Bonus on MSP faces Centre's heat

Food Corporation to restrict procurement of foodgrain from states announcing additional sops

In a crackdown on the practice of states announcing bonuses on the minimum support price (MSP) for wheat and rice, the Centre has said Food Corporation of India (FCI) will restrict procurement of foodgrain from such states. This will be effective from the coming rice procurement (October 2014-September 2015) and wheat procurement (April 2015-March 2016) seasons.

If states where the entire procurement was carried out by FCI announced a bonus on the MSP, the corporation wouldn't be part of the procurement operations; if it was, it would limit itself to the requirements of the central pool, the government said in a communique issued earlier this month.

"FCI, in consultation with the Union food and public distribution department, will decide how much wheat or rise stocks it should acquire in a particular season, and restrict its central pool procurement to that extent, leaving the rest of the surplus stock to be disposed of by the state government, at its own risk and cost," the communique said.

In case a state procures on the Centre's behalf (de-centralised procurement, or DCP), FCI will limit its procurement to the requirement for the targeted public distribution system (TPDS) and other welfare schemes, and provide for the subsidy accordingly. Under the current scheme, the entire burden of subsidy falls on the Centre.

DCP is carried out in Chhattisgarh, Bihar, Gujarat, Kerala, Madhya Pradesh, Odisha, Tamil Nadu, West Bengal and parts of Andhra Pradesh and Rajasthan. The directive said FCI wouldn't have to purchase additional requirements in these states, adding it would be the responsibility of these states to bear the financial burden in this regard. Also, such states will have to mobilise resources for the additional procurement on their own, as well arrange for the storage of foodgrain.

The move is aimed at reducing the Centre's subsidy on foodgrain to manageable limits. Through the past few years, this subsidy has risen to about Rs 1,00,000 crore, owing to a steep rise in the procurement of wheat and rice.

Officials said the announcement of a bonus on the MSP by a state government distorted the market of the commodity concerned, drove private buyers out of the market in that state, and led to malpractices.

Bharatiya Janata Party-ruled states such as Madhya Pradesh, Rajasthan and Chhattisgarh could be directly hit by the directive, as these states have been regularly announcing bonuses on the MSP through the past few years. In the 2014-15 wheat marketing season, Rajasthan and Madhya Pradesh declared bonuses of Rs 150 a quintal on the MSP of Rs 1,400 a quintal. Officials said as a result, wheat procurement in Madhya Pradesh jumped to about seven mt from 6.35 mt the previous year, while in Rajasthan, it rose from 1.26 mt to 2.06 mt.

"Much of this rise is due to farmers from neighbouring districts of Punjab, Haryana and Maharashtra and Gujarat selling their produce in these states to take avail of the higher price," said a senior food ministry official.

In 2013-14, Chhattisgarh announced a bonus of Rs 270 a quintal on the MSP of Rs 1,310 a quintal for common grade paddy, as well as on the MSP of Rs 1,345 a quintal for grade-A paddy.

Tamil Nadu followed, announcing a bonus of Rs 50-70 a quintal on paddy for 2013-14.