MSP hikes subsidy bill

The food subsidy bill was likely to rise to Rs 27,746 crore in 2004-2005 from Rs 25,160 crore in 2003-2004 as the government's minimum support price (MSP) had gone up.

Over the last 10 years, MSP of both wheat and rice had risen by roughly 91 per cent and 103 per cent respectively. This resulted in surpluses replacing shortages, according to the Economic Survey.

Despite the recent deceleration in growth of foodgrains output, procurement rose significantly.

"Attractive MSPs and the Centre's policy of open-ended procurement encouraged farmers to sell to the government rather than in the open market," stated the survey.

Costs incurred by Food Corporation of India (FCI) for procurement had shot up. Statutory levies on grain purchase at the state and local levels discouraged private trade and pushed up FCI's cost and the food subsidy bill. The levies were highest in Punjab, Haryana, and Andhra Pradesh.

The survey said, to overcome the problem, the central government should announce only the procurement price (MSP + 4 per cent) and leave it to states to notify how the procurement price would be shared between state or local governments.

FCI had been allowed to directly borrow from the market from April 1, 2004. Revenue expenditure of the central government on account of food subsidy was expected to fall by at least Rs 2000 crore as a result.

The subsidy burden on the government had increased since 2001 and public stocks had shot up much above the minimum buffer stock norm.

Large volumes of unsold public stocks pushed up carrying cost and in turn, the subsidy burden. The procurement of wheat in 2000-2001 increased 15.7 per cent from the previous year.

In 2001-2002 it had risen 26.1 per cent. During the same period, rice procurement shot up 10.6 per cent and 11.4 per cent respectively.

MSP of wheat rose by about 1.6 per cent to Rs 630 per quintal in 2003-2004 from Rs 620 (inclusive of one time special drought relief) in 2002-2003.

Rice MSP increased to Rs 550 from Rs 530 (inclusive of one time special drought relief) per quintal last year.