Chapter-1 Introduction

1.

FOOD CORPORATION OF INDIA

1.1

A Brief History

The Food Corporation of India was set up under the food Corporation Act 1964 and on 14th January, 2013, FCI completed 49 years of its existence. FCI was set up to secure strategic position in food grains trade and implement the National Policy for Price Support operations, procurement, storage, inter-state movement and distribution operations, in short to operate the Central Pool. Today FCI is the country leader in food grains management and is fully focused on helping Farmers feed the country, better and more efficiently, today and tomorrow.

Food constitutes the main requirement of every human being. In a sub-continent like India where millions of mouths depend to targeted Public Distribution System(TPDS) and other welfare schemes of Govt. of India, FCI, plays a leading role in making food grains available to the extent of 30 lakh tones during a month, to respective State Govts. For its distribution among beneficiaries. To procure, store, preserve and move such a huge quantity of stocks spreading over vast areas with its intricate network is, indeed, a nerve and back-jerking tasks.

To nurture the Green Revolution, the Government of India introduced the scheme of minimum assured price of food grains which are announced well before the commencement of the crop seasons, after taking into account the cost of production /inter-crop price parity, market prices and other relevant factors. The food Corporation of India alone with other Government agencies provide effective price. Assured for wheat, paddy and coarse grains. FCI and the State Govt. agencies in consultation with the concerned State Govts. Establish large number of purchase centers throughout the state to facilitate purchase of food grains Centers are selected in such a manner that the farmers are not required to cover more than 10 kms. To bring their produce to the nearest purchase centers of major procuring states. Price support purchases are organized in more than 12,000 centers for wheat and also more than 12,000 centers for paddy every year in the immediate post-gravest season. Such extensive and effective price support operations have resulted in sustaining the income of farmers over a period and in providing the required impetus for higher investment in agriculture for improved productivity. To name a few states about Rs.41,000 millions for paddy and 43000 millions for wheat in Punjab And Rs.45,000 millions for levy rice in Andhra Pradesh is paid to the farmers/millers during wheat/rice procurement season India today produces over 200 million tones of food grains as against a mere 50 million tons

In 1950. In the last two decades, food grain procurement by Government agencies have witnessed a quantum jump from 4 million tones to over 25 million tones per annum.

Food grains are procured according to the Government prescribed quality standards.

Each year, the Food Corporation purchases roughly 15-20% of Indias wheat production and 12-15%of its rice production.

This helps to meet the commitments of the Public Distribution System and for building pipeline and buffer stock.

1.1.2

Vision 2020

To aggressively promote Decentralized Procurement by State Governments with special emphasis in non-traditional areas and commodities.

To initiate procurement of non-MSP governed commodities on commercial principles.

To ensure adequate buffer for meeting requirements under TPDS & Other Welfare Schemes.

To dispose off surplus and un-storage worthy godowns and introduce concepts of mechanized handling in the conventional godowns.

To undertake R&D for conversion of some of the existing capacity to bulk and cost effective utilization of existing bulk capacity.

To optimize monthly movement programme with existing state of art of computerization within the country at various locations as per corporate policies and priorities.

Modernization of Quality Control equipments and systems for food preservation in order to increase the shelf life of food grain.

To venture in the fields of Forward Trading and Exports of both surplus stocks of food grains in Central Pool and no-traditional commodities.

To introduce state of art of financial management in order to reduce the dependency on the present banking system in the country.

To initiate systems for settlement of storage loss and transit loss through insurance coverage and revised inventory mechanism.

To develop efficiency in human resource management both in staff/officers and workers with changed circumstances in the work approach of P.S.U. s.

To achieve state of art in computerized communication between different offices/ depots throughout the country.

1.2

Mission
Fulfillment of all the targets set as per Govt. of India Food Policy from time to time Monitoring of quality in all major transactions, processes leading to improve customer satisfaction level Accountability for efficiency, responsiveness, performance and minimization of all losses and wastes Need based up-gradation of infrastructure and work environment Need based enhancement of available knowledge and skills Transparency in decision making, effective communication leading to harmonious employee relations

1.3

Objective of FCI
To provide farmers remunerative prices To make food grains available at reasonable prices, particularly to vulnerable section of the society

To maintain buffer stocks as measure of Food Security To intervene in market for price stabilization

Organizational structure

Figure no.1
Source
http://fciweb.nic.in//upload/IR_L/brief%20note%20on%20labour%20system%20in%20fci_eng_2 9082013.pdf

1.4

QUALITY POLICY

FCI, as the countrys nodal organization for implementing the National Food Policy, is committed to provide credible, customer focused services, for efficient and effective food security management in the country. Our focus shall be:

Professional excellence in Management of food grain and other commodities

Service quality and stake holder orientation

Transparency and accountability in transactions

Optimum utilization of resources

Continual improvement of systems, processes and resources

1.5

QUALITY OBJECTIVES
Fulfillment of all the targets set as per Govt. of India Food Policy from time to time.

Monitoring of Quality in all major transactions, processes leading to improved customer satisfaction level

Accountability for efficiency, responsiveness, performance and minimization of all losses & Wastes

Need based up gradation of infrastructure and work environment

Need based enhancement of available knowledge & skills.

Transparency in decision making, effective communication leading to harmonious employee relations

Establishing, maintaining and improving ISO 9001:2000 based Quality Management Systems covering all areas of activity.

Chapter-2

Functional Analysis of the Company

10

2.1

SWOT ANALYSIS OF FOOD CORPORATION OF INDIA

2.1.1

STRENGTH

Round the year availability of materials Support from the central government Strong network of distribution Excellent storage management

2.1.2

WEAKNESS

High requirement of working capital Corruption at all level Inadequate automation with regard to information managemnt Leakage

2.1.3

OPPORTUNITIES

Improvement in distribution level Diversify into non-distributional commodities/activities Vast domestic market

2.1.4

THREATS

Rapid development Entry of retail sector Shift in food habits

11

Chapter-3 Job Specific Analysis

12

3.1

DEPARTMENTAL LABOUR SYSTEM

Under this system, regular time scale of pay as given below are applicable to the workers :-

Table no. 1

*The pay scales are due for revision from 01.01.201

Source http://fciweb.nic.in//upload/IR_L/brief%20note%20on%20labour%20system%20in%20f ci_eng_29082013.pdf

Apart from the above pay scales, statutory benefits of ex-gratia in lieu of Bonus, PLI, CPF, Gratuity and Welfare benefits of various types of leaves, uniform, LTC, HBA, Festival Advance, medical facility, L.T.C./Bharat Darshan, Children education allowance etc are also extended to the workers. The Departmental Workers are given Minimum Guaranteed wage for 21 days in a month in addition to 4 or 5 paid weekly offs even if FCI is not able to provide any work or sufficient work to labourers for all the working days of the month provided the worker has attended the work spot on all the working days of the month.

13

3.2

DIRECT PAYMENT LABOUR SYSTEM (DPS)

This system is presently functioning in 219 depots. In this system, the workers are paid piece rates on ASOR% basis, as in case of contractors. The Workers are paid actual earnings on Piece Rate/ASOR% for the quantum of work done or the minimum guaranteed wage, whichever is higher. The Piece Rate/ASOR %age is not applicable in case of Ancillary labourers. The DPS workers have been given the benefits of CPF in addition to the benefits of Ex-Gratia / PLI / Gratuity / Workmens Compensation, Paid Weekly Off, National Holidays, Sick Leave, Medical First Aid and Medical Facility (Indoor/Outdoor) under ESI Act. The minimum daily wages for A areas as fixed under Minimum Wages Act by the Government of India, Ministry of labour & Employment after every six months are admissible to the workers. The Piece Rate/ASOR% are revised every six months based on the changes in All India Consumer Price Index. The present rates of Min. Wages & Piece Rates are as under:-

Table no.2

*Next Revision due from 01.04.2013

14

3.3

NO WORK NO PAY SYSTEM (NWNP)

This system is popularly known as No Work No Pay(NWNP) System or Three Member Committee(TMC) System. The system is presently prevailing in 83 functional depots throughout the country. Under this labour system, payment for the actual quantum of work done is made on the basis of prevailing Piece Rate/ASOR% of the region or the minimum guaranteed wage, whichever is higher. However, payment is made only on the days when there is actual work available in the depot. In addition, the benefits of EPF, Ex-Gratia in lieu of Bonus, three national holidays, paid weekly off under Minimum Wages Act, Medical facility(Indoor/Outdoor) under ESI Act are extended to these workers.

The minimum daily wages as fixed under Minimum Wages Act by the Government of India, Ministry of labour & Employment every six months are admissible to the Handling Labour. The Piece Rate/ASOR% is revised every two years based on the changes in All India Consumer Price Index. The present rates of Min. Wages area-wise are as under:A Area - 279/B Area - 231/C Area - 186/

15

3.4

Distribution of Food grains

The national objective of growth with social justice and progressive improvements in the living standards of the population make it imperative to ensure that food grain is made available at reasonable prices.

Figure No.2

Distribution of Food Grains

Public Distribution of food grains has always been an integral part of India? Overall food policy. It has been evolved to reach the urban as well as the rural population in order to protect the consumers from the fluctuating and escalating price syndrome.

Continuous availability of food grain is ensured through about 5 lakh fair price shops spread throughout the country.

16

The Govt. of India introduced a scheme called Targeted Public Distribution Scheme (TPDS) effective from June, 1997.

Figure.3

Remote Hill Areas

Below Poverty Line (BPL): Determination of the families under this category in various states is based on the recommendation of the Planning Commission. A fixed quantity of 35 Kg. food grains per family per month is issued under this category. The stocks are issued at highly subsidized Price of Rs.4.15 per Kg. of wheat and Rs. 5.65 per Kg. of rice.

17

Antyodaya Anna Yojna - During the year 2000-2001 Govt. of India decided to release food grains under Antyodaya Anna Yojna. Under this scheme the poorest strata of population out of earlier identified BPL population is covered. Food grains are being provided to 2.5 crores poorest of the poor families out of the BPL families at highly subsidized rates of Rs.2/- per kg. of wheat and Rs.3/- per kg. of rice by FCI. This is the biggest food security scheme in the world.

Above Poverty Line ( APL) ? Families which are not covered under BPL are placed under this category. The stocks are issued at Central Issue Price of Rs. 6.10 per Kg. of wheat and Rs. 8.30 per Kg. of rice.

The Central Issue Price (CIP):-

(Rate: Rs./Qtl.)

Commodity

Effective From

BPL Families APL Families

AAY Families

Wheat

01- 07- 2002

415 565 565

610 795* 830

200 300 300

Rice Common 01- 07- 2002 Rice Grade-A 01- 07- 2002

(*): Applicable to J&K, Himachal Pradesh, Sikkim, Uttaranchal and NE States.

Table No. 3

18

There are number of other welfare schemes of the Govt. of India :

(a)Mid-Day-Meal-Scheme (MDM)- The Govt. of India have introduced MDM ? National Programme of Nutrition Support to Primary Education in Primary Schools

w.e.f. 15.8.1995. Under the scheme every students upto 5th class of Govt. schools is entitled for 3 Kgs. of wheat/rice per month @ 100 Grams.

Since October 2007 allocation of food grains have also been made for the students from 6th to 8th class in the educationally backward blocks and every student is entitled for 150 Grams of food grains per child per school day.

The Scheme is partly run by Govt./Aided Schools/Local Bodies to serve free cooked / processed hot meal. FCI is supplying food grains free of cost to the State/UTs. This scheme is partly financed by Ministry of HRD.

(b)Wheat Based Nutrition Programme (WBNP) - A scheme run by Department of Women and Child Development, Ministry of Women & Child Development for providing nutritious food to children below 6 years of age and expectant/lactating women. Food grains supplied by FCI at BPL rates.

(c)& (d)SC/ST/OBC Hostels & Welfare Institutions & Hostels- The Ministry of CAF&PD and the Ministry of Social justice & Empowerment coordinate to monitor of the Scheme for providing food grains to SC/ST/OBC Hostels. Hostels having students

19

belonging to SC/ST/OBC categories are eligible to draw 15 Kgs. Food grains per resident per month.

The Government of India decided that w.e.f. 2.11.2000 food grains (wheat/rice) will also be allotted to the state Governments at the rate of 5 Kg per head per month for indigent people living in Welfare Institutions, such as. Beggar Homes, Home for Nari Niketan etc. sponsored by the State Govts. and the concerned administration. Food grains are supplied by FCI at BPL rates. It may be clarified that from the year 2002-03, the MOCAF&PD has been making the requirement of the State/UT under the head "Welfare Institutions &Hostels" to meet the requirement of the State/UT for providing food grains to different type of welfare institutions. Since April 2005, the Ministry of CAF &PD has enhanced quota of allotment under this scheme to 5% of the monthly allotment made under BPL & AAY. Presently, the food grains is being allotted by MoCAF&Pd on the basis of average offtake during last three years under the scheme.

(e) Annapurna Scheme- Indigent Senior Citizens of 65 years of age or above eligible for National Old Age Pension under NOAPS, but not getting pension can get 10 Kgs of food grains per month. FCI is issuing food grains under this scheme to State/UT Govts. at BPL rates.

Under This scheme of Ministry of Social Justice & Empowerment, Indigent people living in Welfare institutions like Beggar Homes, Orphanages, Nari Niketans etc. are given 15 kgs of food grains per person per month. Food grains are supplied by FCI at BPL rates. Presently, the scheme is being run by the Ministry of CAF&PD.

20

(f) Sampoorna Gramin Rozgar Yojana- A scheme financially supported by Ministry of Rural Development in which food grains are supplied to the States/ UTs by FCI free of cost.

(g)Special Component of Sampoorna Gramin Rozgar Yojna - Under the Special component of the SGRY financed by Ministry of Rural Development for augmenting food security through additional wage employment during natural calamity. FCI release food grains free of cost to the State/UTs. Since 1st April 2008 no allotment of food grains has been made by the Govt. of India under SGRY.

(h)Food grains to Adolescent Girls Pregnant and Lactating Mothers (AGPLM). GOI introduced this Scheme w.e.f January, 2003 Under this scheme food grains is being supplied by FCI at BPL prices to the State/UT Govt. for Adolescent Girls, Pregnant and Lactating Mothers (AGPLM). The identified under nourished woman/girl is provide 6 Kg. of food grains (wheat/rice)/month. The scheme is partly supported by Planning Commission. The scheme is being run by MoCAF&PD with the new name Nutritional Programme for Adolescent Girls (NPAG).

(i)World Food Programme (WFP) - FCI is sparing stocks to WFP projects from the Central Pool stocks as and when required by them. FCI is working as 'FOOD BANK' for World Food Programme(WFP) projects in India . When India was deficit of food grains, WFP used to get stocks to meet the deficiency through import.

21

(J) Emergency Feeding Programme - Under this scheme, Ministry of CAF & PD releases allocation of rice at BPL rates, for KBK Districts (Bolangir, Kalahandi, Koraput, Malakangiri, Nabarangpur, Naupada, Rayagada & Sonepur) of Orissa State on monthly basis. Under this scheme, rice @ 7.5 kg/beneficiary/month is issued for 2 lakh beneficiaries. This programme is being run by the Ministry of CAF&PD.

(k) Grain Bank - This scheme provides Grants for establishment of village Grain Bank to prevent deaths of Schedule Tribes specially children in remote and backward tribal villages facing or likely to face starvation and also to improve nutritional standards. The scheme provides funds for building storage facility, procurement of weights & measures and for the purchase of initial stock of one quintal of food grains of local variety for each family. The allocation of food grains was made by the GOI, Ministry of Tribal Affairs during the year 2002-2003. Under this scheme food grains are allotted to States at BPL rate. Since 2006-07 the scheme is being run by Ministry of CAF&PD. The cost of food grains as food component is being paid to FCI in advance at economic cost. State Govts. are lifting food grains free of cost from FCI.

(l) National Food for Work Programme - this programme has been launched by the Prime Minister during November 2004 for providing food grains in identified 150 most backward districts of the country. The beneficiaries of this programme are labourers engaged by the State Govt. in development work. Food grains is given as part of wages under the scheme to the rural poor at the rate of 5 kg. per manday. More than 5 kg. food grains can be given to the labourers under this programme in exceptional cases subject to a minimum of 25% of wages to be paid in cash. Under this programme food grains ae

22

issued to states/UTs free of cost. This scheme is mentored by Ministry of Rural Development

Table No.4

23

Figure No.4

Requirement for short term loan

Keeping in view the periodic increase rate of interest by the consortium of the Banks as well as to raise additional resouirces to meet the requirement of funds at the time to Peak procurement, the corporation is taking steps for availing alternative sources of finance through Short Term Loan to achieve the twin objective of reduction in interest cost and improving the liquidity.

24

As per stated above there are few ways to get the funds-like STL, BONDS, ect. Through this Project, we come to know, how to raise funds through short term loans. What is the procedure and the criteria and from whom they take the permission.

FINANCIAL FEATURES

Average Bank Borrowing during 2007-08 Rs. 27327 Crores (Consortium of 65 Banks as on 31.3.08) Commercial Borrowing (Bonds) Rate of Interest on Bank Borrowing w.e.f. 10.15 % p.a. (Monthly Compounding) 01.03.2008 Rate of Interest on Bonds 7.31%p.a.(Annually Payable) Rs. 8605 Crores

Table No.5

Equity Released for Plan Schemes and Working Capital (as on 31.03.08)

Rs. Cr. Working Year Capital Upto 2002-03 2003-04 1484.00 Nil Godowns 855.11 23.96 Project Nil 15.50 13.89 Nil 2353.00 39.46 Construction of IISFM Other Schemes Total

25

2004-05 2005-06 2006-07 2007-08 First Quarter Second Quarter Third Quarter Fourth Quarter Total Total paid-up Capital

Nil Nil Nil . Nil Nil Nil Nil Nil 1484.00 .

5.87 20.78 7.50 . Nil Nil 3.18 0.82 4.00 917.22 . .

39.14 15.00 Nil . Nil Nil 14.49 10.51 25.00 64.64 . .

Nil Nil Nil . Nil Nil Nil Nil Nil 13.89 . .

45.01 35.78 7.50 . Nil Nil 17.67 11.33 29.00 2509.75 . 3500.00

Authorised Capital

Table No.6

Economic Cost of Food grains of FCI

26

Crop-Year Wise Economic Cost (Provisional) (Rs./qtl.)

Rice Year Wheat Rice (Grade A) (Common) Rabi 2008 Kharif 2007 1515 1716 1664

Table No. 7

Accounting Year-Wise opening Stock adjusted weighted Economic Cost

(Rs./qtl.)

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07(Prov)

Status Audited Audited Audited Audited Un-audited Prov. Estimates

Wheat 852.94 884.00 918.69 1019.01 1041.85 1214.39

Rice 1097.96 1165.03 1236.09 1303.59 1339.69 1411.60

27

2007-08(RE) 2008-09(BE)

Rev. Estimates Budget Estimates

1348.69 1458.83

1571.36 1698.90

Table No.8

Food Subsidy Released to FCI and Incurred by FCI (Rs. Cr.)

Food subsidy released to FCI Against For the Year Total Earlier Year years 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16274.00 22673.72 . . 16274.00 22673.72 18928.18 19189.61 19397.68 19375.13 22540.93

Food Subsidy Incurred by FCI

Subsidy Incurred during the year

Status of Accounts

18005.00 25322.00 21587.00 20773.00 21344.00 24858.00 31817.00

Audited Audited Audited Audited Un-Audited Prov.Estimates Rev.Estimates

23474.04 4545.86 23280.00 4090.39 19871.00 473.32 20786.21 1411.08 27759.68 5218.75

28

2008-09 (Upto 30/04/08) 5400.04 . 5400.04 . .

TABLE NO. 9

CASH FLOW (RABI)

3.5

INTRODUCTION

The Food Corporation of India has been set up under an Act of Parliament primarily to: (a) Provide price support to farmers to ensure remunerative prices for their produce,

(b)

Make available food grains at reasonable price to consumers, particularly the vulnerable sections of the society and

(c)

Maintain buffer stocks as a measure of food security not only to impart inter-seasonal stability but also to meet the emergent situations arising out of crops failure due to drought, floods, etc.

29

3.6

WORKING CAPITAL.

To achieve the above objectives, the Corporation undertakes procurement, storage, movement and distribution of Central Pool stocks on a massive scale. The working capital required for these gigantic operations is provided by a consortium of banks constituted by RBI under the leadership of SBI. The

quantum of working capital requirement for the ensuing Rabi food grains operations has been projected keeping in view the policies of the Govt. announced from time to time. The gross out flow of funds for this purpose is estimated at Rs.46400.15 crores against inflows of Rs.54509.76 crores during April, 2010 to September, 2010. The details are given in the following paragraphs.

The Govt. of India has issued a single default guarantee of Rs.34495 crores (enhanced from Rs.33100 crores) to SBI w.e.f 07.05.2007 and valid up to 31.03.2008, the validity of the guarantee was subsequently extended upto

31.03.2012 vide Govt. of Indias letter No. 5-4/2007/SC-II dated 23.02.2010 covering the entire food credit of the Corporation. The State Bank of India authorizes the monthly drawing power of the Corporation equivalent to value of stock. For borrowing beyond the value of stock SBI levies penal interest @0.5% on the amount of excess borrowing.

30

3.7

CURRENT CASH CREDIT UTILISATION:

The monthly Credit limit/ drawing power used to be authorized to the Food Corporation of India by the Reserve Bank of India upto April, 2005. Thereafter RBI stopped authorizing the credit limit, subsequently the Reserve Bank of India vide letter dated 2.09.05 has informed that henceforth State bank of India will take care of the credit requirements of the Corporation. Thereafter the State Bank of India started authorizing monthly Credit limit/ drawing power of the Corporation based on the value of stock. The drawing power was fixed by SBI at Rs.17966.91 crores for the month of February, 2010. The Cash Credit Utilization at the end of March, 2010 is estimated at Rs.24616.61 crores.

3.8 PROCUREMENT/ TAKEOVER OF WHEAT 4.1 The table below shows market arrivals and procurement of wheat for Central Pool including under de-centralized system during the last five years.

Qty. Lakh Tonnes

YEAR

MARKET ARRIVALS

PROCUREMENT FOR CENTRAL POOL

QTY. Rabi 2004-05 181

QTY. 168

31

Rabi 2005-06 Rabi 2006-07 Rabi 2007-08 Rabi 2008-09 Rabi 2009-10

158 137 154 244 269

148 92 111 227 254

Table no. 10

3.8.1REVENUE EXPENSES: Revenue expenses for the six month period have been assumed at Rs5304 crores based on the FCI's budget estimate for 2010-2011.

3.8.2 INTEREST ON BANK BORROWINGS: The interest provision for food credit has been considered at current rate of 10.25% at monthly rest.

3.8.3 FOOD SUBSIDY: The food subsidy to the extent of Rs26000.00 crores is estimated as receivable during the first six months' period of the financial year 2010-11.An advance of Rs.10,000/- crores ,as per comments of Ministry of Finance , at an average interest rate for 364 days T Bills could be provided from 2010-11 and adjustment during the financial year itself against the provisions made in the Budget 2010-11 for Food subsidy.

32

3.8.4

STOCK: 10.1 The estimated value of stocks at acquisition cost as on 1st April 2010 visa-vis actual as on 1st April'2009 is as under :Qty. In Lakh Tonnes Value: Rs.Crores As on 1.4.2009 Qty. Wheat Rice Total 66.27 134.12 200.39 Value 7714.76 20099.36 27814.12 As on 1.4.2010 Qty. 75.31 154.43 229.74 Value 9347.78 25715.37 35063.15

Table No. 11

3.9

GROSS OUTFLOW: The estimated fund requirement for food grains operations from 01.04.2009 to 30.09.2009 is as follows:Total 4/2010 to 9/2010 April-10 June-10 to July Sept.10 5067.13 For Quarter ending (Rs. Crores) 10 to

I) For purchase of Wheat including takeover from State Agencies.

19994.70

14927.57

33

II) For procurement of Levy Rice including Paddy and CMR takeover from State Agencies. III) For meeting the revenue expenses other than the bank interest IV) Interest on bank borrowing

10948.81

6953.08

3995.73

5304.00

2652.00

2652.00

858.16

463.64

394.52

V) Interest on Bonds

70.11

70.11

0.00

VI)Interest on short term loan

90.00

45.00

45.00

VII)Repayment of short term loan

6900.00

3900.00

3000.00

VIII) Carryover Charges of Wheat IX)Repayment of Bonds Total

1257.87

465.81

792.06

976.50 46400.15

976.50 30453.71

0.00 15946.44

Table No.12

34

3.9.2

GROSS INFLOW: Rs. Crores Particulars Total April-Sept.2010 April June 2010 2010- July 2010 For Quarter ending

Sept.2010

Sale grain

of

Food

11609.76

5785.26

5824.50

Subsidy GOI

from

26000.00

13000.00

13000.00

Annexure-VII Addl. Subsidy 10000.00 10000.00 0.00

from GOI Receipts STL Total 54509.76 32685.26 21824.50 from 6900.00 3900.00 3000.00

Table no. 13

35

3.9.3

NET FUND FLOW:

The bank overdraft is estimated at Rs.24616.61 crores as on 31st March 2010 after adding interest for the month ending March 2010. Monthwise estimated fund flow during the period ending six months April/September 2010 is given below:

CCash Credit at Drawings Month/Y the ear beginning During Month Rs.Crore

RReceipts the the month

during Month projected

end cash

of the month R Rs. Crore

credit utilization RRs.Crore R Rs.Crore

Apr, 10 NMay,10 DJun, 10 ,JJul, 10 AAug,10 Sep,10

24616.61 12452.61 18559.37 22385.06 12337.92 14600.12

14566.83 9089.47 6797.42 5898.10 5322.85 4725.49

126730.83 6106.75 3825.69 15945.23 3060.66 2818.61

12452.61 18559.37 22385.06 12337.92 14600.12 16507.00

Table no.14 Summary Cash Flow forecast for the period from 1st April, 2010 to 30th September 2010 is given in

36

3.9.4

CASH CREDIT LIMITS REQUIRED:

As per the estimates given in foregoing paras the operating cash credit limit required from April 2010 onward would be as under:-

Rs.Crores Month CC proposed 4/2010 5/2010 6/2010 7/2010 8/2010 9/2010 12452.61 18559.37 22385.06 12337.92 14600.12 16507.00 Limit

Table No.15 The cash credit limits indicated above may be considered by the State Bank of India for sanction for Rabi, 2009 subject to usual review on monthly basis.

37

3.10

CASH FLOW (KHARIF)

3.10.1

INTRODUCTION The Food Corporation of India has been set up under an Act of Parliament

Primarily:a. to provide price support to farmers so that they get remunerative prices for their produce,

b.

to make available food grains at reasonable price to consumers, particularly to the vulnerable sections of the Society and,

c.

to maintain buffer stocks as a measure of food security not only to impart inter seasonal stability but also to meet the emergent situations arising out of crops failure due to drought, floods, etc.

3.10.2

WORKING CAPITAL:

To achieve these objectives, the Corporation undertakes procurement, storage, movement and distribution of food grains on a massive scale. The requirement of working capital for these gigantic operations is met by the consortium of banks led by SBI under the directions of the Reserve Bank of India. The quantum of

working capital requirement for the ensuing Kharif food grains operations has been projected keeping in view the policies of the Government announced from time to time. The gross outflow of funds for thispurpose is estimated at Rs.56169 crores against inflows of Rs.32854 crores during October, 2009 to March, 2010.

38

The Govt. of India has issued a single default guarantee of Rs.34495 crores (enhanced from Rs.33100 crore) to SBI w.e.f. 07.05.2007 and valid up to 31.03.10 covering the entire food credit of the Corporation. The State Bank of India is however still fixing the drawing power of the Corporation equivalent to value of stock , which is resulting in charging of penal interest on drawing in excess of stock value inspite of the full security being available in the form of Govt. guarantee.

3.10.3

CURRENT CASH CREDIT UTILISATION:

The Cash Credit limit authorized to the Food Corporation of India by the Reserve Bank of India was Rs.30348 crores (up to April, 2005). The Reserve Bank of India vide its letter dated 2.09.05 has informed that henceforth State bank of India will take care of the credit requirements of the Corporation. Accordingly, the State Bank of India has authorized the Cash Credit Limit of Rs.18972.40 crores for the month of August, 2009.The actual Cash Credit Utilization at the end of August, 2009 at Rs.16902.75 crores

3.11

REVENUE EXPENSES: The revenue expenses for the six months period have been projected at Rs.3972.00 crores.

3.11.1

Interest :
The interest on bank borrowings has been considered at 10.25% up to the value of projected stock to be held by the Corporation for the period Oct. 09 to March, 10.
39

3.11.2

Off take :

The issue of Wheat and Rice has been projected at 63.91 lakh tonnes and 109.93 lakh tonnes respectively during the period Oct. 09 to March 2010.

3.11.3

Food subsidy:

The Food Subsidy to the extent of Rs.17719 crores receivable during the next six months period has been considered.

3.11.4

Stocks:
a. The stock with FCI as on 31.3.2010 and the value thereof at average acquisition cost is estimated as Under:

Qty.-Lakh TonnesRate-Rs. per Qtls.

Amount-Rs. Crore

Commodity Wheat Rice Total

Qty. 96.13 185.80 281.93

Rate

Amount

1237.60 11897.05 1640.38 18410.42 30307.47

Table no. 16

40

b. The month end stock levels of wheat and rice from October, 2008 to September, 2009 and the expected stock level during the period from 1.10.2009 to 31.3.2010

3.11.5Gross Outflow:
The estimated gross fund requirement for food grains operations from 1.10.2009 to 31.3.2010 will be as follows :Amount Rs. Crore Sl. No. Particulars Total Oct. 2009 March 2010 1. Takeover of wheat 7164.00 Quarter ending Dec. 2009 3682.00 Quarter ending March 2010 3482.00

2.

Procurement

of

Rice

30178.00

10498.00

19680.00

(including Paddy, Levy and Rice) 3. For meeting revenue expenses other than Bank Interest 4 Carry over charges on Wheat 521.00 196.00 325.00 3972.00 1986.00 1986.00 Custom Milled

41

Re-Payment of Short Term Loan

9450.00

6450.00

3000.00

Repayment of Bonds

3100.00

0.00

3100.00

7.

Interest on Bank Borrowings

1090.00

361.00

729.00

Interest payable on Bonds

559.00

272.00

287.00

Interest payable on Short Term Loan TOTAL

135.00

90.00

45.00

56169.00

23535.00

32634.00

Table no.17

3.11.6

Gross Inflow:
Amount Rs. Crore

Sl.No.

Particulars

Total 1.10.2009 to 31.3.2010

Quarter ending Quarter December 2009 ending March 2010

1. 2.

Sale of Food grains Subsidy from Govt. of India

9135.00 17719.00

4177.00 12327.00

4958.00 5392.00

42

3.

Receipt from Short Term Loan TOTAL

6000.00

3000.00

3000.00

32854.00

19504.00

13350.00

Table No. 18

3.11.7

Net Fund Flow:

The Bank borrowing is Rs.15741 crores as on 1.10.2009 (after adding interest for the month ending Sept., 2009). Monthwise estimate of fund flow during the period October, 2009 to March, 2010 is given below :Amount Rs. Crore

Month

Cash Credit at the beginning

Drawings during the month

Receipts

Month end

during the cash credit month

Oct. 2009 Nov. 2009 Dec. 2009 Jan. 2010 Feb. 2010 Mar. 2010

15741 10660 13967 19770 23200 33084

6629 5673 11231 11462 12505 8669 Table No.19

11710 2366 5428 8032 2621 2697

10660 13967 19770 23200 33084 39056

43

3.11.8

Cash Credit Limit Required:

As per estimate given in the foregoing paragraphs, the cash credit limit required from October, 2009 onward would be as under : AmountRs. Crore Month Oct. 2009 Nov. 2009 Dec. 2009 Jan. 2010 Feb. 2010 Mar. 2010 CC Limit 10660 13967 19770 23200 33084 39056

Table no.20

3.11.9

Profitability

The measurement of profitability is a tool of overall measurement of efficiency an overall study profitability of FCI has been Dade in relation to sales operating assets capital employed and its net worth. By analysis the working result i.e. Profit and loss account of FCI. It was found that the net profit before interest and tax of the FCI is showing increasing trends. This is very good for FCI. The increase in the profits is nearly 24% more then previous year

44

the reason is good sales growth between years. For this following suggestion should be considered. Proper cost control is required and cost control technique should be adopted for it. Operating expenses, admn. Expenses should be specially considered to be reduced. Inventory is the biggest items of balance sheet that must have demanded a large amount of maintaining cost. So efficient inventory management should be done. Inventory should be reduced extent that would help to recover blocking money in inventory. The service staff should be given proper training and better environment for work. Proper advertisement and sales promotion is required. Dairy has to pay large fix interest charged. Hence long term borrowing should be reduced so that the earning are satisfactorily earmarked with them.

3.12

Working capital
In the year 2006-2007 the growth in working capital was 43.33%As compare to the year 2005-2006 similarly working capital in the year 2007-2008 has grown to 100.03% as compared to the working capital in the year 2005-2006. The management should follow the same trend in near future too so to have considerable appreciation in working capital every year.

45

 The Current Ratio for the year 2007-2008 has taken the Value of 2.01:1, which is very satisfactory and as per the standard required (2:1).The current ratio of 2.01:1 indicates, that for every Rs 1 of current liability the company Rs 2 of current assets, which indicates more liquidity and hence more amount of working capital. The company need to further enhance the value of ratio.

Quick ratio for the year 2008-09 is above the ideal standard (1:1). It is 1.04:1, which indicates that for every Re1 of current liability the company has Rs 1.04 of current assets, hence the company is in sound position in terms of working capital position. It would be better for the company if in near future it could further enhance the value of the ratio

Absolute quick ratio for the years right from 2005 up to 2008 are close to the standard. For year 2007-08, the ratio is well above the standard (0.5:1), which indicates the healthy picture of the company in terms of availability of working capital (quick assets) in order to meet current liabilities. The same position should be sustained in near future too.

As compared to year 2005-2006, in the year 2006-07, the inventory turnover

increased to 8.19 times. Similarly, in the year 2007-08 it increased to 8.59 times, which indicates that the times taken in converting raw material into finished product and finally selling it got reduced considerably and hence indicates quick release of working capital. In near future it would be more profitable for the company, if the value of ratio gets increased to 11- 14%
46

3.12.1

Analysis of working capital

Analysis of working capital is an essential part of financial management. If there is an adequate amount of working capital and it is utilized in the right manner, it is a great achievement for the business. The excess of working capital causes financial stringency and brings the business to a standstill. Realizing the impotence of working capital in financial management the analysis of working capital becomes an essential phenomenon. It facilitates the adequacy and management of working capital. The management of working capital provides a careful inquiry into its components so as to control the working capital and to conserve it properly. It helps in determining the optimum level of working capital in the firm. The process of measurement and analysis of working capital is performed on the basis of financial statements of the business enterprise for past few years. In the present study the analysis of working capital of FCI ltd. Has been made by two techniques vis., trend analysis and ratio analysis.

3.12.2

Working Capital Turnover

A measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capital to generate sales.

47

A company uses working capital (current assets - current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales. WORKING CAPITAL RATIO OF FCILTD. DURING 2005 TO 2008 WORKING YEAR (A) 2005-2006 2006-2007 2007-2008 NET SALES (B) 3207510314 3747805031 4266143965 CAPITAL (C) 242121714.4 347033040 484788939.4 CURRENT RATIO (B)/(C) 13.24 10.8 8.8

Table no.21 Inference: In spite of an increase in Net Working Capital, the Working capital turnover ratio of FCI got reduced to 10.8 times in the year 2006- 2007, as compared to the year 2005-07. Similarly, in the year 2007-08, the working capital turnover ratio further reduced to 8.8 times as compared to 13.24 times in the year 2005-06. The reduction in working capital turnover ratio is on account of massive growth in net working capital as compared to a slight growth in the sales of the company.
48

Chapter-4 Learning Summary

49

4.1

Review of Literature

(Gould, Marie, 2008) This article focuses on business finance and how it relates to the corporate and non-profit sectors. In order for organizations to be successful, they must create a strategic plan that will position the firm for growth and competitiveness. The senior management team will need to analyze all data, including the financial records, to ensure that the organization can make a profit, remain competitive and be in position for continued growth.

(Newman, Kara, 2007) This article explores the barriers to benchmarking in corporate treasuries when the metrics of goal setting in this area show clear improvements in financial performance. Research conducted by Thompson Financial and a treasury management magazine revealed that motivation for benchmarking could be driven by evidence linking attention to treasury operations and competitive gains. Other companies are motivated by needed cost controls or client expectations. The four key functions likely to be measured are cash management working capital management, forecasting and bank relationship management.

(Flanagan, Brian, 2005) Presents advice on working capital management. Components of working capital , namely inventory, receivables and payables; Strategies to manage debtors; Sources of additional working capital; Improvement of cash flow; Early warning signs of overtrading; Collection of receivables.

50

(Bah & Dumontier, 2001) Large corporations have a need to establish guidelines for financial planning and policy. The guidelines are needed because Corporations are typically managing large amounts of money and have obligations to employees and stockholders to carefully manage the money that is generated within the company. These obligations require corporations to employ internal and external financial experts to develop and implement financial decisions such as financing, investment, dividends and maximizing the use of funds created. Experts have postulated a relationship between financial policy and the ability to create wealth for stockholders.

(Wilson F. Payne, 1961)

Discussion of the relative utility of the two records has

concerned problems which focus upon the corporation entirely apart from the social organization in which it is a very active member. In recent years, several economists have given their attention to social accounting, a discipline growing out of traditional stock-flow concepts and looking toward the perfection of income-and-condition reports for each of the several sectors of the national economyincome recipient, financial, Pro- ducker, etc.

51

4.2

Establishment of FCI

The Great Bengal Famine of 1943- the worst in the history of India weaked havoc. There was no buffer stocks of grain, no coordinating body to execute the emergency plans and thousands of people perished. Four years later at the stroke of mid night of August 15 1947, India became a free country. Independence was accompanied with the gigantic task of feeding millions of the second most populous country in the world. Then government pledged to win the war against hunger. A massive national effort to attain self- sufficient through the use of high yielding varieties coupled with scientific farming opened doors to a Green Revolution. To equip the country with all the important food security, it was necessary not only to provide an impetus to farmers to grow more crops through the use of seeds and inputs such as fertilizers, irrigation, pesticides, modern agriculture implements but also provide a price assurance system. Thus was born the Food Corporation of India in 1965 as the public sector marketing agency to provide the link between producers and consumers. It was intended to secure for the government a commanding position in the food grain trade. By 1979 FCI was operating in all the states as a sole agent of central government in food grain procurement. In its years of service to the nation, FCI has played significant role in Indias success in transforming the crisis management oriented food economy into a stable food security system.

52

4.3

Working Experience In FCI

The working environment of FCI, Shaktinagar is quite supporting and encouraging. Different departments seek to help each other whenever the need arises. There is a strong bond between people and various departments existing over there. People work together towards the attainment of mission of FCI and try to maintain the supply of food grains effectively and efficiently.

4.4

Difference between Allocation and Lifting Of Food Grains

Under certain programmes and yojnas there is a huge difference between allocation and lifting of food grains like in TDPS, ST/ ST/ OBC Hostels & Welfare Institutions and various others. Government should take necessary measures to overcome this.

4.5

Liquidation of Lower Category Food Grains

The government of India, Ministry of CA, F& PD from 1997 onwards has authorized FCI to liquidate both the surplus issuable stocks and non- issuable stocks through tender/ open sale. The non- issuable to TDPS and surplus stocks of food grains and coarse grains being liquidated as per the decisions taken by the High Level Committee of FCI during its meeting from time to time. Few rapid measures should be adopted so as to minimize the losses.

53

4.6

Findings
The fund management of corporation is good. Corporation allocates its fund as per government policies and norms.

There is a time gap between debtors and creditors. And its a good health sign for a corporation. Because a corporation can invest for short term and earn return.

Firm made its payment through NEFT and RTGS by this a firm can made payment quickly and there is no need of paper work.

As corporation uses JIT policy for inventory. Thats why there is very less chances for obsolescence of inventory.

4.7

Objective of study

Conceptual: To gather the financial statements related to inflows and outflows of funds in food corporation of India and to know how and where they are used. Factual : Present earning capacity and profitability of FCI Ltd Short term liquidity and long term financing Financial stability of business

To judge the availability and effective use of working capital

54

4.8

Limitations

Following were some o the limitations faced during the training, in completely understanding the various processes & operations: 1. Insufficient information supplied by the corporation.

2. Conservativeness of the corporation.

3. Godowns & other storage locations are far away from the Head-Quarter, making it difficult to collect all the necessary information regarding actual procurement & storage status.

4. The staff of the department of finance was due to work over-load, too busy to spend enough time, in helping in the preparation of the project.

5. In the corporation, there is top-level secrecy in matters concerned with investment.

55

4.9

Conclusion

Financial analysis is analysis of financial statements of and enterprise. Financial statement reorganized collection of data according to logical and constituent accounting procedures. However financial statements in their traditional from giving historical data and information are of little us to these who use them to draw certain conclusion. Financial appraisal is scientific evaluation of profitability and financial strength of any business concern. Financial appraisal techniques include ration analysis common size analysis trend analysis, fund flow analysis etc. these techniques may be applied in the financial appraisal of any entity and FCI Ltd. Is no exception to it.

56

Bibliography

Books

I.M.Pandey, (1978), financial management, Ninth addition, UBS Publication New Delhi.

Van Horn,(2002),Financial Management and Policy,12th edition, Publisher Dorling Kindersley India ltd

Horne Wwachonicz, J.R.Bhaduri (2005), Fundamentals and Financial management, 12th edition, Pearson publisher.

MY Khan, P.K.Jain (1981), Financial Management,5th edition, Publisher Mc Graw hill companies.

Websites
http://fciweb.nic.in/articles/org ( July 18, 2013) http://www.fcidelhiro.in/fci_delhi.php (July 21, 2013) http://www.scribd.com/doc/2069/Food-Corporation-Of-INDIA (July24, 2013) http://en.wikipedia.org/wiki/FCI ( August 14, 2013)

57