Summer training project on fci


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Summer training project on fci

  1. 1. Chapter-1 Introduction 1
  2. 2. 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. 2
  3. 3. 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 3
  4. 4. 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 India‘s 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. 4
  5. 5. 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. 5
  6. 6. 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 Objectives 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 6
  7. 7. Organizational structure Figure no.1 Source 9082013.pdf 7
  8. 8. 1.4 QUALITY POLICY FCI, as the country‘s 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 8
  9. 9. 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. 9
  10. 10. Chapter-2 Functional Analysis of the Company 10
  11. 11. 2.1 SWOT ANALYSIS OF FOOD CORPORATION OF INDIA 2.1.1 STRENGTH • • Support from the central government • Strong network of distribution • 2.1.2 Round the year availability of materials Excellent storage management WEAKNESS High requirement of working capital Corruption at all level Inadequate automation with regard to information managemnt Leakage 11
  12. 12. 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 12
  13. 13. Chapter-3 Job Specific Analysis 13
  14. 14. 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 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. 14
  15. 15. 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 / Workmen‘s 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 15
  16. 16. 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/ 16
  17. 17. 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. 17
  18. 18. 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. 18
  19. 19. 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 BPL Families APL Families From Wheat AAY Families 01- 07- 2002 415 610 200 Rice Common 01- 07- 2002 565 795* 300 Rice Grade-A 01- 07- 2002 565 830 300 (*): Applicable to J&K, Himachal Pradesh, Sikkim, Uttaranchal and NE States. Table No. 3 19
  20. 20. 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 belonging to SC/ST/OBC categories are eligible to draw 15 Kgs. Food grains per resident per month. 20
  21. 21. 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. (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 21
  22. 22. 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. (J) Emergency Feeding Programme - Under this scheme, Ministry of CAF & PD releases allocation of rice at BPL rates, for KBK Districts (Bolangir, Kalahandi, Koraput, 22
  23. 23. 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 issued to states/UTs free of cost. This scheme is mentored by Ministry of Rural Development 23
  24. 24. Table No.4 24
  25. 25. 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. 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. 25
  26. 26. FINANCIAL FEATURES Average Bank Borrowing during 2007-08 Rs. 27327 Crores (Consortium of 65 Banks as on 31.3.08) Commercial Borrowing (Bonds) Rs. 8605 Crores 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) Table No.5 Equity Released for Plan Schemes and Working Capital (as on 31.03.08) Rs. Cr. Working Construction of IISFM Year Other Schemes Total Capital Godowns Project Upto 2002-03 1484.00 855.11 Nil 13.89 2353.00 2003-04 Nil 23.96 15.50 Nil 39.46 2004-05 Nil 5.87 39.14 Nil 45.01 2005-06 Nil 20.78 15.00 Nil 35.78 2006-07 Nil 7.50 Nil Nil 7.50 2007-08 . . . . . 26
  27. 27. First Quarter Nil Nil Nil Nil Nil Second Quarter Nil Nil Nil Nil Nil Third Quarter Nil 3.18 14.49 Nil 17.67 Fourth Quarter Nil 0.82 10.51 Nil 11.33 Total Nil 4.00 25.00 Nil 29.00 Total paid-up Capital 1484.00 917.22 64.64 13.89 2509.75 . . . . . . . . . 3500.00 Authorised Capital Table No.6 Economic Cost of Food grains of FCI 27
  28. 28. Crop-Year Wise Economic Cost (Provisional) (Rs./qtl.) Rice Year Wheat Rice (Grade A) (Common) Rabi 2008 1515 - - Kharif 2007 - 1716 1664 Table No. 7 Accounting Year-Wise opening Stock adjusted weighted Economic Cost (Rs./qtl.) Year Status Wheat Rice 2001-02 Audited 852.94 1097.96 2002-03 Audited 884.00 1165.03 2003-04 Audited 918.69 1236.09 2004-05 Audited 1019.01 1303.59 2005-06 Un-audited 1041.85 1339.69 2006-07(Prov) Prov. Estimates 1214.39 1411.60 28
  29. 29. 2007-08(RE) Rev. Estimates 1348.69 1571.36 2008-09(BE) Budget Estimates 1458.83 1698.90 Table No.8 Food Subsidy Released to FCI and Incurred by FCI (Rs. Cr.) Food subsidy released to FCI Food Subsidy Incurred by FCI Against For the Total Status of Year Year Subsidy Incurred during the year Accounts Earlier years 2001-02 16274.00 . 16274.00 18005.00 Audited 2002-03 22673.72 . 22673.72 25322.00 Audited 2003-04 23474.04 4545.86 18928.18 21587.00 Audited 2004-05 23280.00 4090.39 19189.61 20773.00 Audited 2005-06 19871.00 473.32 19397.68 21344.00 Un-Audited 2006-07 20786.21 1411.08 19375.13 24858.00 Prov.Estimates 2007-08 27759.68 5218.75 22540.93 31817.00 Rev.Estimates 29
  30. 30. 2008-09 (Upto 5400.04 . 5400.04 . . 30/04/08) 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. 30
  31. 31. 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 India‘s 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. 31
  32. 32. 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 PROCUREMENT ARRIVALS FOR CENTRAL POOL QTY. Rabi 2004-05 181 32 QTY. 168
  33. 33. Rabi 2005-06 158 148 Rabi 2006-07 137 92 Rabi 2007-08 154 111 Rabi 2008-09 244 227 Rabi 2009-10 269 254 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. 33
  34. 34. 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 As on 1.4.2010 Qty. Qty. Value Value Wheat 66.27 7714.76 75.31 9347.78 Rice 134.12 20099.36 154.43 25715.37 Total 200.39 27814.12 229.74 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 For Quarter ending (Rs. Crores) 4/2010 to 9/2010 April-10 June-10 I) For purchase of Wheat 19994.70 including takeover from State Agencies. 34 14927.57 to July 10 Sept.10 5067.13 to
  35. 35. II) For procurement of Levy 10948.81 6953.08 3995.73 5304.00 2652.00 2652.00 IV) Interest on bank borrowing 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 6900.00 3900.00 3000.00 1257.87 465.81 792.06 976.50 976.50 0.00 46400.15 30453.71 15946.44 Rice including Paddy and CMR takeover from State Agencies. III) For meeting the revenue expenses other than the bank interest VII)Repayment of short term loan VIII) Carryover Charges of Wheat IX)Repayment of Bonds Total Table No.12 35
  36. 36. 3.9.2 GROSS INFLOW: Rs. Crores Particulars Total For Quarter ending April-Sept.2010 April 2010- July June 2010 Sale 2010 Sept.2010 Food 11609.76 5785.26 5824.50 from of 26000.00 13000.00 13000.00 10000.00 10000.00 0.00 6900.00 3900.00 3000.00 54509.76 32685.26 21824.50 grain Subsidy GOI Annexure-VII Addl. Subsidy from GOI Receipts from STL Total Table no. 13 36 -
  37. 37. 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 of the month R Rs. Crore RReceipts during Month the the month Month Rs.Crore projected end cash credit utilization RRs.Crore R Rs.Crore Apr, 10 24616.61 14566.83 126730.83 12452.61 NMay,10 12452.61 9089.47 6106.75 18559.37 DJun, 10 18559.37 6797.42 3825.69 22385.06 ,JJul, 10 22385.06 5898.10 15945.23 12337.92 AAug,10 12337.92 5322.85 3060.66 14600.12 Sep,10 14600.12 4725.49 2818.61 16507.00 Table no.14 Summary Cash Flow forecast for the period from 1st April, 2010 to 30th September 2010 is given in 37
  38. 38. 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 Limit proposed 4/2010 12452.61 5/2010 18559.37 6/2010 22385.06 7/2010 12337.92 8/2010 14600.12 9/2010 16507.00 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. 38
  39. 39. 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. 39
  40. 40. 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. 40
  41. 41. 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. Commodity Amount-Rs. Crore Qty. Rate Amount 96.13 1237.60 11897.05 Rice 185.80 1640.38 18410.42 Total 281.93 30307.47 Wheat Table no. 16 41
  42. 42. 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. Particulars Total Oct. Procurement ending March 2009 2010 Takeover of wheat 2. ending Dec. 2010 1. Quarter 2009 March No. Quarter of 7164.00 Rice 3682.00 3482.00 30178.00 10498.00 19680.00 3972.00 1986.00 1986.00 521.00 196.00 325.00 (including Paddy, Levy and Custom Milled Rice) 3. For meeting revenue expenses other than Bank Interest 4 Carry over charges on Wheat 42
  43. 43. 5 Re-Payment of Short 9450.00 6450.00 3000.00 Term Loan 6 Repayment of Bonds 3100.00 0.00 3100.00 7. Interest on Bank 1090.00 361.00 729.00 559.00 272.00 287.00 135.00 90.00 45.00 56169.00 23535.00 32634.00 Borrowings 8 Interest payable on Bonds 9 Interest payable on Short Term Loan TOTAL Table no.17 3.11.6 Gross Inflow: Amount Rs. Crore Sl.No. Particulars Total 1.10.2009 Quarter ending Quarter to 31.3.2010 December 2009 ending March 2010 1. Sale of Food grains 9135.00 4177.00 4958.00 2. Subsidy from Govt. of 17719.00 12327.00 5392.00 India 43
  44. 44. 3. Receipt from Short 6000.00 3000.00 3000.00 32854.00 19504.00 13350.00 Term Loan TOTAL 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 Drawings Receipts Month end beginning during the during the cash credit month month Oct. 2009 15741 6629 11710 10660 Nov. 2009 10660 5673 2366 13967 Dec. 2009 13967 11231 5428 19770 Jan. 2010 19770 11462 8032 23200 Feb. 2010 23200 12505 2621 33084 Mar. 2010 33084 8669 2697 39056 Table No.19 44
  45. 45. 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 CC Limit Oct. 2009 10660 Nov. 2009 13967 Dec. 2009 19770 Jan. 2010 23200 Feb. 2010 33084 Mar. 2010 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 45
  46. 46. 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. 46
  47. 47. 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 47
  48. 48. 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%. 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. 48
  49. 49. 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. 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 CURRENT YEAR NET SALES CAPITAL RATIO (A) (B) (C) (B)/(C) 2005-2006 3207510314 242121714.4 13.24 2006-2007 3747805031 347033040 10.8 2007-2008 4266143965 484788939.4 8.8 Table no.21 49
  50. 50. 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. 50
  51. 51. Chapter-4 Learning Summary 51
  52. 52. 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. 52
  53. 53. (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 economy—income recipient, financial, Pro- ducker, etc. 53
  54. 54. 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 India‘s success in transforming the crisis management oriented food economy into a stable food security system. 54
  55. 55. 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. 55
  56. 56. 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 it‘s 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. That‘s 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. 56
  57. 57. 4.8 Limitations Following were some of 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. 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. 57
  58. 58. 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. 58
  59. 59. 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 ( July 18, 2013) (July 21, 2013) (July24, 2013) ( August 14, 2013) 59