Sundry state levies add to debt-laden FCI’s woes

The high-level committee (HLC) on restructuring the FCI had recommended the mandi tax be made uniform across states at around 3-4%.

FCI deals in foodgrain distribution,regulating market prices, managing buffer stocks and formulating policies about the same. (Reuters)

Even as a financially-crippled Food Corporation of India (FCI) is finding it increasingly difficult to sustain grain procurement, several states continue to extract huge amounts from it as sundry taxes and levies. For the last three years, the FCI paid Rs 10,000-13,000 crore annually to grain-producing states and the outgo this year could be of a similar magnitude.

Statutory levies like VAT, mandi tax, arthia (agent commission) and the like paid by the corporation to state governments on an average account for 13% of the minimum support price to farmers. The levies range from a relatively modest 3.6% in Rajasthan to exorbitant levels — 11.5% in Haryana, 14.5% in Punjab and 13.5% in Andhra Pradesh, the major producers of grains.

As reported by FE earlier, unless the finance ministry releases a good part of the unpaid subsidy (estimated to be all-time-high R73,650 crore by March-end) or allows Life Insurance Corporation of India to raise R40,000 crore to support the FCI soon, the procurement agency will have exhausted the funds for buying food grains from farmers by this month-end. Blame the delays in release of subsidies, the FCI avails huge amounts as loans every year, even breaching the annual cash credit limit of R54,495 crore with public sector banks, plunging itself into a virtual debt trap. It borrowed R91,500 crore in FY15 and its interest burden in the year was around R8,200 crore.


Terming the high rates of taxes and other levies on grain procurement as unsustainable, Union food minister Ram Vilas Paswan recently said: “Time to time, we have requested the state governments for reduction of taxes being imposed by them and since theses taxes or levies are statutory in nature, it is not possible for the Centre to take any unilateral decision on the matter.”

The high-level committee (HLC) on restructuring the FCI had recommended the mandi tax be made uniform across states at around 3-4%. The committee had said that states which suffered any revenue loss due to this could be given more funds for crop-diversification. So if Punjab encouraged the growing of maize, farmers could be given a per-acre subsidy; the money for this would come from the central government and would equal the gap in mandi tax revenue.

Ashok Gulati, former chairman of Commission for Agricultural Costs and Prices, had said  “the higher taxation and levies drive out the private players from grain purchase and distort the market, adversely impacting processing and value-addition”.

A food ministry official said that the state governments need to reduce the taxes in a phased manner, as these imports were also adding to the country’s food security bill. “But we also acknowledge that these taxes on procurement are the key sources of revenue, especially for Haryana and Punjab,” the official noted.

Usually, FCI depends on an annual cash credit limit of R54,495 crore from 67 public sector and scheduled banks to carry out operations, like procurement of mostly rice and wheat from the farmers and distributing these grains to states for the Public Distribution System. However, these loans are availed against the value of foodgrains stock held with the corporation. Additionally, the corporation also seeks short-term loans from banks.

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