The food subsidy burden increased 82% primarily because of the increase in minimum support price.
High food prices in the open market are driving more and more consumers to the public distribution system, leading to ballooning of food subsidy, the Survey points out. The food subsidy burden on the government increased 82 per cent from Rs 25,746 crore in 2004-05 to Rs 46,906 crore till the end of the third quarter of this financial year, primarily because of the increase in minimum support price (MSP).
The Survey shows that offtake of foodgrains under the Targeted Public Distribution System (TPDS) has been increasing in the past five years and went up from 29.7 million tonnes in 2004-05 to 34.8 mt in 2008-09.
It adds that record procurement of rice and wheat in recent years helped build up the buffer stock and strategic reserve of wheat and rice, but the huge cost puts a lot of stress on the fiscal system. The cost is met through budgetary sources in the form of food subsidy.
| FACTSHEET | ||
| Year | Food subsidy (Rs cr) | % Annual growth |
| 2004-05 | 25,746.45 | 2.33 |
| 2005-06 | 23,071.00 | -10.39 |
| 2006-07 | 23,827.6 | 3.3 |
| 2007-08 | 31,259.7 | 31.2 |
| 2008-09 | 43,668.1 | 39.7 |
| 2009-10 | 46,906.7 | 7.4 |
| (up to Dec 29, 2009) | ||
Showing that the economic cost of rice and wheat has witnessed a significant increase during the past three years due to increase in the MSP, the Survey suggests the management of food stocks and their timely offloading need urgent attention.
The economic costs of wheat and rice for 2009-10 (budget estimates) are estimated at Rs 1,504.4 per quintal and Rs 1,893.7 per quintal, respectively.
The economic cost of foodgrains consists of three components, namely MSP (and bonus) as the price paid to farmers, procurement incidentals and the cost of distribution. The Food Corproation of India is reimbursed the difference between the economic cost of foodgrains and the issue price in the form of food subsidy.
“It has been pointed out that the high incidence of taxes and levies of over 10 per cent, ad valorem, on the procurement of foodgrains in the major processing states of Punjab, Haryana and Andhra Pradesh increases the economic costs, which have a direct bearing on market prices,” says the Survey.
Further, expenditure incurred by the FCI on payment of dami/arthia charges, as statutorily notified by some states, notably Punjab, Haryana, Uttar Pradesh and Rajasthan, also gets reflected in the economic costs, adds the Survey.
