed, but ali under conventional bagged godowns. Regarding the construction expenditures for godowns, t'"ere was a cost overrun of 51%, while total project cost as completed exceeded appraisal estimated by 19%; US$2.5 million of the IDA credit was cancelled at Credit closing. 5. Project Objectives and Rationale. The project intended to support India's foodgrain policy at the time of appraisal. There were three major policy objectives: (a) self-sufficiency in production; (b) price stability for consumers; and (c) equitable foodgrain distribution. Foodgrain prices were regulated to: (a) ensure reasonable prices to producers; (b) procure a sizable portion of marketed foodgrains on behalf of GOI and State governments; (c) release foodgrains through the public distribution system primarily in urban areas at below market prices by a ration card system; (d) fix official purchasing and distribution prices regardless of seasonal or locational factors; and (e) build up sizeable buffer stocks to protect consumers from wide variations in production caused by irregular and untimely monsoons. FCI was engaged in procuring foodgrains at over 2,500 market centers and was operating godowns at 1,700 locations throughout India. It was handling 10 to 35% of foodgrains marketed and, in addition, it handled 3.5 to 7.5 million tons of grain imports per annum. Since about half of FCI storage was at rented facilities and often at unacceptable conditions in the open under polyethylene cover, GOI had decided to have FCI invest in new storage facili- ties. Actually, a 12 million tons buffer stock was the declared target. 6. The Bank appraisal accepted GOI targets "without going into the arguments about the 12 million ton figure." The project was to finance conventional and modern storage facilities. The latter were expected to have a higher rate of return. The alternative of developing competitive commercial distribution systems and private sector storage facilities for new investments was never seriously considered. 7. Project Preparation and Implementation. During preparation IDA clearly wanted to be involved in bulk type storage being considered more efficient, but there were problems in discussing storage policy with GOI which did not want to discuss its grain storage policy, which it considered a sovereign, national matter involving security considerations. While IDA wanted to "increase the bulk storage capacity" and "make a beginning in developing an integrated system for handling, movement and storage of foodgrains," GOI was primarily interested to quickly enlarge its storage capacity through traditional storing methods, i.e., in godowns stored in bags which were more efficient than storing in the open but less efficient tian bulk storage. 8. The agreed project as negotiated, howe.er, included all three components: godowns storing in bags, flat bulk warehouses, and port silos. Soon after credit signature, preparations were in place to implement all three components. The credit was signed January 6, .978 and started off satisfac- torily although there were problen, .ith appointing staff to implement he  x project. Initially, there were no land acquisitions problems. Construction of conventional godowns, for which retroactive financing was provided, started well. However, the appointment of consultants for bulk warehouses and silos was protracted and took place only in March of 1979, due to problems in selecting a qualified firm because GOI wished to retain the lowest bidder. In April 1979, IDA staff rated this project "problem free" but with disbursements falling behind estimates. However, the positive evaluation dropped dramatically when a supervision mission visited the project in September 1979. The main issue was the project period since th? implementation consultants had declared that project implementation would require eight instead of four years, mainlv because of bulk warehouse and silo construc- tion. IDA expressed concern about the time overrun and proposed modification of the project without being specific, while FCI maintained that the modernizing components should still be implemented. It was only in early 1980, after several reminders by IDA that GOI somewhat reluctantly proposed that the flat bulk warehousing and silo component be reduced. Thus IDA failed in its estimates of tne project implementation period and appears to be also responsible for the eventual deletion of the technically innovative components, even though the project actually stretched over eight years anyway. 9. Bank mission suggested retaining the above components on a pilot scale with the establishment of two bulk storage facilities of 30,000 tons each to test such facilities under Indian conditions. But this was apparently never done. From FCI's PCR it appears that the bulk and silo storage components were finally dropped after a "high level railway team" visited Europe, USA and Canada in late 1980. The railway team advised after its overseas trip against modified flat bed wagons fitted with paper retention doors and proposed instead special bulk grain wagons. However, since such special wagons were planned to become available after the project investment period this component was dropped. IDA's repeated suggestion for further study and pilot investments did not result in action. It appears that opposition to labor displacement in the case of bulk storage was also a factor for GOI's decision. Ironic&lly, in April 1984 FCI approached IDA for financial assistance to construct "four to five million tons of silo and horizontal bulk stores." 10. In general, Bank supervision was satisfactory, concentrating on LCB tender evaluation for the godown component and urging FCI to make all efforts in limiting further construction delays. There were no major difficulties in covenant fulfillment as far as FCI is concerned. 11. Summary and Conclusion. Unrelated to the project, IPdia had great success in increasing its food grain production during the eight years of project implementation. The country became self-sufficient in this sector and public procurement increased from 59 million tons p.a. during 1976-80 to 83 million tons p.a. during 1981-85. As discussed in detail in the PCR and reviewed in this overview all project investments were conventional bag godowns only, even though the Sixth Five Year Plan (1980-81/84-85) stated "emphasis has to be on efficient and socially relevant marketing techniques taking advantage of the economics of bulk handling, procurement and distribution system."  - xi - 12. All this took place in an atmosphere of rapid production and storage increase of food grains overall. While India's public sector (covered) storage capacity was 105 million tons at the time of appraisal (representing 57Z of total grain sterage capacity) this had doubled to 20.8 million tons by mid-1985. Nevertheless, FCI dependence on hired storage capacity had not changed: it was about half at the beginning and at the end of the Project. Hence the private sector invested at the same pace despite lack of government assistance. This raises a policy question: should India not leave ownership and management of grain storage more to the private sector. A weLl-planned line of credit could induce the private sector to invest more in storage facilities which FCI could lease without having the financial risk of utilizing such facilities. IDA believes that the private sector would be more flexible using such facilities for storing products other than grains as well. 13. FCI's PCR concludes that delays were partly due to the fact that "the Project did not receive the right order of priority." Research studies were undertaken regarding "storage and transportation of grain in bulk in relation to the existing bag handling system." What actually stopped any investments in bulk storage appears to have been IDA's endeavor to execute the project on time and the railway team's technical reservations after their trip to western countries. These reservations, however, were never specified. 14. While the Bank at the time of appraisal was convinced of the economic advantages of modern bulk and silo storage, it was quick in dropping this component when problems of timeliness occurred. Since the feasibility of these components was not even tested during the project, one must conclude that the project contributed very little to modernizing grain storage and reducing its cost. Nevertheless, it made a sizeable contribution to increasing India's storage capacity. FCI's overall assessment of the project worth was as follows: "Although the bulk storage components relating to flat bulk warehouses, port grain silos, transport equipment, etc. were deleted from the project content, the experience gained, particularly in respect of initial designs and grain flow diagrams and proposed systems developed by the consultants for port silos and for certain cost efficient models of flat bulk warehouses, is expected to be useful in the implementation of future projects with such installations." Eventually, India is likely to make appropriate investments in modern bulk storage facilities. Actually, it approached the Bank in 1984, inquiring for possible financial assistance. The ongoing Seventh Plan includes provision of bulk storage installations and bulk movement of grain. It is, therefore, unfortunate that the bulk storage component, included in the 1977 negotiated project, was eventually dropped. Apparently, this type of investment is now reconsidered by GOI, after 10 years.  INDIA SECOND FOODGRAIN STORAGE PROJECT (CREDIT 747-IN) PROJECT COMPLETION REPORT Introduction This document presents the project completion report (PCR) on the Second Foodgrain Storage Project undertaken with the financial assistance from the World Bank/IDA by the Government of India under Phase II program. Credit agreement was signed by the IDA/GOI on January 6, 1978 and FCI was to imple- ment the total project under the overall responsibility of the Ministry of Agriculture and Irrigation. The general guidelines for preparing project completion report (including sector guidelines) of the World Bank have provided the framework for this document. However, in view of the distinct nature uf storage project viz. construction of godowns for scientific storage of foodgrains unlike production or manufacturing project some deviations from the general guidelines have been made in the presentation of PCR. The scheme of presentation is as follows: In Part I general perspective on food situation during the project period i.e. from 1977 to 1986 is presented. Part II covers specific issues and aspects of project implementation in terms of physical and financial performance over the period including departures made from the original project proposal. Part III explains the contribution made by the project to Indian economy in general and FCI in particular. The rate of return as originally estimated and as expected from actual investment has been computed. Part IV brings out the experience gained from the execution of such a project.  -2- I. FOOD SECURITY PERSPECTIVE Food Policy Objectives 1.1 Food policy objectives of Government of India include: (a) to ensure that the producers get reasonable prices and continue to have adequate incentives for increasing the production; (b) to ensure that consumer prices are stabilized and in parti:.ular the interest of the low it.t-me consumers are safeguarded; and (c) to build up adequate buffer stocks of foodgrains with a view to ensure attaining of the twin objectives mentioned above/selling from the buffer stocks to meet the shortage conditions and high prices or by procuring for the buffer stock to support falling prices. These objectives, enunciated during the Fourth Plan period continue to be the focal points for the management of foodgrains by the Government of India. These objectives have been part of the development and welfare strategy of the Government of India. Break-through in agricultural production as a result of Green Revolution in late sixties could not have been sustained without provid- ing effectively market and price assurance to farmers. Over the last two decades through periods of deficits and occasional surpluses, the FCI has con- tinued its effqrts in fulfilling the food policy objectives of providing effective price support to farmers, distribution of foodgrains at reasonable prices and in achieving the target level of buffer stocks. The FCI through its main operations of procurement, transportation, storage and distribution of foodgrains has contributed significantly in transforming the food supply management from the earlier drought/shortage prone supply to that ef a stable food security system. Adequacy, stability and accessibility of foodgrains have been achieved to a large extent as explained in succeeding paras. Plan Priorities 1.2 Growth of Indian economy is highly dependent on the performance of agricultural sector. Objectives in the Fifth and Sixth Five Year Plans of the Government of India basically relate to the central theme of improving the quality of life by way of bringing the people above the poverty line through increased employment, agricultural and industrial growth, etc. The Seventh Five Year Plan has laid emphasis on 'Food, Work and Productivity' as the basic strategy for the perspective plan of 15 years ending 2000 AD. Attaining these objectives involves implementation of agriculture-oriented development strategy. 1.3 During the Sixth Five Year Plan (1980-81/84-85) implementation of food policy has been assigned a higher priority as would be evident from the extracts reproduced below from the Plan Frame-work approved by the National Development Council:  - 3 - "Public distribution of commodities like foodgrains will have to play a major role in ensuring supplies of these commodities to consumers at reasonable prices. Likewise farmers will have to be provided with remunerative prices by paying due attention to their cost structure, to ensure that they have adequate incentive to produce more particularly foodgrains, pulses and oilseeds. It further suggested maintenance of buffer stock to be absolutely essential in order to minimize the impact of weather fluctuations on prices of foodgrains. As such the public distribution system will be so developed that it will hereafter remain a stable and permanent feature of the Government's strategy to control prices and to achieve equitable distribution. Towards this end, emphasis has to be on efficient and socially relevant marketing techniques taking advantages of the economics of bulk handling, procurement and distribution system." 1.4 Foodgrains constitute a major share of agricultural production. Problems of food production, its storage and movement across the country need to be viewed on a wider convass specially because of spatial and price imbalances in the demand vis-a-vis supply of foodgrains. These imbalances get aggravated due to natural factors like drought, floods and famines in differ- ent parts of the country apart from inadequate (occasionally excess) rainfall at crucial times of growth of foodgrain crops in the main foodgrain producing areas. This affects the income levels of the farming sector adversely. The agricultural sector has, therefore, continued to receive higher priority in the natural plan objectives since inception of planning era from 1950-51. There has been almost three-fold increase in the foodgrain production in the last three decades. Assurance of Food Secutity 1.5 During the ven year period from 1977-78, i.e., from the start of Second Foodgrain Storage Project in 1977-78, there has been continuous improvement in all fronts of food management despite unprecedent drought witnessed during 1979-80 accross the country. With adequate inventory of foodgrain stocks with public agencies, adequate food security is assured. All the three aspects of food security system viz adequacy, stability and accessibility have been attained to a large extent. Brief account on each of these aspects is presented below: Adequacy 1.6 Growth Rates. Attainment of adequacy is reflected by the tempo of Green Revolution sustained by the country by registering growth rates of production of wheat, rice and total foodgrains at a fairly high order specially in wheat as shown below:  - 4 - Compound Crowth Rates of Production of Foodgrains (in 2 P.&.) Crop During 1967-68 to 1983-84 Wheat 5.77 Rice 2.27 Total cereals 2.87 Total pulses 0.35 Total foodgrains 2.61 Source: Annexure-G-I for production of foodgrains in India and Annexure-G-II for details on growth rates. Among various programs for increasing production, effective market and price assurance by public agencies has been an important element in attaining such impressive growth rates. 1.7 Market Assurance. The degree of market and price assurance provided by FCI and other public agencies is brought out in the following data: Marketing years 1982-83 1983-84 1984-85 1985-86 1986-87 Wheat Procurement as X of market arrivals: Punjab 99 98 99 98 97 Haryana 97 99 96 Crop years 1980-81 1981-8T2 1982-83 1983-84 1984-85 Rice Procurement as Z of production: Punjap 78 82 78 72 85 Haryana - - 56 49 72 Extensive purchases through 6,800 purchase centers have provided effective market nad price assurance to farmers. This effort has sustained increase in the income of farmers and is providing the required impetus for higher investment in agriculture and improved production and productivity.  1.8 Self Sufficiency. In the past two decades, indigenous procurement of foodgrain has been increasing at encouraging pace as can be seen from the table below: FOODGRAIN (In million tons) Total Total Total procurement as Years (five years) procurement distribution Z of distribution 1961-65 7.23 32.28 22.40 1966-70 28.37 55.71 50.92 1971-75 40.07 51.76 77.41 1976-80 58.89 57.74 101.99 1981-85 82.79 71.40 115.92 Source: Annexure-G-III for year-wise details. 1.9 The perspective picture of the levels of procurement and distribution by all public agencies including FCI given above brings out that the procurement has substantially increased and has in fact been much in excess of the distribution. It is in this context that India has emerged as self sufficient in foodgrain requirement. In normal years, public distrihu- tion aystem requirements are met by indigenous procurement. It is only in the year of drought or abnormally low production that the supplies are drawn from the buffer reserves held by the FCI. By mid-1985 surplus stocks over and above the target level of buffer and operational stocks had emerged. The extent of surplus was estimated to be around 7.0 million tons mainly in the form of wheat. 1.10 Stability has been ensured as would be revealed by the pattern of production in foodgrains, stocks levels with the public agencies, per capita net availability of cereals, levels of public distr:bution and the index numbers of wholesale price of foodgrains. 1.11 During the last one-and-a-half decade though the gross area under cereal crops has not increased substantially yet there has been consistent increase in the production which is contributed by increased productivity (yield) as a result of expansion in irrigated areas apart from application of better farm management techniques and the motivation provided by the public agencies through continued market and price assurance for wheat/paddy and rice. 1.12 The following data is relevant:  - 6 - Gross area Gross (million production Yield Area irrigated Year hectares) (mln tons) (kg/hectare) (mln hectares) Total Foodgrains 1970-71 124.32 108.40 872 N.A. 1975-76 128.18 121.03 944 34.09 (26.5) 1980-81 126.67 129.59 1,023 37.61 (29.4) 1983-84 130.35 152.37 1,163 - 1984-85 126.67 145.54 1,154 - 1985-86 N.A. 150.47 N.A. - Total Cereals 1970-71 101.78 96.60 949 N.A. 1975-76 103.73 108.00 1,041 32.14 (31.0) 1980-81 104.21 118.96 1,142 35.59 (32.8) 1983-84 106.94 139.48 1,299 - 1984-85 103.94 133.58 1,289 - 1985-86 N.A. 137.51 N.A. - Wheat 1970-71 18.24 23.83 1,307 N.A. 1975-76 20.45 28.85 1,410 12.56 (61.8) 1980-81 22.28 36.31 1,630 15.52 (69.7) 1983-84 24.40 45.48 1,851 - 1984-85 23.61 44.07 1,873 - 1985-86 N.A. 46.88 N.A. - Rice 1970-71 37.59 42.23 1,123 N.A. 1975-76 39.48 48.74 1,235 15.22 (38.7) 1980-81 40.15 53.63 1,336 16.34 (40.5) 1983-84 40.99 60.10 1,458 - 1984-85 41.16 58.34 1,425 - 1985-86 41.16 58.34 1,425 - Note: Figures in parenthesis represent the percentage irrigated area to total area under the crop. 1.13 This phenomenon is partially explained by the fact that assured irrigation facilities are concentrated in Stttes like Punjab, Haryana, Western U.P. where the irrigated area has continuousLy been increasing both for Rabi and Kharif crops which helps in stabilizing the production to new levels. All-India production is, therefore, less prone to fluctuating production levels observed in some other States. In effect, stability in the production levels in Punjab, Haryana and U.P. is imparting greater stability in All-India production.  1.14 Increasing production levels in wheat and rice in Punjab, Haryana and U.P. have enabled public agencies to concentrate their procurement efforts mainly in these states. This is indirectly contributing to stability in procurement also at higher levels. 1.15 Attainment of foodgrain production level of around 150 million tons during 1983-84/1985-86 is indicative of the level around which the foodgrain production may continue before shifting to new peak after few years. Produc- tion data over the last three decades reveals that foodgrain production level continues around a particular level over a few years (6-7) before it shifts to a new level. The following data will explain this pattern: (Million tons) Gross production of foodgrain Year Minimum Maximum Average 1960-61/66-67 72 89 80 1967-68/74-75 94 108 100 1975-76/82-83 110 133 124 1983-84/85-86 146 152 149 1.16 Price Stability. Apart from relative stability in production, price stability is also essential. This is also achieved as would be revealed by the wholesale price index numbers particularly of wheat and rice--the two principal cereals handled by the FCI. INDEX NUMBERS OF WHOLESALE PRICES (Base year 1970-71 = 100) All Annual average commodities Foodgrain Wheat Rice 1977 185.4 167.2 155.8 163.6 1985 353.0 289.4 218.8 281.6 Change in 1985 over 1970-71 +253.0 +189.4 +118.8 +181.6 1.17 It would be observed that increase in price levels of wheat and rice has been less pronounced compared to total foodgrain or all commodities during the last one-and-a-half decade period. Likewise the prices of wheat and rice have witnessed greater stability in the last one decade. Foodgrains being  -8- important component of wage-goods, relative stability in the prices of wheat and rice has had restraining impact on general inflationary tendencies in the economy. 1.18 Inflationary conditions adversely affect the purchasing power of the weaker sections. To protect their interests, the Government of India as a welfare strategy fixes issue prices below the economic cost and meets the difference in the form of consumers subsidy. Issues at concessional or subsi- dized prices have enhanced the accessibility of the poorer sections. Adequacy of stocks with public agencies has enabled continued access to the poorer sections at reasonable and fixed prices, e.g., during 1980 and 1981 post- drought years. 1.19 Though the procurement prices of foodgrains have continued to be increased every year, the central issue prices of wheat and rice for the supplies through public distribution system on the other hand have had longer spells of stability. The following data is relevant: GOVERNMENT OF INDIA ISSUE PRICES OF WHEAT AND RICE (Rs per qtl) Wheat (all varieties) Period For From To PDS /a RFM /b 04/15/74 11/30/78 125 125 12/01/78 03/31/81 130 130 04/01/81 07/31/82 145 145 08/01/82 04/14/83 160 160 04/15/83 08/09/84 172 208 08/10/84 01/31/86 172 172 02/01/86 03/31/86 190 190 04/01/86 07/15:86 190 220 07/16/86 190 205 Rice Varieties Coarse From To (Common) Fine Superfine 11/07/75 10/24/79 135 162 172 10/25/79 12/31/80 150 162 172 01/01/81 09/30/81 165 177 192 10/01/81 09/30/82 175 187 202 10/01/82 01/15/84 188 200 215 01/16/84 10/09/85 208 220 235 10/10/85 01/31/86 217 229 244 02/01/86 09/30/86 231 243 258 10/01/86 onwards 239 251 266 /a PDS: Public Distribution System 7b RFM: Roller Flour Mills  1.20 Stocks. Foodgrain stocks with all Government agencies on selected dates are given below: (Million tons) As on Wheat Rice Total 07/01/75 4.2 1.6 6.0 07/01/76 12.0 5.1 17.7 07/01/81 7.1 5.8 13.7 07/01/83 13*0 3.8 17.0 07/01/85 20.7 7.8 28.7 07/01/86 19.2 9.5 28.8 1.21 The net accretion in foodgrains stocks held by Government agencies during the two year period from July 1983 to July 1985 was about 12.0 million tons, taking the actual stocks to a record level of about 29.0 million tons by mid-1985 which was in excess of target operational and buffer stocks (21.4 million tons) by over 7.0 million tons, mainly in the form of wheat. Comfort- able stock position has been achieved by increased procurement over and above the distribution requirements. This record level of stocks has provided the required stability in managing the food requirements of the country in the long run. Moreover, FCI with effective management of surpluses and deficits in different states having divergent food habits has been able to develop an integrated national approach in tackling the food problem. Accessibility 1.22 Accessibility of stocks is ensured through !e operations of the public distribution system in the form of f rmal/informal rationing system all over India. The objectives of distribution include adequate supply of food- grains in different parts of the country specially with a view to supplement the consumption levels of low income segment of the population and to keep the open market prices under check. Though the supplies under the public distri- bution system are of supplemental nature, these are made at concessional or subsidized prices as a welfare measure to improve the diet and calorie intake of poorer sections having low purchasing power. Role of Food Corporation of India (FCI) 1.23 Procurement, storage and public distribution systems are essential ingredients of the overall national food security system in India. Unless these are fully developed, the delivery system cannot be made effective, efficient and economical. This task is, though, a joint responsibility of the Central and State Governments, the role of Food Corporation of India (FCI) has been vital. FCI being the national agency responsible to execute the policy  - 10 - of the Central Government has expanded its organizational network both geographically and functionally. 1.24 FCI today operates through a country-wide network with its Corporate Office at New Delhi, 4 Zonal Offices for South (at Madras), North (at New Delhi), West (at Bombay) and East (at Calcutta), 19 Regional O.fices covering all the 22 Indian States and 7 Union Territories, 4 Port Operation Offices, 145 District Offices, about 2,000 Storage centers and 138 quality control laboratories. The authcrized capital of the FCI was raised to Rs 10,000 mil- lion duriag 1985-86 (from 4,500 million until 1984-85). The paid up capital by the Government of India is Rs 7,440 million against Rs 3,075 million at the close of March 1985. For the purpose of construction of godowns, the capital amount required is met by the Government under the centrally sponsored plan schemes. For its day-to-day operations in foodgrains, it is allowed credit facilities by a consortium of nationalized banks. The Government of India gives surety against the margin money requirements and the hypothecation of stocks with the banks. Within the cash credit limits, the FCI withdraws and utilizes the money from the banks as per its requirements. PDS Network 1.25 The public distribution system has been enlarged and expanded considerably in the last two decades and today covers about 3.22 lakh Fair Price Shops. The prevalent system envisages supply of foodgrains periodically (weekly or fortnightly) of specified quantities at subsidized issue prices on the basis of ration cards issued to families. Fair Price Shops get their supplies from the wholesale agent who in turn gets the supplies from FCI godowns. The range of off-take to total supplies from Government stocks has gone up to 12-16 million tons/per annum in the eighties as shown below: No. of FPs Total distribution Years ('000) (million tons) 1961 48 3.98 1971 121 7.82 1974 222 10.79 1977 242 11.74 1980 276 14.99 1983 297 16.21 1984 311 13.34 1985 322 14.07 1.26 Such a phenomenal increase in the expansion of public distribution system has been facilitated inter alia by the development of storage capacity under the World Bank aided project and other storage construction programs launched by the Government ot India/FCI. Construction of storage godewns and  -iL- THE FOOD CORPORATION OF INDIA ORGANISATIONAL STRUCTURE ( - ~~~~~~~~~~~~~~~~~~Zonal |7 ar,