'Higher offtake by FCI due to COVID-19 welfare schemes can boost procurement agencies' liquidity'

Mumbai, Jul 10 () The COVID-19 pandemic is likely to have a positive impact on the cash flow from operations (CFO) of state procurement agencies (SPAs) in the current financial year, due to higher offtake by the Food Corporation of India, according to a report by India Ratings and Research.

The higher offtake by FCI is in response to various welfare schemes announced by the government that resulted in the liquidation of SPAs' unsold inventory and debtors, the rating agency said in the report released on Friday.

In view of the COVID-19 pandemic and the resultant lockdown, the government has announced various welfare schemes to alleviate the stress faced by the poor, it said.

Under the PM Garib Kalyan Ann Yojana, free distribution of 5 kg of foodgrains and 1 kg of pulses per person per month for the next three months was announced in March 2020 for the 80 crore beneficiaries covered under the National Food Security Act, it added. This scheme has now been extended up to November-end.

As all such welfare schemes are being routed through FCI, Ind-Ra said, the same would free up the storage space available with FCI, thereby making them ready to accept fresh produce coming in from various SPAs, it said.

Ind-Ra expects that this would reduce the inventory holding and consequent debtors at SPAs and accordingly facilitate the liquidity through CFO generation.

SPAs procure wheat and paddy from designated mandis and supply them to FCI for building the central pool.

In 2015-16, the central pool stock grew 7 per cent year-on-year to 36.7 million tonne (mt) before declining 15 per cent y-o-y in 2016-17, it said.

Since then, the central pool stock has increased at a rapid pace, growing 22 per cent in 2017-18, 22 per cent in 2018-19, and 23 per cent in 2019-20 to 56.9 mt.

In 2017-18, the combined production of wheat and rice was 212.6 mt, which increased to 220.1 mt in 2018-19 and further to 225.1 mt in 2019-20, Ind-Ra added.

The report said that as a result, the stock of foodgrains maintained by FCI is way higher than the foodgrain-stocking norms.

According to the stocking norms, the country is expected to maintain a certain level of foodgrain stocks, which is a combination of operational and strategic reserves, as per the report.

As on April 1, the stocks of rice and wheat maintained by FCI were 32.2 mt and 24.7 mt, respectively, against the stocking norms of 13.6 mt and 7.5 mt, respectively, it added.

The substantial increase in the central pool stock has had a negative impact on the liquidity of SPAs, the rating agency said.

It also added that most SPAs have recorded negative CFO over FY18-FY20 due to a build-up of inventory at their end, as the offtake by FCI slowed down due to its own burgeoning stock.

In 2020-21, Ind-Ra said, SPA's CFO position could turn positive, despite the expectation of record harvests in both wheat and rice. SM HRS