Central ministry seeks states' advice on a composite MSP

Last Updated: Mon, Jan 21, 2013 19:40 hrs

Keeping in view the impact of higher taxes on procurement of foodgrains, the Ministry of Consumer Affairs, Food & Public Distribution has sought suggestions from the state governments regarding introduction of composite Minimum Support Price(MSP) including all state taxes for the central pool.

Currently, taxes vary from state to state and ranges from 1.5 per cent to 14.5 per cent in case of rice and 2.5 to 14.5 per cent in case of wheat. In the past, attempts were made by the Centre during discussions with state governments to reduce taxes but have not yielded positive results so far. The letter states that keeping in view the impact of higher taxes imposed on procurement of foodgrains on the food subsidy bill, it is proposed that a composite MSP including a maximum of five per cent of all state taxes combined should be declared and states could recover taxes from this composite MSP.

For example, if the recommended MSP for a marketing season for wheat, paddy/rice or coarse grains is Rs 1,000 a quintal, a composite MSP of Rs 1,050 a quintal may be announced inclusive of taxes capped at five per cent. The state will be free to increase/decrease tax component by adjusting actual MSP payable to farmers. In such a case, MSP would vary from state to state depending on statutory taxes/levies imposed by the state on foodgrains procurement. States imposing higher taxes will give a lower MSP to farmers while reverse will be true for states levying lower level of taxes which will incentivise farmers for procurement as a higher MSP would be on offer in these states compared to states with high level of taxes.

This would incentivise states levying lower taxes on foodgrains procurement for offering better MSP to farmers. Furthermore, this would also rationalize tax and statutory levy component of the procurement cost being paid by the Central government with direct bearing on food subsidy.

The main responsibility of procurement of foodgrains lies with the state governments/state agencies and the central government reimburses all the expenditure incurred on procurement of foodgrains by the states. The cost of foodgrains includes MSP, statutory taxes and other procurement incidentals like storage and interest charges, mandi labour charges, transportation and handling charges, cost of gunnies etc.

With a view to rationalise taxes and levies on foodgrains procurement and to incentivise states which impose reasonable amount of taxes and statutory levies, the proposal has been prepared by the Department of Food & Public Distribution to offer a composite MSP.

Last year, state agencies and FCI procured 330 lakh tonnes of rice and 280 lakh tonnes of wheat for the central pool.

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