UPSC Prelims 2019 GS Paper I · Q79 of 100 Economy medium

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

  1. (a) transportation cost only
  2. (b) interest cost only
  3. (c) procurement incidentals and distribution cost ✓ UPSC's answer
  4. (d) procurement incidentals and charges for godowns

Why the answer is (c)

• FCI's 'economic cost' of grain = MSP (plus any State bonus) + procurement incidentals + distribution cost — option (c).

• Procurement incidentals include mandi charges, commission to arhtiyas, gunny bags, labour and State taxes; distribution cost covers freight, handling, storage, interest and administrative overheads.

• The gap between economic cost and the NFSA issue price (₹2–3/kg, now free) is the food subsidy paid to FCI.

• Options (a), (b) and (d) each capture only a fragment of these costs.

• Hence option (c).

Why the other options are wrong

(a) transportation cost only
Transport is only one component of distribution cost.
(b) interest cost only
Interest is only one component.
(d) procurement incidentals and charges for godowns
Godown charges are part of distribution cost, which is broader.

Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2019, held on 2 June 2019. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.

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