High MSP, bonus and taxes on food grain driving private trade out
Prasanna Mohanty | June 21, 2012
Worried about an upward spike in wheat procurement that has swelled food grain stocks in government granaries to an all-time high at 82.3 million tonne (MT), food minister KV Thomas has asked prime minister Manmohan Singh to intervene and so something about it. In spite of having storage space of only 64 MT, the ministry is confident that it will manage to handle the surplus amount of food grain this year. But what if the stocks go higher the next year?
That worry has prompted Thomas to seek a policy revision. He revealed today that he has written to the prime minister attracting his attention to an alarming situation. Procurement has been going up dramatically for the past four years. It touched 53 MT in 2009-10 and then crossed 60 MT for the next two years before touching 82.3 MT this year.
One of the primary reasons for this is that minimum support price (MSP) has been rising rapidly. To add to that some of the states like Madhya Pradesh and Rajasthan provide a bonus of Rs 100 and others impose high taxes – Punjab 14.5 percent and Haryana 11.5 percent. All these make the cost of food grain prohibitively high, pushing the private trade out and increasing the burden on the government. As against 15 to 30 MT of wheat purchase by the private sector companies at this time of the year, the private trade is only to the extent of 2-3 MT this year.
There are other issues too. As the commission for agriculture costs and pricing (CACP) points out, export control on food grain, bumper harvest and drop in international prices have added to the government’s woes.
The net effect of all these is that more and more food grain are offered for procurement and since the government policy is to buy all that is offered, it ends of swelling the godowns much beyond what really is needed. The government needs about 60 MT for its strategic and buffer stocks, PDS and other food programmes like mid-day meal and ICDS, as against a stock of 82.3 MT.
The CACP had suggested some measures: the government should stop buying from states with high taxes, it should invite bids from the private sector to supply wheat at a price and location of its choice and ask the states like Punjab and Haryana to lower taxes and withdraw bonuses. These measures will increase private trade.
But the union cabinet rejected the suggestions, apparently because it was in no position to antagonise these states, many of which are run by opposition parties.
But as Thomas’ letter to the PM suggest, the government needs to rethink.
The centre has an additional worry. Interacting with the media, Thomas said the states are pressurizing the food corporation of India (FCI) to buy more and more food grain. Until now, FCI buys nearly 25 percent and the rest by the state government-run agencies.
Thomas also said that the government is taking several measures to reduce the stock and create additional storage space. In his discussion with rural development minister Jairam Ramesh, he said the latter has agreed “in principle” to permit construction of small and medium granaries under the MNREGS.
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