Why does the Food Corporation of India buy and hold such large grain stocks?

The Food Corporation of India (FCI) is one of the world’s largest grain handlers, typically holding up to 700 lakh tonnes of wheat and rice. These stocks far exceed what’s needed for food security buffers. So why does FCI hold so much grain, and what are the consequences?

The Food Corporation of India was established in 1965 with three core objectives:

1. Procure at MSP to provide price assurance to farmers (mainly wheat and paddy)

2. Maintain strategic buffer stocks for food security and price stabilisation.

3. Supply the Public Distribution System (PDS) that provides subsidised grain to ration cardholders.

These three objectives have led to a permanently high holding of these agricultural commodities. First, FCI is required to purchase all wheat and paddy offered at MSP in key states (Punjab, Haryana). This policy is known as open-ended procurement. When production is high, procurement surges. Unlike a regular business that might say “we have enough,” FCI keeps buying. Second, the government sets buffer stock requirements high, typically 210 lakh tonnes of rice and 135 lakh tonnes of wheat. But actual stocks often run double or triple these norms, especially after bumper harvests. Finally, the National Food Security Act entitles about 800 million Indians to subsidised grain. It requires FCI to maintain enormous stocks to meet distribution needs.

Why are these large stocks a problem? Storing millions of extra tonnes costs money: warehousing fees, labour, interest on the capital tied up, and transportation. Estimates suggest excess stocks cost the exchequer INR 30,000-40,000 crore annually in avoidable carrying costs. Despite investment in storage, some grain deteriorates, especially when stored beyond optimal periods. Rats, moisture, and inadequate facilities take their toll.

FCI’s grain mountains are the physical consequence of a procurement system that encourages open-ended purchasing commitments, politically untouchable buffer norms, and a distribution entitlement covering two-thirds of the population, which combine to make large stocks structurally inevitable. Reforming FCI means reforming the three mandates that drive it: capping procurement at genuine buffer requirements, decoupling income support to farmers from the obligation to buy whatever they grow, and targeting PDS distribution more precisely so that entitlement volumes reflect actual need. Until those upstream decisions change, the grain will continue to accumulate, and the exchequer will continue to pay to store, insure, and eventually write off what it cannot distribute.