Thursday, June 20, 2013

DISTORTING MARKET: FCI’s anti-competitive practice under CCI lens

New Delhi: In an unprecedented move, Competition Commission of India (CCI), the fair play watchdog, is examining if the state-run Food Corporation of India (FCI) is violating competition law by misusing its dominant position in procuring foodgrain and distorting the market.

Senior CCI sources said they have taken note of the various recommendations and have started the process of examining of the food procurement policy, which has driven out private players from the market. Initially, the regulator held discussions with the food ministry, which put the blame on FCI.

The move comes at a time when the government is set to enact a food security law which will increase the pressure on FCI to set up procurement to meet the mandate of the proposed Act. FCI has been severely criticized for its procurement and storage policies. Experts say inefficient handling leads to massive losses of precious foodgrain while the monopoly enjoyed by FCI distorts the grain market.

Even the Commission for Agriculture Costs and Prices, which sets prices of commodities for farmers on behalf of the government, had also recommended that the CCI should examine the anti-competitive market behaviour of FCI.

“The fundamental function of the market is price discovery. However, the disparate policies adopted at the Centre (trade policy) and some states (bonuses and taxes) have cumulatively led to market distortions. Government interventions have resulted in its becoming the single largest procurer and hoarder of foodgrain,” the CACP had said in a report last year.

“They have also led to inter-crop distortions with farmers opting for the crop which gets them a bonus over MSP. The resultant high costs of procurement owing to arbitrary imposition of taxes/ levies by state governments, have also led to crowding out of private players,” the CACP had said.

It had also pointed out those high costs of operations of state agencies, including leakages add to the distortions. And, as a result the FCI would only have to shell out large amounts under the burden of such arbitrary levies and high costs, all in the name of food subsidy for the poor.

Finance minister P Chidambaram too had also highlighted the need to debate the role of competition policy in improving procurement and had cited the example of government procurement of grains which crowds out private players and affects the discovery of market prices for cereals. “In case of agriculture the minimum support price (MSP) and open-ended procurement have served our farmers well. But can we procure in a better way? Currently, as a result of how the MSP and procurement policy are set, the government is the largest and in many ways the only bulk buyer of cereals,” Chidambaram had said in his annual day lecture at the CCI last month.

“But, in the process, it is crowding out private sector procurement. The discovery of market prices for cereals is affected by government policy. What role should competition policy play in bringing private players into procurement and in improving the benefits to both the farmer and the consumer?,” the finance minister had said.
Sidhartha & Surojit Gupta TNN

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