Question 37 from UPSC CSE 2019 - Economics

Question

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?

IASCODEX · Accepted Answer

Correct Option: C. Procurement incidentals and distribution cost

Strategy: Focus on 'economic cost' as incurred by FCI — it includes the purchase cost (MSP and bonus), extra procurement-related charges, and the cost to distribute these grains (like freight and storage). Transportation and godown charges alone are only parts, not the whole. Only option C—'procurement incidentals and distribution cost'—fully covers these components.

Key Info: The Food Corporation of India (FCI) calculates the economic cost of food grains as the sum of: (i) procurement price—Minimum Support Price (MSP) plus any bonus paid to farmers, (ii) procurement incidentals—which include taxes (like mandi tax), commission to agencies, handling charges, gunny bags, labor costs, and local transport up to storage points, and (iii) distribution cost—which comprises freight/transportation from storage locations to distribution outlets, storage and handling at depots, and administrative overhead. This total reflects what FCI spends per quintal before selling grains to state governments or through Public Distribution System (PDS). Interest cost on working capital and charges for using godowns are part of procurement incidentals or distribution, not separate major heads. Economic cost thus represents the complete per-unit outlay to make food grains available for public schemes below market price.

IASCODEX · Answer

Option A: Transportation cost only

IASCODEX · Answer

Option B: Interest cost only

IASCODEX · Answer

Option D: Procurement incidentals and charges for godowns