Previous Year Question
Which of the following factors/policies were affecting the price of rice in India in the recent past?
Minimum Support Price
Government’s trading
Government’s stockpiling
Consumer subsidies
Select the correct answer using the code given below:
1, 2 and 4
1, 3 and 4
2 and 3
1, 2, 3 and 4
Correct Answer: D
Detailed Solution
The price of rice in India is not determined exclusively by open-market demand and supply. Government intervention through MSP, procurement and sale, buffer stocks and the Public Distribution System substantially influences the rice market.
1. Minimum Support Price—Correct
The Union Government announces an MSP for paddy based on the recommendations of the Commission for Agricultural Costs and Prices. MSP protects farmers against an excessive fall in market prices.
Procurement of paddy at MSP can:
Make MSP a benchmark price in the market.
Generate additional demand through procurement by FCI and State agencies.
Require private traders to compete with public procurement prices.
Increase procurement cost and the economic cost of rice when MSP rises.
MSP therefore affects both producer prices and market prices of rice.
2. Government’s trading—Correct
The Government purchases paddy and rice through FCI and State agencies. When required, it may release foodgrains through the Open Market Sale Scheme and other mechanisms.
Government procurement may reduce the quantity immediately available in the open market.
Government sales increase market supply and may exert downward pressure on prices.
Changes in import and export policy may also affect domestic availability and prices.
Government trading therefore influences rice prices.
3. Government’s stockpiling—Correct
The Government maintains rice stocks in the Central Pool for food security, the PDS and emergency requirements.
Stockholding can affect prices in two directions:
Procurement and withdrawal of rice from the market may reduce open-market supply.
Release of stocks during shortage or inflation increases supply and can help stabilise prices.
The timing, quantity and policy governing stock releases influence the market price.
4. Consumer subsidies—Correct
Under the National Food Security Act, eligible beneficiaries received foodgrains at subsidised Central Issue Prices. In the period relevant to the question, Priority Households were generally entitled to 5 kg per person per month, while Antyodaya Anna Yojana households received 35 kg per household per month.
The original NFSA Central Issue Prices were:
Rice—₹3 per kg.
Wheat—₹2 per kg.
Coarse grains—₹1 per kg.
Consumer subsidy reduces the effective price paid by beneficiaries. It consequently influences open-market demand, public procurement, foodgrain allocation and the Government’s food-subsidy expenditure.