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India’s government recent directive to the state government not to provide extra bonuses to the farmers on wheat and rice will definately renovate the grain sector of the country. This is a progressively policy proving enhancement in the grain market,tame food inflation, and promote the export.
It is also proven as a bold step to reduce open ended grain procurement.It is a very powerful directive of the Indian government without worrying about the vote bank politics.more at http://www.riceoutlook.com/centre-govt-reduce-subsidy-burden-cutting-levy-rice-purchase/
According to the data from Food Corporation of India the bonus on paddy given to the different states on per quintal have increased from the crop year 2010-2011 to crop year 2013-2014.Like for Chattisgarh it has increased six times,for Madhya Pradesh three times.
This bonus has over burden the government and hence inflated the rice prices and also the prices of other food commodities.
But for the last four years the state government are providing bonuses to the farmers in order to make their vote bank stronger.
Due to these bonuses on grains like wheat and rice , the farmers prefer to stock these crops and hence lead to hoarding.States trying to give these bonuses to the farmers to make their good will among the farmers and hence exerts the pressure on the center government.
Every state levies local tax as a percentage of MSP on procured grain and collect this amount from central government.When they announce bonuses , effectively they end up paying the amount over and above the differences between bonus declared and local sale tax.
Eg if a state declares a bonus of 23 % over MSP and local sale tax in the state is 7%,the state government pays only 16% over MSP to farmers.(23-7) rest is paid by the centre government
State such as Chhatisgarh, Madhya Pradesh , Rajasthan often pay bonuses to the farmers.
As the center end up buying more grain and a few is left foir the private trade, thus bonuses, local taxes,higher procurement leading to tightness in market availability and surplus liquidity with farmer are deep malaise that contribute to the food inflation
As a conclusion “No Bonus” will provide crop diversification,dilution of food security act ,reduction of wasteful subsidies/leakage/storage space and ensure more grains to private sector and will reduce the control of state government on grain sector
This directive can be implemented with the greater ease if the same government in the state and center will rule.But if the political; parties in the state and center are different the a transparency is not available and farmer have suffer this political games