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CAG blames Centre for increase in foodgrain procurement cost

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Date:May 8, 2013

Lack of specific method in determining minimum support price of grains caused variation in margins over production, says report

In its report to Parliament on Tuesday, the Comptroller and Auditor General (CAG) has accused the Indian government of  adopting a “skewed” method of deciding the minimum support price for food grains. MSP is the price at which government agencies procure wheat and paddy from farmers.

The report titled “Performance audit of storage, management and movement of food grains in Food Corporation of India” points out that no specific norm was followed for fixing of the minimum support price (MSP) over the cost of production. As a result, it was observed that the margin of MSP fixed over the cost of production varied between 29 per cent and 66 per cent in case of wheat, and 14 per cent and 60 per cent in case of paddy during the period of 2006-07 to 2011-12.

MSP is fixed by the government of India for particular crops based on the rates recommended by the Commission on Agricultural Cost and Prices (CACP). CACP recommends MSP taking into account factors like cost of production, demand and supply, trends in market prices, parity between price paid and price received by farmers, inter-crop price parity and likely effect on industrial cost structure, cost of living and general price level.

CAG in its audit observes that while determining the cost of production for each crop, CACP followed a set procedure. “No specific norm was however followed for arriving at and fixing of MSP over the cost of production, leading to large year on year variation,” says the report. CAG, therefore, stresses on the need for greater transparency in the method of arriving at MSP over the cost of production.

In response to the report, CACP asserted that MSP is uniform throughout the country. The commission hence had to arrive at an all-India weighted average cost as an input to price policy formulation. “Since price policy was a result of informed judgement taken on various factors, there could not be any mechanical formula of how much weight was to be given to each factor in the exercise of price policy formulation,” replied CACP.

CAG argues that increase in MSP has a direct bearing on statutory charges levied on purchase of foodgrains by different state governments. There were also wide inter-state variations both in statutory and non-statutory charges being charged by the state governments. All this resulted in rise in the acquisition cost of food grains.

The Central government declares MSP for around 30 crops including wheat, paddy, jowar, bajra, ragi, pulses, maize and cotton. However, state governments and the Centre also have a right to declare a bonus over MSP so as to give better prices to farmers. The CAG observations were based on wheat and paddy procured by Food Corporation of India and other government agencies. 
 

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