CACP for review of grain buying

Wants open-ended procurement changed, especially in states levying high output taxes

The government’s reported move to alter its open-ended food grain procurement policy has found strong support from the Commission for Agricultural Costs and Prices (CACP), nodal agency to determine the Minimum Support Price (MSP) of grain.

In its latest report, on the rabi crop for the 2013-14 marketing season, it has urged the government to immediately review the policy, where the state purchases whatever is sold by growers. It said purchases should be limited, particularly in states levying very high taxes on grain or granting a bonus over and above the Centre-determined MSP.

CACP has not said by how much the procurement should be limited but officials said it should be no more than 40-50 per cent of the previous year’s. The explanation, officials said for limiting procurement, is that this would stop states from unnecessarily imposing heavy taxes on foodgrain. This also burdens the Centre's exchequer as its agency, the Food Corporation of India, buys these foodgrains inclusive of taxes and, hence, inflates the food subsidy.

A bonus declared over and above the MSP also adds to the burden on the central government kitty.

In Punjab and Haryana, the two states contributing the largest amount of wheat and rice to the central pool, the governments impose taxes at the rate of 13-15 per cent on the grain, making this all the more costly for FCI. In some states like Madhya Pradesh, if the taxes are at reasonable levels, then the prices are jacked up because of a bonus declared by the state government. The MP government has been declaring a bonus of Rs 100 a quintal over and above the MSP for wheat and has emerged as the third largest producer and procurer of wheat in just two years.

“The high cost of procurement because of arbitrary imposition of taxes and levies by state governments has also led to crowding out of private players. It also leads to inter-crop distortions, as farmers opt for the crop which gets them a bonus over the MSP,” the Commission report said.

Last week, Food Minister K V Thomas met Prime Minister Manmohan Singh and is believed to have raised this issue of altering the open-ended policy. He also discussed the issue with Agriculture Minister Sharad Pawar, officials said.

Due to bumper procurement of wheat and rice in recent years, India’s food subsidy bill in 2012-13 is expected to reach Rs 100,000 crore as against a budget estimate of Rs 75,000 crore.

As on October 1 this year, foodgrain stock in the central pool was estimated to be a little over 70 million tonnes, as against available storage space of 66 mt. This could get worse, as the government plans to procure around 40 mt of rice for the central pool in the 2012-13 crop marketing that began on October 1, four to five mt more than the procurement of last year.