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Q79 (IAS/2019) Economy › Agriculture & Rural Economy › Food security programmes Official Key

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

Result
Your answer: —  Âˇ  Correct: C
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 cost—distribution 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. [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. [2] https://www.oecd.org/content/dam/oecd/en/publications/reports/2018/07/agricultural-policies-in-india_g1g904b0/9789264302334-en.pdf
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Q. 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 […
At a glance
Origin: Mostly Current Affairs Fairness: Low / Borderline fairness Books / CA: 0/10 ¡ 10/10
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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

Web source
Presence: 4/5
"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.
Web source
Presence: 3/5
"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.
Web source
Presence: 3/5
"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.

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SIMILAR QUESTIONS

CAPF ¡ 2014 ¡ Q29 Relevance score: 1.38

Which of the statements given below is/ are correct ? 1. For the marketing year 2014-2015, the minimum support price (MSP) for wheat in India has been fixed at Rs. 1,400 / quintal 2. MSP is the rate at which the government sells the grains through the fair price shops Select the correct answer using the code given below : .

IAS ¡ 2004 ¡ Q77 Relevance score: 0.49

Consider the following statements: 1. Regarding the procurement of food grains, Government of India follows a procurement target rather than an open-ended procurement policy. 2. Government of India announces minimum support prices only for cereals. 3. For distribution under Targeted Public Distribution System (TPDS), wheat and rice are issued by the Government of India at uniform Central issue prices to the States/ Union Territories. Which of the statements given above is/ are correct?

IAS ¡ 2002 ¡ Q96 Relevance score: -0.13

Which reference to the government’s welfare schemes, consider the following statements : 1. Under the Antyodaya Anna Yojana, the food grains are available to the poorest of the poor families at Rs 2 per kg for wheat and Rs. 3 per kg for rice 2. Under the National Old Age Pension Scheme, the old and destitute are provided Rs 75 per month as Central pension, in addition to the amount provided by most State Governments. 3. Government of India has allocated 25 kg food grains per Below Poverty Line family per month, at less than half the economic cost. Which of these statements are correct ?

IAS ¡ 2001 ¡ Q33 Relevance score: -1.63

The prices at which the Government purchases food grains for maintaining the public distribution system and for building up buffer-stocks is known as

IAS ¡ 2020 ¡ Q39 Relevance score: -1.72

Consider the following statements : 1. In the case of all cereals, pulses and oil-seeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India. 2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise. Which of the statements given above is/are correct ?