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To curb rising expenses under the food subsidy head, the Union government has asked grain-surplus states to initiate measures including restricting statutory charges such as mandi fees, rural development cess and other procurement expenses to 2% or less on the minimum support price (MSP) provided to farmers. It also asked states to follow an open tendering process to cut costs of short-term loans and move paddy stocks from procurement points directly to mills.
Currently, Punjab and Haryana, which contribute substantially to the central pool of grain stocks, impose higher levies of 6% and 4%, respectively on MSP, such as mandi fee and rural development cess, besides arthiya or commission agent charges of Rs 46 per quintal of grain procured by agencies from farmers.
Other states, which contribute significantly to the government’s rice and wheat procurement drive such as Uttar Pradesh, Rajasthan, Madhya Pradesh, Andhra Pradesh, Chhattisgarh and Odisha, have levies in the range of 1.6% to 2.7% on MSP.
Sources told FE that higher levies imposed on MSP operations push up the Centre’s food subsidy bill while adding to their own revenues.
For rice and wheat procurement from farmers, the Food Corporation of India (FCI) paid more than Rs 11,300 crore to states as levies in the respective 2020-21 (rice) and 2021-22 (wheat) seasons, of which Punjab and Haryana garnered more than 61%.
The Centre has made several attempts to rationalise levies imposed on MSP operations, however there has not been much progress on that front.
Higher taxes and other statutory levies imposed by food grain-procuring states also distort the market, virtually discourage private sector participation in grain purchase, and hit the processing and value-addition industry, according to many experts.
The food ministry has also urged the state governments to float tenders for getting short-term cash credit loans (CCLs) to get a lower interest rate. Sources said that the FCI in the current fiscal has availed short-term loans at an interest rate in the range of 3.85% to 5.2% per annum.
The food ministry has also requested states to ensure movement of paddy from procurement centres directly to mills, so that transportation of paddy to godowns could be avoided. States have been asked to go for reverse e-bidding on the Government e Marketplace (GeM) for obtaining competitive rates for transportation charges, old gunny bags, etc.
“We aim at reducing expenditure on each step of grains handling, which would result in reduction in food subsidy expenses,” an official said.
The central issue prices of Rs 3, Rs 2 and Rs 1 for a kg of rice, wheat and coarse grains, under the National Food Security Act (NFSA) have not been revised since 2013. On the other hand,the FCI’s economic cost (MSP to farmers, storage, transportation and other costs) of rice and wheat for 2022-23 is Rs 36.70 and Rs 25.88 per kg, respectively.
For 2022-23, central government has allocated Rs 2.06 trillion for food subsidy expenses, which excludes additional expenses of Rs 80,000 crore envisaged following the extension of the Pradhan Mantri Garib Kalyan Anna Yojana till September 30.
The FCI procures and distributes more than 60 million tonne (mt) of wheat and rice annually. The corporation manages procurement, storage and transportation of rice and wheat to states for distribution, mainly for the NFSA and other welfare schemes.
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