Shanta Kumar’s FCI report may make Punjab lose revenue

  • Gurpreet Singh Nibber, Hindustan Times, Chandigarh
  • Updated: Jan 23, 2015 08:17 IST

If the recommendations of a committee headed by senior BJP leader Shanta Kumar on restructuring of the Food Corporation of India (FCI) are accepted, Punjab will suffer revenue loss of around Rs 2,000 crore every year. The committee’s report, submitted to the Union government on Thursday, has recommended cutting down taxes levied on foodgrains (wheat and paddy) procured in the state from the present 14.5% to just 3%.

However, officials in the FCI stress that there is nothing new in the report and some of the recommendations are already being implemented. The committee was assigned the job in August last year.

At present, Punjab charges 3% infrastructure development cess, 2% rural development cess, 5% value added tax, 2% market fee and 2.5% commission agents’ cut on procurement of foodgrains. The restructuring suggests reducing it on the pattern of Gujarat to 3% in all. It must be noted though that Punjab charges highest levies on procurement, followed by Haryana (12%) which also looks set to lose significant revenue. Both states contribute around 70% of all wheat and paddy to the country’s bowl.

Manjit Singh Sarang, director (finance) for Pungrain, the state agency that coordinates procurement for FCI, says, “Punjab earns an estimated Rs 3,000 crore a year by imposing taxes on foodgrain procurement; the suggested formula would bring that down to less than Rs 1,000 crore. The state has no alternative source of income as its economy is based on agriculture.”

The report, however, suggests, “States losing revenue can be compensated through a diversification package for three to five years.”

It also recommends focusing on eastern states such as Uttar Pradesh, Bihar, West Bengal and Assam, where farmers sell their produce in distress. It says FCI should outsource all procurement operations of wheat, paddy and the rice thereafter to states (Punjab, Haryana, Andhra Pradesh, Chhattisgarh and Odisha) that have gained experience and created infrastructure.

“Only 6% of farmers gain by selling their produce to procurement agencies, and the targeted public distribution system suffers leakages of 46.7%,” the report points out before making recommendations.

Key recommendations

Back the MSP: The report recommends revisiting the policy of minimum support price (MSP). “No point in announcing MSP for 23 commodities if government can’t create an effective support system even for wheat and paddy; pulses and oilseeds deserve priority,” it says, arguing for a synchronised trade policy with the MSP policy as there’s no use of MSP if imports of pulses come at lower price.

Direct subsidy: The committee also recommends deregulating the fertiliser sector by directly transferring Rs 7,000 per hectare as subsidy to the farmers. “It will help those who take loans to buy fertilisers,” says the report.

Other suggestions: Shut zonal offices such as one in Noida; gradually outsource storage operations; phase out open storage system, convert FCI godowns into silos; beneficiaries of PDS system be given ration for six months immediately after end of a procurement season; cash transfer to beneficiaries of PDS; departmental labour be given option of voluntary retirement; movement of grain be done in containers instead of gunny bags.

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