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Prof Abhijit Sen presenting a report of the `High-level committee on long-term grain policy' to the Food Minister , Mr Sharad Yadav, in New Delhi on Wednesday.

NEW DELHI, July 31

THE high-level committee on long-term grain policy, headed by Prof Abhijit Sen, has recommended the continuation of the existing minimum support price (MSP)-based system of open-ended procurement of foodgrains by the Food Corporation of India (FCI), even as it has called for rationalising the MSPs to reflect actual `C-2' production costs incurred by farmers.

Briefing presspersons, Prof Sen, who submitted the committee's long-awaited report to the Union Minister for Consumer Affairs, Food and Public Distribution, Mr Sharad Yadav, here on Wednesday, said the C-2 costs cover all cash expenses borne by the farmer on seeds, fertilisers, pesticides, electricity, interest on crop loans, cost of hired labour and machinery, etc.

Besides, it also includes the imputed value of his family labour, rental on land and owned capital stock (tractors, tube wells, etc), so as to reflect their opportunity cost.

``Our report has said that the Commission for Agricultural Costs and Prices (CACP) should go strictly by the C-2 costs in more efficient regions to arrive at their MSP recommendations. We have further sought that these recommended MSPs be made statutory and CACP should be empowered as a statutory body,'' Prof Sen said.

According to him, the current C-2 costs for both wheat as well as paddy worked out to around Rs 500 per quintal as against their corresponding MSPs of Rs 620 and Rs 560 per quintal, respectively. ``We have suggested that the MSPs be lowered to the C-2 levels and FCI undertakes procurement at these rates. At the same time, the difference between the existing higher MSP and the C-2 may be paid separately as income support to farmers, which would be de-coupled from official grain procurement operations,'' Prof Sen said.

By purchasing foodgrain at MSP levels, corresponding to average C-2 costs, FCI would not distort the market as it is doing presently. This, in turn, would encourage the private trade to also enter the market, unlike in the present scenario, where the unrealistically high MSPs act as a dampener.

``Grain purchases should to the maximum possible extent be left to the private trade. Farmers must sell to FCI only as a last resort, for which they would be entitled to a price that helps them to recover their basic costs,'' he pointed out. The report has, however, argued against any curtailment of FCI's role. The corporation has not only performed its role ``reasonably well'', but it should further expand its operations to eastern and central India and open procurement centres in areas where distress sales occur.

While farmers would receive a lower MSP for their grain, they are to be simultaneously compensated by a formula, wherein the difference between the current MSPs and the lower C-2 based MSPs, multiplied by the average three-years procurement figure, will be ploughed back as direct income support.

``At current levels of procurement, MSPs and C-2 costs, the aggregate compensation package comes to Rs 3,915 crore. We have suggested that this money be routed through State Governments, who could offer this to farmers either as direct per hectare transfers or as crop insurance subsidy'', Prof Sen added.

Along with rationalisation of MSPs, the panel has also recommended abolition of compulsory levy orders under the Essential Commodities Act (ECA), requiring millers to mandatorily deliver a fixed percentage of their rice as `levy' to State agencies. The report has said the millers' obligation should not extend beyond custom milling— the paddy procured under MSP and delivering the milled rice to the central pool.

``These measures will reduce FCI's annual grain procurement and offtake levels from around 400 lakh tonnes (lt) now to say, 280 lt. The carrying cost of grain, too, would fall from over Rs 13,000 crore to around Rs 4,000 crore,'' he claimed.

The committee has also made significant recommendations on the grain offtake side, which include reverting to the earlier unified public distribution system (PDS) and fixing a uniform central issue price (CIP) of Rs 4.50 per kg for wheat and Rs 6 per kg for rice. This move would bring back many of the ``poor and moderately poor'' people, who do not technically fall under the below poverty line (BPL) category, to the ration shops.

In the medium term, the uniform CIP may be fixed to cover FCI's ``acquisition cost'', which covers all procurement-level expenses including MSP, State taxes, market fees, mandi labour charges and cost of gunny bags.

FCI's distribution, transportation and stockholding expenses will continue to be borne by the Centre.

On the export front, the committee has said the present policy of offering foodgrains from the central pool to exporters at near-BPL rates should be ``reviewed'' once total stocks come down to 350 lakh tonnes (lt), i.e roughly 50 per cent above the minimum buffer norm.

As on July 1, 2002, total public grain stocks amounted to 630.47 lt (410.74 lt wheat and 219.37 lt rice), as against the buffer norm of 243 lt (143 lt wheat and 100 lt rice).

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