Agri Business

High taxes by States raise foodgrain procurement costs

M.R. Subramani Chennai | Updated on November 06, 2011



Private traders' buying falls in Punjab, Haryana

Imposition of higher local and market (mandi) taxes by various States is threatening the sustainability of the Centre's scheme to procure foodgrains from farmers for buffer stocks.

According to the Commission for Agricultural Costs and Prices, high taxes in Punjab and Haryana, which contribute 39.1 per cent and 29.4 per cent of wheat respectively to the buffer stocks, are increasing procurement costs of the Food Corporation of India.

(Procuring foodgrains for buffer stocks is known as MSP (minimum support price) operation since the procurement is made at the prices fixed by the Centre before sowing begins.)

This year, FCI's liability towards tax alone is Rs 1,761.72 crore in Punjab, while in Haryana it is Rs 798.27 crore for the MSP operation.

In its note on MSP for rabi crops being planted now, the CACP said that the possibility of other States following suit cannot be ruled out and this could make the whole system of procurement expensive and unsustainable.

This year, the Centre procured a record 28.05 million tonnes of wheat out of the total arrivals of 32.16 million tonnes registered at various markets. This means, just 12.78 per cent of wheat that came to markets has gone into the hands of private trade.

Pointing out that the high taxes are driving out private traders from markets, the CACP said that purchases by private trades accounted for just 1.2 per cent in Punjab. and 0.06 per cent in Haryana.

Such taxes have made Punjab wheat uncompetitive in the global market. Had the Centre allowed wheat exports in April, shipments would have been possible only from Bihar, Uttar Pradesh and Gujarat. It would have not been possible from Punjab and Haryana due to higher local taxes and from Madhya Pradesh due to additional State bonus.

The CACP feels that the Centre needs to immediately initiate discussions with the States, mainly Punjab and Haryana besides Andhra Pradesh for rice, so that “natural process of market evolution is not disturbed.”

In fact, the CACP had recommended a MSP of Rs 1,350 a quintal, including all acquisition costs such as taxes, commissions and market cess. It had said that it would result in a net MSP of Rs 1,285 being passed on to farmers.

The CACP comments is significant since the procurement next year is expected to be higher at around 30 million tonnes, giving the projection of a wheat crop of over 86 million tonnes.

The CACP has also expressed concern over lack of proper storage facilities with the FCI and other State procurement agencies. Though covered and plinth storage facility is being used widely, the commission is skeptical of the strength of these structures given the risk of damage posed by rodents, insects, rain and pilferage.

The CACP has also called for timely payment to farmers since they were complaining of a delay ranging from one week to three weeks. The delay was forcing farmers to avail loans from private lenders at interests as high as 50-60 per cent a year.

The commission, however, has suggested that payments could be directly deposited to farmers' bank account as is being done in Madhya Pradesh. At the same time, it has cautioned against the additional State bonus of Rs 100 a quintal in the central State. It resulted in procurement of 4.9 million tonnes of the 7.1 million tonnes produced there.

Published on November 06, 2011

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