Punjab and Haryana continue to impose higher statutory levies than other states on rice and wheat procurement by the Food Corporation of India (FCI). Before the launch of GST, these levies were between 13-14% in both states. The levies have come down now, but at 6-8.5%, they are still much higher than other states.
These levies push up the Centre’s food subsidy bill while it augments the states’ revenues. Both the states together contributed 61 per cent of wheat and rice procured by the FCI nationally.
For rice and wheat procurement from farmers, FCI paid more than Rs 11,300 crore to states as levies in the respective 2020-21 (rice) and 2021-22 (wheat) seasons.
Higher taxes and other statutory levies imposed by food grain-procuring states tend to discourage private sector participation in grain purchase. Consequently, they also adversely impact the processing and value addition industry.
While Punjab and Haryana impose levies such as mandi tax, rural development cess and arthia commission, adding up to at 8.5% and 6.5%, respectively, on the minimum support price (MSP) paid to farmers through FCI for wheat procurement, states such as Madhya Pradesh, Rajasthan and Uttar Pradesh have levies of 3-5%.
In case of rice procurement, Punjab and Haryana have levies of 8.45% and 5.76% respectively on MSP paid to farmers, while other key states which contribute to national pools, such as Andhra Pradesh, Chhattisgarh and Odisha, have levies in the range of 2 to 4%.
Higher statutory levies in Punjab are because of the 3% each collected as rural development cess and market fee along with arthia commission of 2.5% on MSP for wheat procured by FCI from farmers. Haryana collects a slightly lower market fee at 2% along with rural development cess of 2% and 2.5% commission collected by arthias or middlemen in the mandi on grain purchased by FCI in the market yard.
The government’s attempts to directly purchase grain from farmers in Punjab and Haryana, have been met with resistance from state governments, farmers and commission agents. However, after the abolition of value added tax, the levy structure of grain procurement has been reduced from 13-14% in Punjab and Haryana to the current level.