UPSC Prelims 2019 Q79: Indian Economy – Human Development, Poverty & Employment Schemes
- (a) transportation cost only
- (b) interest cost only
- (c) procurement incidentals and distribution cost
- (d) procurement incidentals and charges for godowns
Answer: (c) procurement incidentals and distribution cost
Explanation
FCI's Economic Cost of Food Grains
| Component | Included? |
|---|---|
| MSP + bonus (to farmers) | YES - base |
| Procurement incidentals | YES - labour, bags, handling, mandi cess, statutory levies |
| Distribution cost | YES - transport, storage, godown maintenance, interest cost, distribution losses |
FCI Economic Cost = MSP + Bonus + Procurement Incidentals + Distribution Cost.
Answer: (c) procurement incidentals and distribution cost.
Why each option is right or wrong
- (a) Incorrect. Transportation is only one part of distribution cost - not the complete answer.
- (b) Incorrect. Interest cost is part of the broader cost but not the complete answer.
- (c) CORRECT. FCI's Economic Cost = MSP + Bonus + Procurement Incidentals (labour, bags, mandi cess) + Distribution Cost (transport, storage, interest, godown, distribution losses).
- (d) Incorrect. Procurement incidentals + godown charges is incomplete - misses transport, distribution losses etc.
Key point
FCI Economic Cost = MSP + Bonus + Procurement Incidentals + Distribution Cost. Distribution cost includes transport, storage, interest, godown, losses.
Remember
The economic cost of foodgrains to the Food Corporation of India (FCI) equals MSP and bonus (if any) paid to farmers PLUS procurement incidentals (labour, bags, mandi cess) AND distribution cost (transportation, storage, interest, godown maintenance and losses). The gap between this economic cost and the Central Issue Price becomes the food subsidy.
Common mistakes
- Confusing MSP (paid to farmer) with economic cost (total FCI outlay).
- Assuming interest is separate - it's part of the distribution cost bundle.
- Not knowing FCI publishes economic cost yearly - useful for evaluating food subsidy burden.
Exam tip
Food subsidy = FCI Economic Cost - Central Issue Price (CIP). MSP pays farmer; CIP is what BPL/AAY beneficiaries pay under NFSA/PDS. The gap is the food subsidy borne by Government of India.
Sources
- Food Corporation of India - Annual Economic Cost statements
- Ministry of Consumer Affairs - Food subsidy Budget documents