State levies push up grain subsidy costs

Besides,private traders in high-tax states like Punjab and Haryana stop buying grain,to the detriment of farmers. Worse,tax proceeds are seldom used in the food and farm sectors and get diverted to other programmes.

According to official sources,states collectively raised around Rs 10,000 crore in taxes and charges on rice and wheat procured by Food Corporation of India and other state agencies.

The governments food subsidy bill rose 14 per cent to Rs 72,800 crore in the fiscal year through March,contributing significantly to the fiscal deficit which grew by one percentage point to 5.8 per cent of the countrys gross domestic product.

The government had budgeted Rs 75,000 crore as food subsidies for 2012-13,but last months 16 per cent hike in paddy procurement price alone will increase the bill by around Rs 10,000 crore.

Government agencies procured a record 38 million tonnes of wheat and 34 million tonnes of rice this year,driving up official reserves to a staggering 80 million tonnes when the country has a covered storage capacity of only around 45 million tonnes.

The levies are the highest in Punjab,the grain-bowl of India and the largest contributor to central grain reserves.

Taxes and other charges add up to 14.5 per cent of procurement prices in Punjab,significantly raising costs. Haryana charges 11.5 per cent on rice and 10.5 per cent on wheat while Andhra Pradesh charges 12.5 per cent on rice. Uttar Pradesh levies 6.5 per cent on wheat and 9 per cent on rice.

According to the Commission for Agricultural Costs and Prices CACP,chances of other states imposing higher taxes cant be ruled out,making the procurement system even more expensive and unsustainable.

High taxes are driving private traders out of markets. Their purchases accounted for just 1.2 per cent and 0.06 per cent of the total food grain trade in Punjab and Haryana respectively, CACP chairman Ashok Gulati said. National interest requires healthy competition and,therefore,state monopoly is as bad as private monopoly. The Competition Commission Of India should look into this, Gulati said.

On the one hand,the states get wheat and rice procured from farmers in their regions at subsidised rates for supplies through ration shops. On the other hand,they are levying taxes and charges on procurement. This is an unfair practice, said a central government official. States,on their part,feel the Centre is reducing their fiscal space through various means even as their share in Centres gross tax revenue has risen over the years under several finance commissions.

FE