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LATEST NEWS UPDATES | With FCI prices high, small traders don’t buy govt stock by Ravish Tiwari

With FCI prices high, small traders don’t buy govt stock by Ravish Tiwari

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published Published on Aug 1, 2010   modified Modified on Aug 1, 2010


Even as the issue of price rise takes centrestage in Parliament, the government’s attempt to offload wheat in the open market has found few takers among small traders. The reason: the price of wheat fixed by the Food Corporation of India (FCI) for small traders is higher than the prevailing wholesale prices at major centres across the country.

In June, the Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee had allocated 50 lakh tonnes of wheat for sale in the open market as part of its attempt to bring down prices of essential food items. It had also allowed the purchase of a truck load of wheat per day per small trader directly from FCI’s nearest depots.

This decision was taken in the wake of the government’s assessment that bulk buyers, who have used the open market sale of wheat to their benefit, are limited only to major urban centres, while small traders, who service the rest of the country, do not benefit from the government’s offloading of foodgrain.

But, despite huge stocks with the government, the high prices fixed by FCI has defeated its twin strategy of curbing price rise and creating storage space as well. Barring south India, the price of wheat fixed by FCI is actually higher than the wholesale prices. For instance, the FCI has fixed the price at Rs 1,282.21 per quintal in Lucknow, while the wholesale price stood at Rs 1,150 per quintal as on July 23. Similar price differences prevail in major centres around Delhi, Ahmedabad, Bhopal, Jaipur, Patna and Guwahati among others. Moreover, small traders in many states also have to pay VAT, over and above the rates fixed by FCI.

In fact, state governments have also been deterred by the high prices fixed by FCI for open market sale. This is reflected in the fact that state governments have lifted less than 25 per cent of about 20 lakh tonnes allocated to them for open market sale since October 2009. In contrast, bulk buyers like flour mills and confectionaries have used the open market sale scheme to minimise their input cost, purchasing about 60 per cent of the wheat allocated under the scheme.

However, officials justify the high prices fixed by FCI by citing the higher MSP for wheat paid by the agency to farmers. They maintain that the FCI incurs additional costs in procurement, storage and transport, which need to be recovered.

Meanwhile, amidst reports of damage to foodgrain in FCI godowns, the government had about 57.8 million tonnes of food stock as against the required norms of 31.9 million tonnes as on July 1. As far as wheat is concerned, the government had a stock of 33.58 million tonnes against the buffer norms of 17.1 million tonnes as on July 1.


The Indian Express, 2 August, 2010, http://www.indianexpress.com/news/with-fci-prices-high-small-traders-dont-buy-govt-stock/654803/


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