This 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.
How this question is built
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?
Origin: Web / Current Affairs
Fairness: CA heavy
Web-answerable
"primary functions were to undertake purchase, storage, movement, transport, distribution and sale of food grains and other foodstuffs."
Why this source?
- 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.
"2.1 Acquisition cost of Food grains The acquisition cost of food grains for the Central Pool consists of MSP"
Why this source?
- 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.
"The ballooning of the food subsidy bill is a result of the huge procurement volumes, the increased economic cost of buying food grains, and the stagnant CIP."
Why this source?
- 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.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 2019 > p. 358
Strength: 5/5
“10. 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. • (a) Transportation cost only • (b) Interest cost only (c) Pulses (c) Procurement incidentals and distribution cost (d) Procurement incidentals and charges for go downs 11. With reference to the cultivation of kharif crops in India in the last 5 years, consider the following statements: 1. Area under rice cultivation is the highest. 2. Area under the cultivation of jowar is more than that of oilseeds. 3. Area of cotton cultivation is more than that of sugarcane.”
Why relevant
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.
How to extend
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.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > Previous Years Questions > p. 299
Strength: 4/5
“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 [2019] • (a) transportation cost only• (b) interest cost only• (c) procurement incidentals and distribution cost• (d) procurement incidentals and charges for godowns• 3. With reference to chemical fertilizers in India, consider the following statements: [2020] 1. At present, the retail price of chemical fertilizers is market driven and not administered by the Government • 2. Ammonia, which an input of urea, is produced from Natural gas• 3. Sulphur, which is a raw material for phosphoric acid fertilizer, is a by-product of oil refineries Which of the following statements given above is/are correct?• (a) 1 only• (b) 2 and 3 only• (c) 2 only• (d) 1, 2 and 3”
Why relevant
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.
How to extend
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.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 293
Strength: 4/5
“Minimum Support Price (MSP): The rate announced by GoI at which purchases are made from the farmers by GoI and State governments and their agencies for the central pool. The MSP is same for the entire country and there is no limit for procurement in terms of volume/ quantity provided that stock satisfies Fair Average Quality (FAQ). Central Issue Price (CIP): The price at which food grains (wheat and rice) are issued to the State governments/ UTs from the central pool at uniform prices for distribution under Targeted Public Distribution System (TPDS)/NFSA. CIP is fixed by Department of Food and Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution.”
Why relevant
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.
How to extend
Combine this with the MCQ options to infer that economic cost might include procurement-related and distribution-related expenses (not limited to transport alone).
Economics, Class IX . NCERT(Revised ed 2025) > Chapter 4: Food Security in India > Let's Discuss > p. 51
Strength: 4/5
“The storage of massive food stocks has been responsible for high carrying costs, in addition to wastage and deterioration in grain quality. Freezing of MSP for a few years should be considered seriously. The increased food grains procurement at enhanced MSP# is the result of the pressure exerted by leading foodgrain producing states, such as Punjab, Haryana and Andhra Pradesh. Moreover, as the procurement is concentrated in a few prosperous regions (Punjab, Haryana, Western Uttar Pradesh, Andhra Pradesh and to a lesser extent in West Bengal) and mainly of two crops— wheat and rice increase in MSP has induced farmers, particularly in surplus states, to divert land from production of coarse grains, which is the staple food of the poor, to the production of rice and wheat.”
Why relevant
Discusses high carrying costs from storage of massive food stocks and wastage/deterioration, indicating storage/carrying/holding costs are significant in FCI operations.
How to extend
A student could extend this to suspect that economic cost includes carrying/storage or interest on stocks, so 'transportation only' is likely incomplete.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 292
Strength: 4/5
“Procurement: To facilitate the procurement of food grains (wheat and paddy), FCI and various state agencies in consultation with the State governments establish a large number of purchase centres at various mandis and key points. The procurement policy is open ended. That means, whatever (without any limit) wheat and paddy are offered by farmers, within the stipulated period & conforming to the specifications prescribed by Government of India, are purchased at Minimum Support Price (MSP) by the Government agencies including Food Corporation of India (FCI) for Central Pool. Central Govt. procures wheat and rice/paddy in two ways: • One way is "Centralized Procurement System" where either FCI procures or it asks States to procure and hand over the stock to FCI and FCI pays for it.”
Why relevant
Describes FCI's procurement operations (open-ended purchases, purchase centres, payment by FCI), showing procurement involves logistics and payments beyond the MSP itself.
How to extend
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.
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?
Origin: Web / Current Affairs
Fairness: CA heavy
Web-answerable
"2.1 Acquisition cost of Food grains The acquisition cost of food grains for the Central Pool consists of MSP"
Why this source?
- Identifies 'acquisition cost' of food grains and states it 'consists of MSP', implying acquisition/MSP is one component (not necessarily the whole economic cost).
- Shows an official breakdown begins with MSP, indicating other components likely exist beyond MSP alone.
"FCI was set up under the Food Corporations Act, 1964 and its primary functions were to undertake purchase, storage, movement, transport, distribution and sale of food grains and other foodstuffs."
Why this source?
- Lists FCI functions—purchase, storage, movement, transport, distribution—which generate costs beyond just MSP, bonus and interest.
- Indicates FCI incurs multiple operational costs that would factor into overall economic cost of food grains.
"The ballooning of the food subsidy bill is a result of the huge procurement volumes, the increased economic cost of buying food grains, and the stagnant CIP."
Why this source?
- Refers to the 'economic cost of buying food grains' rising and driving the food subsidy bill, implying economic cost includes more than the MSP alone.
- Notes a widening gap between the economic cost and the Central Issue Price (CIP), suggesting additional cost components beyond MSP/bonus/interest.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 2019 > p. 358
Strength: 5/5
“10. 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. • (a) Transportation cost only • (b) Interest cost only (c) Pulses (c) Procurement incidentals and distribution cost (d) Procurement incidentals and charges for go downs 11. With reference to the cultivation of kharif crops in India in the last 5 years, consider the following statements: 1. Area under rice cultivation is the highest. 2. Area under the cultivation of jowar is more than that of oilseeds. 3. Area of cotton cultivation is more than that of sugarcane.”
Why relevant
This source reproduces the exact question listing possible components of FCI's economic cost, showing choices that include 'interest cost only', 'transportation cost only', and 'procurement incidentals and distribution cost'.
How to extend
A student could use the multiple-choice options to infer that other items (transport, procurement incidentals, distribution) are commonly considered candidates, so the 'interest only' formulation is questionable.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > Previous Years Questions > p. 299
Strength: 5/5
“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 [2019] • (a) transportation cost only• (b) interest cost only• (c) procurement incidentals and distribution cost• (d) procurement incidentals and charges for godowns• 3. With reference to chemical fertilizers in India, consider the following statements: [2020] 1. At present, the retail price of chemical fertilizers is market driven and not administered by the Government • 2. Ammonia, which an input of urea, is produced from Natural gas• 3. Sulphur, which is a raw material for phosphoric acid fertilizer, is a by-product of oil refineries Which of the following statements given above is/are correct?• (a) 1 only• (b) 2 and 3 only• (c) 2 only• (d) 1, 2 and 3”
Why relevant
Another book repeats the same MCQ wording, again enumerating alternatives (transport, interest, procurement incidentals, godown charges) for what might be included in economic cost.
How to extend
Seeing consistent alternative choices across sources suggests the textbook consensus that economic cost likely involves more than MSP+interest and prompts checking procurement/handling cost items.
Economics, Class IX . NCERT(Revised ed 2025) > Chapter 4: Food Security in India > Let's Discuss > p. 51
Strength: 4/5
“The storage of massive food stocks has been responsible for high carrying costs, in addition to wastage and deterioration in grain quality. Freezing of MSP for a few years should be considered seriously. The increased food grains procurement at enhanced MSP# is the result of the pressure exerted by leading foodgrain producing states, such as Punjab, Haryana and Andhra Pradesh. Moreover, as the procurement is concentrated in a few prosperous regions (Punjab, Haryana, Western Uttar Pradesh, Andhra Pradesh and to a lesser extent in West Bengal) and mainly of two crops— wheat and rice increase in MSP has induced farmers, particularly in surplus states, to divert land from production of coarse grains, which is the staple food of the poor, to the production of rice and wheat.”
Why relevant
Discusses 'high carrying costs' from storage of massive food stocks and links storage/stockpiling to costs borne by government.
How to extend
A student could extend this to suspect that storage/carrying and distribution costs (not just interest) form part of economic cost for FCI.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 292
Strength: 4/5
“Procurement: To facilitate the procurement of food grains (wheat and paddy), FCI and various state agencies in consultation with the State governments establish a large number of purchase centres at various mandis and key points. The procurement policy is open ended. That means, whatever (without any limit) wheat and paddy are offered by farmers, within the stipulated period & conforming to the specifications prescribed by Government of India, are purchased at Minimum Support Price (MSP) by the Government agencies including Food Corporation of India (FCI) for Central Pool. Central Govt. procures wheat and rice/paddy in two ways: • One way is "Centralized Procurement System" where either FCI procures or it asks States to procure and hand over the stock to FCI and FCI pays for it.”
Why relevant
Describes FCI procurement operations and open-ended procurement at MSP, implying associated operational/handling activities (purchase centres, handing over stock) are part of the procurement process.
How to extend
From procurement procedures a student could infer associated procurement incidentals and handling charges are plausible components of economic cost beyond MSP and interest.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 293
Strength: 3/5
“Minimum Support Price (MSP): The rate announced by GoI at which purchases are made from the farmers by GoI and State governments and their agencies for the central pool. The MSP is same for the entire country and there is no limit for procurement in terms of volume/ quantity provided that stock satisfies Fair Average Quality (FAQ). Central Issue Price (CIP): The price at which food grains (wheat and rice) are issued to the State governments/ UTs from the central pool at uniform prices for distribution under Targeted Public Distribution System (TPDS)/NFSA. CIP is fixed by Department of Food and Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution.”
Why relevant
Defines MSP and contrasts it with Central Issue Price (CIP) used for distribution, indicating distinct price layers (procurement vs distribution) in the system.
How to extend
A student might extend this distinction to reason that economic cost likely includes procurement (MSP) plus other costs tied to moving grains into the central pool and issuing them (transport/distribution), not only interest.
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?
Origin: Web / Current Affairs
Fairness: CA heavy
Web-answerable
"the centre determines the difference between the economic cost (sum of MSP, procurement incidentals, and distribution cost) and the central issue price"
Why this source?
- Explicitly defines 'economic cost' as the sum of MSP, procurement incidentals, and distribution cost.
- Directly ties that economic cost is used to compute the operational loss/food subsidy, confirming these components are included.
"Acquisition cost consists of MSP plus procurement incidentals. ... Distribution Cost becomes the part of the Economic Cost"
Why this source?
- States acquisition cost consists of MSP plus procurement incidentals.
- Explains that Distribution Cost becomes part of the Economic Cost, linking all three components to economic cost.
"the central government sets a Minimum Support Price (MSP) for 24 crops each year, as well as a bonus above the MSP for some crops."
Why this source?
- Confirms the government sets an MSP and also a bonus above MSP for some crops (supports the 'bonus paid to farmers' element of the question).
- Provides context that FCI procures at MSP/bonus levels, though it does not explicitly state bonus is part of the 'economic cost'.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 2019 > p. 358
Strength: 5/5
“10. 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. • (a) Transportation cost only • (b) Interest cost only (c) Pulses (c) Procurement incidentals and distribution cost (d) Procurement incidentals and charges for go downs 11. With reference to the cultivation of kharif crops in India in the last 5 years, consider the following statements: 1. Area under rice cultivation is the highest. 2. Area under the cultivation of jowar is more than that of oilseeds. 3. Area of cotton cultivation is more than that of sugarcane.”
Why relevant
Gives an exam-style definition listing 'economic cost of food grains to the FCI is Minimum Support Price and bonus (if any) paid to the farmers plus' and then presents multiple options including 'procurement incidentals and distribution cost'.
How to extend
A student could treat the listed options as alternative formulations and check official FCI/DoFPD definitions or past UPSC keys to see which option was accepted.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > Previous Years Questions > p. 299
Strength: 5/5
“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 [2019] • (a) transportation cost only• (b) interest cost only• (c) procurement incidentals and distribution cost• (d) procurement incidentals and charges for godowns• 3. With reference to chemical fertilizers in India, consider the following statements: [2020] 1. At present, the retail price of chemical fertilizers is market driven and not administered by the Government • 2. Ammonia, which an input of urea, is produced from Natural gas• 3. Sulphur, which is a raw material for phosphoric acid fertilizer, is a by-product of oil refineries Which of the following statements given above is/are correct?• (a) 1 only• (b) 2 and 3 only• (c) 2 only• (d) 1, 2 and 3”
Why relevant
Repeats the same question/choices, again showing 'procurement incidentals and distribution cost' as one of the candidate components of economic cost.
How to extend
Use this repeated formulation to prioritize verifying whether official accounting definitions of FCI economic cost include procurement incidentals and distribution costs.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 293
Strength: 4/5
“Minimum Support Price (MSP): The rate announced by GoI at which purchases are made from the farmers by GoI and State governments and their agencies for the central pool. The MSP is same for the entire country and there is no limit for procurement in terms of volume/ quantity provided that stock satisfies Fair Average Quality (FAQ). Central Issue Price (CIP): The price at which food grains (wheat and rice) are issued to the State governments/ UTs from the central pool at uniform prices for distribution under Targeted Public Distribution System (TPDS)/NFSA. CIP is fixed by Department of Food and Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution.”
Why relevant
Defines MSP clearly as the price at which purchases are made by government agencies (including FCI) for the central pool, establishing MSP as a core procurement outlay.
How to extend
Combine this with knowledge that 'economic cost' would include procurement outlays to infer MSP is plausibly part of economic cost and then look up FCI cost components.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 292
Strength: 4/5
“Procurement: To facilitate the procurement of food grains (wheat and paddy), FCI and various state agencies in consultation with the State governments establish a large number of purchase centres at various mandis and key points. The procurement policy is open ended. That means, whatever (without any limit) wheat and paddy are offered by farmers, within the stipulated period & conforming to the specifications prescribed by Government of India, are purchased at Minimum Support Price (MSP) by the Government agencies including Food Corporation of India (FCI) for Central Pool. Central Govt. procures wheat and rice/paddy in two ways: • One way is "Centralized Procurement System" where either FCI procures or it asks States to procure and hand over the stock to FCI and FCI pays for it.”
Why relevant
Describes FCI procurement operations (purchase centres, open-ended procurement, payment by FCI), implying additional procurement-related expenses beyond MSP exist (logistics, handling).
How to extend
A student could extend this by listing typical procurement incidentals (weighing, sampling, handling, storage transfer) and check if such items are treated as part of 'economic cost' in official documents.
Economics, Class IX . NCERT(Revised ed 2025) > Chapter 4: Food Security in India > What is Buffer stock? > p. 47
Strength: 3/5
“Buffer Stock is the stock of foodgrains, namely wheat and rice, procured by the government through the Food Corporation of India (FCI). The FCI purchases wheat and rice from the farmers in states where there is surplus production. The farmers are paid a pre- announced price for their crops. This price is called Minimum Support Price (MSP). The MSP is declared by the government every year before the sowing season to provide incentives to farmers for raising the production of these crops. The purchased foodgrains are stored in granaries. Do you know why this buffer stock is created by the government?”
Why relevant
Notes that FCI purchases at MSP and creates buffer stocks, and discusses storage/carrying costs — pointing to distribution/storage/handling as real costs associated with procurement.
How to extend
Combine this with a map of supply flows (surplus states to consumption centers) to reason that distribution costs materially affect FCI's total economic outlay and should be considered when judging the statement.
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?
Origin: Web / Current Affairs
Fairness: CA heavy
Web-answerable
"consists of Acquisition Cost and Distribution Cost. Acquisition cost consists of MSP plus procurement incidentals. Procurement incidentals are expenses incurred during procurement till the food grains reach the first point of godowns. ... Distribution Cost becomes the part of the Economic Cost whereas the Buffer carrying cost becomes the part of Buffer subsidy."
Why this source?
- Explicitly defines Economic Cost components and shows Acquisition Cost includes MSP plus procurement incidentals.
- States procurement incidentals are expenses incurred until food grains reach the first point of godowns.
- Clarifies Distribution Cost is part of Economic Cost while Buffer Carrying Cost (storage/holding) is treated separately as Buffer subsidy.
"The central government sets a Minimum Support Price (MSP) for 24 crops each year, as well as a bonus above the MSP for some crops. The FCI and state-level agencies operating on behalf of the FCI buy wheat, rice and"
Why this source?
- Confirms the government sets MSP and may pay a bonus above MSP for some crops, supporting inclusion of MSP/bonus in procurement cost.
- Provides context that FCI procures at MSP (and bonus where applicable).
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 2019 > p. 358
Strength: 4/5
“10. 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. • (a) Transportation cost only • (b) Interest cost only (c) Pulses (c) Procurement incidentals and distribution cost (d) Procurement incidentals and charges for go downs 11. With reference to the cultivation of kharif crops in India in the last 5 years, consider the following statements: 1. Area under rice cultivation is the highest. 2. Area under the cultivation of jowar is more than that of oilseeds. 3. Area of cotton cultivation is more than that of sugarcane.”
Why relevant
Presents an exam question that frames 'economic cost of food grains to the FCI' as 'MSP and bonus paid to the farmers plus' and offers alternative completions including 'procurement incidentals and charges for godowns'.
How to extend
A student could treat the listed options as plausible components and check policy texts or budget line-items for FCI to see which of those listed items (procurement incidentals, godown charges, distribution cost, transportation, interest) are commonly aggregated into 'economic cost'.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > Previous Years Questions > p. 299
Strength: 4/5
“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 [2019] • (a) transportation cost only• (b) interest cost only• (c) procurement incidentals and distribution cost• (d) procurement incidentals and charges for godowns• 3. With reference to chemical fertilizers in India, consider the following statements: [2020] 1. At present, the retail price of chemical fertilizers is market driven and not administered by the Government • 2. Ammonia, which an input of urea, is produced from Natural gas• 3. Sulphur, which is a raw material for phosphoric acid fertilizer, is a by-product of oil refineries Which of the following statements given above is/are correct?• (a) 1 only• (b) 2 and 3 only• (c) 2 only• (d) 1, 2 and 3”
Why relevant
Another source repeats the same MCQ wording and the same set of candidate additions (including 'procurement incidentals and charges for godowns'), reinforcing that these are standard proposed components in exam/teaching materials.
How to extend
Use this repetition as a cue to inspect official FCI accounting practice or government definitions of 'economic cost' to confirm which of the enumerated items are officially included.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 292
Strength: 4/5
“Procurement: To facilitate the procurement of food grains (wheat and paddy), FCI and various state agencies in consultation with the State governments establish a large number of purchase centres at various mandis and key points. The procurement policy is open ended. That means, whatever (without any limit) wheat and paddy are offered by farmers, within the stipulated period & conforming to the specifications prescribed by Government of India, are purchased at Minimum Support Price (MSP) by the Government agencies including Food Corporation of India (FCI) for Central Pool. Central Govt. procures wheat and rice/paddy in two ways: • One way is "Centralized Procurement System" where either FCI procures or it asks States to procure and hand over the stock to FCI and FCI pays for it.”
Why relevant
Describes FCI procurement procedures and that FCI pays at MSP and handles centralized procurement and transfer to central pool—showing FCI bears procurement-related activities and costs.
How to extend
Combine this with the MCQ options to infer that procurement incidentals (costs of purchase centers, testing, weighing, etc.) plausibly form part of FCI's economic cost and should be checked in FCI cost breakdowns.
Economics, Class IX . NCERT(Revised ed 2025) > Chapter 4: Food Security in India > What is Buffer stock? > p. 47
Strength: 3/5
“Buffer Stock is the stock of foodgrains, namely wheat and rice, procured by the government through the Food Corporation of India (FCI). The FCI purchases wheat and rice from the farmers in states where there is surplus production. The farmers are paid a pre- announced price for their crops. This price is called Minimum Support Price (MSP). The MSP is declared by the government every year before the sowing season to provide incentives to farmers for raising the production of these crops. The purchased foodgrains are stored in granaries. Do you know why this buffer stock is created by the government?”
Why relevant
Defines buffer stock procured by FCI and states farmers are paid MSP, linking MSP payments to FCI's stock creation function.
How to extend
A student could reason that since FCI procures for buffer stocks at MSP, the total economic cost would logically add the other costs of creating and holding that stock (procurement incidentals, storage), and so should verify official cost components.
Economics, Class IX . NCERT(Revised ed 2025) > Chapter 4: Food Security in India > Let's Discuss > p. 51
Strength: 3/5
“The storage of massive food stocks has been responsible for high carrying costs, in addition to wastage and deterioration in grain quality. Freezing of MSP for a few years should be considered seriously. The increased food grains procurement at enhanced MSP# is the result of the pressure exerted by leading foodgrain producing states, such as Punjab, Haryana and Andhra Pradesh. Moreover, as the procurement is concentrated in a few prosperous regions (Punjab, Haryana, Western Uttar Pradesh, Andhra Pradesh and to a lesser extent in West Bengal) and mainly of two crops— wheat and rice increase in MSP has induced farmers, particularly in surplus states, to divert land from production of coarse grains, which is the staple food of the poor, to the production of rice and wheat.”
Why relevant
Notes high carrying/storage costs from massive food stocks and mentions freezing MSP, highlighting that storage/carrying (godown) costs are significant in the FCI context.
How to extend
Use this point to hypothesize that charges for godowns (storage/carrying cost) are likely treated as part of the economic cost and then look for explicit accounting or budget references to confirm inclusion.
Pattern takeaway:
UPSC treats Government Accounting definitions (e.g., Effective Revenue Deficit, Economic Cost, Tax Buoyancy) as static syllabus. You must know the exact components, not just the vibe.
How you should have studied
- [THE VERDICT]: Sitter. Directly available in the 'Prices & Agriculture' chapter of the Economic Survey and standard texts like Vivek Singh or Ramesh Singh.
- [THE CONCEPTUAL TRIGGER]: Public Distribution System (PDS) & Food Subsidy Mathematics.
- [THE HORIZONTAL EXPANSION]: Memorize the formula: 1) Economic Cost = MSP + Procurement Incidentals + Distribution Cost. 2) Acquisition Cost = MSP + Procurement Incidentals. 3) Food Subsidy = (Economic Cost - CIP) × Quantity + Buffer Carrying Cost. 4) Procurement Incidentals include Mandi charges, gunny bags, and labour.
- [THE STRATEGIC METACOGNITION]: When studying major schemes like NFSA, do not stop at 'Who is eligible?'. You must hunt for the 'Cost Breakdown' and 'Funding Formula'. UPSC loves asking about the specific components that make up the government's bill.
Concept hooks from this question
👉 Minimum Support Price (MSP) — definition and procurement role
💡 The insight
MSP is the pre‑announced price paid to farmers and is the core price component used by the government/FCI for purchasing wheat and rice.
High-yield: MSP drives procurement volumes, incentivizes cropping choices and links directly to buffer stock creation, subsidy burden and food security policy. Mastering MSP helps answer questions on agricultural pricing, procurement economics and policy trade‑offs.
📚 Reading List :
- Economics, Class IX . NCERT(Revised ed 2025) > Chapter 4: Food Security in India > What is Buffer stock? > p. 47
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 293
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 10: Agriculture - Part I > 10.3 Minimum Support Price (MSP) > p. 305
🔗 Anchor: "Does the Food Corporation of India's economic cost of food grains include Minimu..."
👉 FCI procurement mechanics and the central pool
💡 The insight
FCI and state agencies establish purchase centres and procure unlimited quantities (subject to quality) for the central pool under open‑ended procurement arrangements.
High-yield: Understanding procurement mechanics is crucial for questions on PDS supply chains, regional concentration of procurement, fiscal implications and operational challenges of maintaining buffer stocks.
📚 Reading List :
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 292
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 293
🔗 Anchor: "Does the Food Corporation of India's economic cost of food grains include Minimu..."
👉 Carrying costs and storage impacts on foodgrain economics
💡 The insight
Holding large foodgrain stocks generates high carrying costs and leads to wastage and quality deterioration, affecting the overall cost of the procurement‑to‑distribution chain.
High-yield: Grasping carrying costs helps analyse the fiscal and logistical burden of buffer stocks, debates on MSP adjustments and reform options for procurement, storage and distribution.
📚 Reading List :
- Economics, Class IX . NCERT(Revised ed 2025) > Chapter 4: Food Security in India > Let's Discuss > p. 51
🔗 Anchor: "Does the Food Corporation of India's economic cost of food grains include Minimu..."
👉 Minimum Support Price (MSP) — purpose and uniformity
💡 The insight
MSP is the pre-announced price paid to farmers for procured crops and is declared uniformly across India to incentivise production.
High-yield for questions on procurement policy, food security and farmer incentives; links to government price support schemes and debates on fiscal and distributional impacts. Mastering MSP helps answer questions on procurement costs, market intervention and agricultural policy trade-offs.
📚 Reading List :
- Economics, Class IX . NCERT(Revised ed 2025) > Chapter 4: Food Security in India > What is Buffer stock? > p. 47
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 293
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 10: Agriculture - Part I > 10.3 Minimum Support Price (MSP) > p. 306
🔗 Anchor: "Does the Food Corporation of India's economic cost of food grains include Minimu..."
👉 FCI procurement mechanics and the Central Pool
💡 The insight
FCI and state agencies operate purchase centres and procure wheat/paddy at MSP under an open-ended procurement policy for the Central Pool.
Essential for questions on buffer stocks, storage burden and regional concentration of procurement; connects procurement rules to operational costs, logistics and regional agricultural patterns. Understanding this enables analysis of supply-side policies and their fiscal implications.
📚 Reading List :
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 292
🔗 Anchor: "Does the Food Corporation of India's economic cost of food grains include Minimu..."
👉 Central Issue Price (CIP) and distribution under TPDS/NFSA
💡 The insight
CIP is the uniform price at which central pool grains are issued to states for distribution under Targeted PDS/NFSA.
Crucial for linking procurement costs to consumer subsidies and public distribution mechanisms; helps tackle questions on subsidy burden, distributional policy and inter-ministerial coordination in food security.
📚 Reading List :
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 293
🔗 Anchor: "Does the Food Corporation of India's economic cost of food grains include Minimu..."
👉 Minimum Support Price (MSP): definition and role
💡 The insight
MSP is the pre-announced price paid to farmers for procured foodgrains and is the foundational procurement outlay for central purchases.
MSP is central to questions on procurement policy, farmer incentives and buffer stock creation; mastering MSP helps answer questions on government intervention in agricultural markets, subsidy burden and production incentives. It connects to topics on agricultural pricing, rural economy and food security and enables analysis-style questions on pros/cons of MSP.
📚 Reading List :
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 9: Subsidies > 9.5.1 Food Corporation of India (FCI) > p. 293
- Economics, Class IX . NCERT(Revised ed 2025) > Chapter 4: Food Security in India > What is Buffer stock? > p. 47
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 10: Agriculture - Part I > 10.3 Minimum Support Price (MSP) > p. 305
🔗 Anchor: "Does the Food Corporation of India's economic cost of food grains include Minimu..."
The 'Buffer Subsidy' vs 'Consumer Subsidy' distinction. While Economic Cost covers the grain distributed, the cost of holding excess stock is the 'Buffer Carrying Cost'. A future question may ask which component of the Food Subsidy bill is the largest or how Buffer Subsidy is calculated separately.
Use the 'Broad vs Narrow' accounting heuristic. Options A and B use 'only' (immediate red flag). Between C and D: 'Distribution Cost' is a standard, broad accounting head that logically encompasses movement and handling. 'Charges for godowns' is a specific rent line-item. In official definitions, the broader, formal term is almost always the correct answer.
Mains GS3 (Agriculture & Budgeting): The widening gap between rising 'Economic Cost' and stagnant 'Central Issue Price (CIP)' is the root cause of the ballooning Food Subsidy Bill, which eats into the fiscal space for Capital Expenditure.