Experts for higher support price as local taxes fuel food inflation

Last Updated: Mon, Nov 14, 2011 19:20 hrs

As the government struggles to bring down the high food inflation, farm experts believe that high local taxes have a big role in fuelling the prices.

The taxes that are generally collected by the states do push up prices, and tend to distort the market prices. Considering this, the Commission for Agricultural Costs and Prices suggested a solution: grant compensation — by increasing the minimum support price — to those states that decide to phase out the taxes levied on agricultural products.

The other solution is to encourage states to change their laws regarding agricultural produce marketing committees (APMCs) so as to free farmers from markets controlled by a few people; instead allow private players to purchase directly from growers. Some states have moved towards this, but a majority of them are reluctant to lessen control over the mandis (traditional market places).

Even so, there are experts who believe that abolishing the APMC Act is a backdoor attempt by the corporate to control the country’s agriculture by purchasing directly from farmers. Whatever, an analysis of grains shows that the taxes on farm produce, particularly in grains, was among the highest this year in Punjab and Haryana — the country’s two biggest producer states.

In the 2011-12 wheat procurement season that will end in March, local tax in Punjab was the highest.

It stood at 13.5 per cent of the minimum support price (MSP), official data showed.

So, when MSP for wheat was Rs 1,170 per quintal, the taxes on it totalled Rs 158, effectively making the grain that much costlier for consumers as well as private buyers. In Haryana, it was 10.5 per cent of the MSP. Both Punjab and Haryana produce almost four-fifth of the total wheat produced in the country. Not only are the taxes high for wheat; they are the same for rice as well.

In the 2011-12 rice marketing season, Punjab once again topped the list of states that levy high tax on rice to the extent of 14.5 per cent. In Andhra Pradesh, the figure is almost 12.5 per cent.

In all the big rice-producing states, the local tax is not below five per cent in one of them, barring West Bengal, where it totals three per cent. Of all the big agricultural states in India, only Maharashtra had a tax rate of below four per cent on wheat and rice. In fact, the biggest producers imposed the highest tax on wheat and rice.

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