Punjab, Haryana reap rich harvest at FCIs expense

Written by Sandip Das | New Delhi | Updated: Jun 25 2014, 14:28pm hrs
India EconomyGrain-surplus states including Punjab, Haryana, Uttar Pradesh, Andhra Pradesh and Odisha...
Grain-surplus states including Punjab, Haryana, Uttar Pradesh, Andhra Pradesh and Odisha have increased their tax revenue from Food Corporation of India (FCI) over the last few years. The sundry procurement taxes levied on FCI have inflated the food subsidy bill the Centre foots.

As per audited data FCI submitted to Parliament, the corporations tax outgo on rice and wheat procurement to states has increased from R4,450 crore in 2009-10 to R7,701 crore in 2012-13, an increase of 73%.

Punjab and Haryana are the biggest recipients of taxes on grain procurement as they produce substantial amounts of surplus rice and wheat that they contribute to the central pool. Of the total outgo of taxes on grain procurement paid by FCI, the two states together got R2,922 crore in 2009-10, which rose to R5,085 crore in 2012-13.

In these five largest grain-producing states with surplus, purchase levies account for 10-14.5% of the minimum support price (MSP) announced by the Centre on rice and wheat procurement.


Punjab and Haryana levy various taxes VAT (5%), arthias commission (2.5%), mandi tax (2%), local development cess (2%) and purchase tax (2%) and others for both wheat and rice procurement.

Odisha levies VAT of 5% and 2.5% commission to more than 2,300 primary agricultural cooperatives and a market fee of 2%. It also levies administrative charges (1%), rice drying charges (1%) and other imposts such as those for custody maintenance, mandi labour, grain-handling and transportation charges, all of which push the total tax incidence to above 12% of the MSP. Similarly, Andhra Pradesh levies 12.5%, Haryana 11.5% and Chhattisgarh (9.7%).

Experts say that higher taxes and other statutory levies imposed by foodgrain-procuring states distort the national market and drive away private sector participation in grain purchase and hit the processing and value-addition industry.

Since wheat and rice are basic staples and procured for the poor people, the taxes and commissions on these need to be rationalised, not exceeding 5% of MSP. States that would lose some revenue may be compensated through some alternative route. It will bring rationality in markets and also bring back the private sector participation, Ashok Gulati, chair professor for agriculture, Indian Council for Research on International Economic Relations and former chairman of the Commission for Agricultural Costs and Prices, told FE.