Previous Year Question

The economic cost of foodgrains to the Food Corporation of India represents the total cost incurred in procuring, storing and moving foodgrains to the point of distribution.

It can broadly be expressed as:

Economic Cost = Acquisition Cost + Distribution Cost

Here:

Acquisition Cost = MSP/Procurement Price + Bonus + Procurement Incidentals

Thus, economic cost has three principal elements:

1. MSP or procurement price and bonus, if any, paid to farmers;

2. procurement incidentals; and

3. distribution cost.

Procurement incidentals cover expenses connected with the purchase of foodgrains, such as:

• mandi fees and statutory charges;

• labour and handling charges;

• gunny bags;

• transportation from procurement centres to storage points;

• quality assessment during procurement; and

• interest and administrative expenses connected with procurement and initial storage.

Distribution cost covers expenditure incurred in moving foodgrains from central storage to the relevant State or distribution point, including:

• rail and road freight;

• storage;

• handling;

• transit losses;

• distribution-related interest; and

• administrative and establishment expenses.

Options (a) and (b) contain only one cost component. Option (d) includes godown charges but excludes the wider distribution cost. They therefore do not represent the complete economic-cost structure.

In simplified terms, the food subsidy borne by the Government can be understood as:

Food Subsidy ≈ Economic Cost - Central Issue Price

Therefore, the correct answer is option (c).