The Central Government extends price support for paddy, coarse grains and wheat through the FCI and State Agencies. All the food grains conforming to the prescribed specification offered for sale at specified centres are bought by the public procurement agencies at the Minimum Support Price (MSP). The food grains so procured are allocated to the States for distribution to the identified beneficiaries under the Targeted Public Distribution System (TPDS) and other Welfare Schemes at subsidized prices. The difference between the economic cost of food grains and Issue Prices is incurred by the Central Government as consumer subsidy. In addition to procuring food grains for meeting the requirements of the TPDS and welfare schemes, the Central Government is also under obligation to procure food grains for meeting the requirements of the buffer stock to ensure food security of the country. Hence, a portion of total food subsidy also goes towards meeting the carrying cost of the buffer stock as buffer subsidy.

Consumer Subsidy

· Till October, 1997, Government of India conducted its operations for procurement and distribution to the States through the Food Corporation of India. The difference between the economic cost and the Central issue Prices/average sales realization is reimbursed to the FCI in the form of consumer subsidy.

· The Scheme of Decentralized Procurement of food grains was introduced by the Government in 1997-98 with a view to effecting savings in the form of reduction in the outgo of food subsidy, enhancing the efficiency of procurement and PDS and encouraging local procurement to the maximum extent thereby extending the benefits of MSP to local farmers. States like Andhra Pradesh, Kerala, Gujarat, Orissa, Karnataka, Madhya Pradesh, West Bengal, Chhattisgarh, Rajasthan, Tamil Nadu and Uttarakhand, have undertaken Decentralized Procurement Scheme. The economic cost of procurement, storage and distribution of food grains by the State Governments is fixed by the Government of India in consultation with the State Governments, and the difference between the economic cost so fixed and the Central Issue Prices under various welfare schemes is reimbursed to the States as food subsidy. The Government of India is encouraging other States also to adopt the scheme.

Release of Subsidy

To the FCI

Advance Subsidy is released to the FCI on quarterly basis in the first month of the quarter @ 95 % of the total admissible claims submitted by the FCI on the basis of the estimated offtake during the next quarter. The estimated offtake is to be calculated on the basis of offtake during the latest three months. This advance subsidy is adjusted against provisional subsidy released after the end of the year for the actual offtake. Balance 5% subsidy is released after submission of the claims by the FCI on the basis of final audited accounts.

To the States that have adopted Decentralised Procurement (DCP) System
Advance quarterly subsidy is released to the DCP States @ 90 % of the State’s admissible claim for the estimated offtake for the next quarter to be calculated on the basis of past offtake for the last two quarters. Provisional subsidy are also released to the State Govts. after the end of the quarter. While releasing provisional subsidy to the States 100% of fixed cost and 95% of the variable cost of the cost incurred by the States are released to them. Balance 5% of variable costs is to be released after the finalization of the economic cost on the basis of Audited accounts of the States.

Buffer Subsidy

The Food Corporation of India has to maintain a part of stocks of procured food grains in the form of buffer as a measure of food security to guard against situations of scarcity of food grains and also to enable the Government to intervene effectively and positively to stabilize prices in time of undue increase in the market. Carrying charges for buffer, comprising elements like freight, storage and interest charges, are also reimbursed to the FCI in the form of carrying cost of buffer, as an element of total food subsidy.

Year-wise Subsidy

A statement showing subsidy released to FCI and Decentralised Procurement States for the last 6 years is given below:

(Rs. in crores)

* Uttar Pradesh has opted out of DCP Scheme

• Principles for Procurement (101KB)
• Provisional Cost Sheets
• Scheme wise Subsidy
• Procurement of Food Grains