Centre's cap on grain procurement might save Rs 5,250 cr per annum

In June, the Union govt had decided FCI would limit its foodgrain buying for the central pool in states declaring a bonus over MSP

The Centre feels its decision of limiting the procurement of foodgrain in states which declare a bonus over the Minimum Support Price (MSP) is justified as it would lead to saving of around Rs 5,250 crore to the national exchequer every year.

State governments affected would include Madhya Pradesh, Chhattisgarh and Rajasthan, all ruled by the same party as at the Centre.

The Centre's food subsidy has risen by 97 per cent in the past six years. It is estimated at Rs 115,000 crore for 2014-15 in the Union Budget, primarily due to huge procurement of grain at a fixed rate and selling it at much lower prices.

The annual subsidy is expected to cross Rs 130,000 crore once the national Food Security Act is implemented.

In June, the Union government had decided that Food Corporation of India (FCI) would limit its procurement of foodgrain for the central pool in the states declaring a bonus over the MSP from the coming rice procurement season in 2014-15 and the wheat procurement season in 2015-16.

The step has been opposed by MP and Rajasthan, both of which had declared hefty bonuses over the Centre-determined MSP in recent years. Chhattisgarh also expressed reservations.

Officials said there does not seem any chance of the order being withdrawn, though the final decision rests with Prime Minister Narendra Modi.

"The total financial saving would be around Rs 5,250 crore per year, if it is assumed that the average additional procurement of rice and wheat (due to the bonus) from MP, Chhattisgarh and Rajasthan is around three million tonnes," a senior government official said.

He said the calculation was done by the department of food on the assumption that for every 100,000 tonnes of extra wheat purchased by the Centre, the additional subsidy burden was around Rs 150 crore and for every 100,000 tonnes of extra rice procured, the additional subsidy burden was estimated to be around Rs 200 crore.

"The benefit of not procuring extra rice and wheat is not just to the Centre. The state governments, too, stand to gain immense financial benefits due to the order," the official said. For instance, in the 2012-13 kharif marketing season, Chhattisgarh purchased around 4.8 mt of paddy from farmers because of the Rs 270 a quintal bonus announced by the state government but the total monthly milling capacity in the state is only 400,000 tonnes. So, huge quantities of unmilled paddy were in state warehouses. The state continued with its policy of declaring a bonus over and above the MSP in the 2013-14 procurement season as well, which will get over in September.

Neighbouring MP procured 1.3 mt of paddy in 2012-13 but its monthly milling capacity is hardly 0.12 mt, due to which it had to sell 0.3 mt the same year, at a big loss, and could not even mill the entire remaining paddy. "It is beneficial for the states to stop this practice of declaring a bonus over and above the Centre-determined MSP and they should immediately stop this practice," the official asserted.