CACP for review of open-ended grain procurement policy

Urges govt to limit purchases from states that tax grains heavily or grant bonus beyond Centre-determined MSP

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

The Commission in its latest report on rabi crop for 2013-14 marketing season has urged the government to immediately review the open-ended food grain procurement policy where the state purchases whatever quantity is sold by the growers.

It said it should limit its purchases from states particularly from those which levy very high taxes on grain or grant bonus over and above the Centre-determined MSP.

Though, the Commission has not suggested by how much the procurement should be limited, but officials said it should be 40-50 per cent of the previous year’s procurement.

The explanation, officials said for limiting procurement is that this would stop states from unnecessarily imposing heavy taxes on foodgrains. This also burdens the Centre's exchequer as its agency--Food Corporation of India-- buys these foodgrains inclusive of taxes and hence inflates the food subsidy. 

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

In Punjab and Haryana, the two states which contribute maximum amount of wheat and rice to the central pool, the state governments impose taxes at the rate of 13-15 per cent on the grain,  making them all this 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 bonus declared by the state government. The Madhya Pradesh government has been declaring a bonus of Rs 100 per quintal over and above the MSP for wheat.

Madhya Pradesh which has now emerged as the third largest producer and procurer of wheat in just two years has also substantially increased its contribution to the central pool.

“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 MSP,” the Commission said in its report.

Last week, food minister K V Thomas met Prime Minister Manmohan Singh and he is believed to have raised this issue of altering the open ended foodgrains procurement policy. He also discussed the issue with agriculture minister Sharad Pawar, the officials said.

Due to bumper procurement of wheat and rice in the last few years, India’s food subsidy bill in 2012-13 is expected to reach a staggering Rs 1,00,000 crore as against a Budget Estimate of Rs 75,000 crore.

As on October one this year, foodgrain stocks in the central pool are estimated to be over 70 million tonnes, as against a available storage space of 66 million tonnes.

However, this could get worse as the government plans to procure around 40 million tonnes of rice for the central pool in 2012-13 crop marketing that started in October 1, 2012, around 4-5 million tonnes more than the actual procurement of last year.

This year, wheat flour prices in the open market flared up because of low purchases by private traders.