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February 23, 2001                                       Feedback  

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Survey asks government not to peg MSP above inflation levels


In a scathing attack on the government's farm price policy, the Economy Survey on Friday said that the trend of fixing the Minimum Support Prices (MSP) at higher level than the inflation was pushing up the handling costs and food subsidy bill.

It has also limited the Public Distribution System (PDS) from absorbing all the foodgrain supplies, the survey said while pointing out that government is now faced with the problem of carrying large surplus stocks.

"A serious re-thinking on the rationale of raising the MSP of certain crops like wheat and rice well above the levels at which the procurement can be balanced by offtake is called for," the Survey, tabled in Parliament said.

The MSP-inflation mismatch had led to serious mis-alignment leading to higher cost of acquisition and handling of grains by the Food Corporation of India (FCI), it said and warned that "the rise in stocks means a rise in storage costs as also loss due to deterioration in quality.

As a result, the exchequer has to bear a burden of higher food subsidies, it said pointing out that food subsidy bill during the current fiscal was estimated at Rs 81 billion.

It said the costs incurred by FCI in procuring, paying state taxes, transporting, handling and storing foodgrains in the current fiscal accounted for 84 per cent of the economic cost of wheat, while the remaining 16 per cent was the distribution cost.


Economic Survey 2000-2001
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