Question map
The economic cost of food grains to the Food Corporation of India is Minimum Support Price and bonus (if any) paid to the farmers plus
Explanation
The economic cost consists of Acquisition Cost and Distribution Cost, where Acquisition cost consists of MSP plus procurement[1] incidentals. The economic cost is the sum of MSP, procurement incidentals, and distribution cost.[2] Procurement incidentals are expenses incurred during procurement till the food grains reach the first point of godowns.[1] Therefore, the complete economic cost formula is: MSP (including any bonus) + procurement incidentals + distribution cost, making option C correct.
Option A is incorrect because it mentions only transportation cost, which is just one component of procurement incidentals, not the complete picture. Option B is wrong as interest cost alone doesn't capture the full cost structure. Option D is partially correct about procurement incidentals but incorrectly mentions "charges for godowns" instead of distribution costâdistribution cost becomes part of the Economic Cost whereas buffer carrying cost (which includes godown charges) becomes part of Buffer subsidy[1], which is separate from economic cost.
Sources- [1] https://cag.gov.in/uploads/download_audit_report/2023/Report-No.-20-of-2023_PA-on-FCI_English-PDF-A-066b9d3c33f4c35.05840530.pdf
- [2] https://www.oecd.org/content/dam/oecd/en/publications/reports/2018/07/agricultural-policies-in-india_g1g904b0/9789264302334-en.pdf
PROVENANCE & STUDY PATTERN
Guest previewThis is a classic 'Definition' question derived directly from the Economic Survey's Food Subsidy chapter. It tests if you know the exact accounting formula determining the fiscal burden, rather than just the general concept of a subsidy. It separates the serious readers of the Survey/Budget from the casual news readers.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Statement 1: Does the Food Corporation of India's economic cost of food grains include Minimum Support Price (MSP) and bonus paid to farmers plus transportation cost only?
- Statement 2: Does the Food Corporation of India's economic cost of food grains include Minimum Support Price (MSP) and bonus paid to farmers plus interest cost only?
- Statement 3: Does the Food Corporation of India's economic cost of food grains include Minimum Support Price (MSP) and bonus paid to farmers plus procurement incidentals and distribution cost?
- Statement 4: Does the Food Corporation of India's economic cost of food grains include Minimum Support Price (MSP) and bonus paid to farmers plus procurement incidentals and charges for godowns?
- Lists FCI functions beyond procurement and transport (storage, movement, distribution), implying costs other than MSP/transport are involved.
- If FCI bears storage, movement and distribution, these activities add to economic cost beyond MSP and transport.
- Explicitly links acquisition cost of central pool food grains with MSP (showing MSP is a component).
- The phrasing indicates MSP is a component of acquisition cost but does not state it is the only component.
- States the food subsidy rise is driven by increased economic cost of buying food grains, implying economic cost includes elements beyond MSP/bonus/transport.
- The widening gap between economic cost and CIP suggests additional cost components contribute to economic cost.
This snippet poses the exact item as a multiple-choice question and lists alternative components (transportation; interest; procurement incidentals and distribution; procurement incidentals and godown charges), implying multiple candidate cost components beyond transport.
A student could take these listed alternatives and check standard FCI accounting practice or combine with knowledge that storage/distribution and interest are common public-stock costs to see which additional items are plausibly included.
Repeats the same MCQ framing and the same set of possible supplementary cost components, reinforcing that procurement incidentals and distribution (or interest/godown charges) are considered in the conceptual options.
Use the repeated alternatives to hypothesize that economic cost likely comprises MSP+bonus plus one of those broader cost categories (not only transport) and then consult typical budget/FCI definitions.
Defines MSP as the rate at which purchases are made for the central pool and contrasts it with Central Issue Price (CIP) used for distribution, highlighting that procurement and distribution are distinct stages in the FCI cycle.
Combine this with the MCQ options to infer that economic cost might include procurement-related and distribution-related expenses (not limited to transport alone).
Discusses high carrying costs from storage of massive food stocks and wastage/deterioration, indicating storage/carrying/holding costs are significant in FCI operations.
A student could extend this to suspect that economic cost includes carrying/storage or interest on stocks, so 'transportation only' is likely incomplete.
Describes FCI's procurement operations (open-ended purchases, purchase centres, payment by FCI), showing procurement involves logistics and payments beyond the MSP itself.
Combine with knowledge that procurement logistics impose incidental costs (handling, mandi charges) to argue economic cost may include procurement incidentals in addition to MSP and transport.
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