January 29, 2006, The Hindu
New Delhi

A consumer body suggests steps to reduce procurement costs

A leading consumer body has called for a new system of foodgrains procurement to ensure rationalisation of food subsidies.

In a pre-budget memorandum submitted to Finance Minister P. Chidambaram, it has suggested that procurement of foods for distribution through the public distribution system be separated from the price support to farmers through the minimum support price. It proposed that it be done through competitive bidding for delivery at target locations to effect cost rationalisation. The Consumer Unity and Trust Society (CUTS) has argued that since these foodgrains are to be distributed to the poor at affordable prices, competitive bidding will minimise the cost of procuring the foodgrains..

“There are distortions and inefficiencies in the way food subsidies are delivered, leading to mounting subsidy bills, without commensurate benefits to target beneficiaries. Whereas the food subsidy bill has gone up by 10.5 times from Rs.2,450 crores in 1990-91 to Rs.25,800 crore in 2003-04, only 25 per cent of the foodgrains actually reach the poor,” according to CUTS Secretary General, Pradeep Mehta.

He felt the government should separate the MSP-PDS operations. While some States have taken the initiative, others should be encouraged to follow suit so as to provide support to small and marginal farmers and to create buffer stocks with the foodgrains so procured to maintain price stability. The procurement process should be decentralised.

The CUTS has suggested that to minimise leakage of foodgrains, cash transfers through post office network should be initiated to provide direct cash support to needy families to cover the subsidy differential. At present, the cost of transferring a rupee to the poor through the PDS is Rs.6.68 as administrative costs account for 85 per cent of the total expenditure. This entails a huge gap between the purchase price and issue price and, consequently.

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