The Hindu Business Line : Survey calls for restraint on grains MSP hike

The Survey calls for restraint on MSP till it matches the production cost. It has suggested fixing a purchase cost of MSP plus four cent with the burden on States to notify how this would be shared with the farmers.

New Delhi , July 7

THE Economic Survey presented in Parliament on Wednesday has called for a restraint in hiking the minimum support price (MSP) of foodgrains.

The Survey has said the restraint in hiking the MSP is required till it equals the cost of production of the least cost State. ``The fixation of the MSP of foodgrains has to bear distinct relationship to the cost of production," it said.

Besides the high MSP, the Survey sought to expeditiously address ``factors such as high level of State levies on procurement, high cost of borrowing to FCI, highly centralised system of procurement and distribution, and management inefficiency, which have been adversely affecting the economic cost of foodgrains to FCI.''

Emphasising the need for adoption of decentralised procurement by more States, the Survey called for rationalising the present high level of State levies in foodgrains. It also favoured the proposal to announce a procurement price inclusive of four per cent State levies in lieu of the MSP.

Pointing out to the increase in the food subsidy bill for 2004-05 to Rs 27,746 crore from Rs 2,450 crore in 1990-91, the Survey attributed the huge rise to the increase in MSP every year.

``Attractive MSPs and Government's policy of open-ended procurement encouraged farmers to sell their produce to the Government rather than in the open market... building up of excessive public stocks much above the buffer stock norm". The huge volumes of unsold public stocks pushed up the carrying cost and raised the subsidy burden," it said.

The Survey suggested that a realignment of the issue price in PDS in line with the economic cost along with the required adjustment of the MSP could prove a durable solution to the food subsidy problem.

Highlighting the pressure on the food subsidy bill following the increase in Food Corporation of India (FCI) cost from the high statutory levies on grain purchase at the State and local levels, the Survey suggested that ``a possible solution to the problem can be through the Government announcing only the procurement price (MSP plus 4 per cent) and leaving it to the States to notify how this will be shared between farmers and State/local Governments".

With a view to minimising the burden on the Budget and interest cost of funding FCI's buffer stock operations, from April 1, 2004, FCI has been permitted to borrow directly from the market through bonds backed by a Government guarantee. This, the Survey said, was likely to reduce the revenue expenditure of the Government on account of food subsidy by a minimum of Rs 2,000 crore per annum.

More Stories on : Economic Survey | Agricultural Policy | Foodgrains

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