New Delhi, Jan 19 (Agencies): Worried over rising food inflation, Finance Minister Pranab Mukherjee on Wednesday asked the states to remove local levies like octroi and mandi tax to bridge the gap between farmgate and retail prices.

"I would urge you to review all local levies like mandi tax and octroi duty which add to prices of food articles and impede smooth movement of essential commodities," Mukherjee said in his address to State Finance Ministers during Pre-Budget deliberations here.

Asking state governments to play their part in controlling inflation, he said, "There is a need for you to urgently look into supply management of items that are driving the current round of food inflation, in particular local factors that are widening the gap between wholesale and retail prices."

Bottlenecks in supply chain have to be removed. States have to take steps to ensure agriculture grows and create efficient distribution and marketing infrastructure, he said.

There is also a need to cut down on the wastage of foodgrains, he added.

Indeed, Mukherjee said, there is a strong case to review and reform the Agriculture Produce and Marketing Act (APMC) in states where it has not been addressed so far.

The government regulated market are not only imposing taxes and facilitating large commission and fees for the middleman but also preventing retailers to integrate their
enterprise directly with the farmers, he said.

This leaves no incentive for the farmers to upgrade and inhibits private investment in the agriculture sector. Farmers and consumer both lose in the process, he added.

Talking about efforts taken by the central government, he said, it has taken measures to facilitate imports and, when required restrict exports to ensure supply of essential commodities.

During the last week of December, food inflation touched as high as 18.3 per cent mainly driven by primary articles like vegetables.

Food inflation has remained high and volatile due to significant increase in the prices of few primary items like fruit and vegetables, milk, meat, poultry, eggs and fish even as the prices of cereals and pulses declined sharply in the current year, Mukherjee said.

He also said that there are some weather induced supply constraints on some of the items currently exhibiting high inflation, as a large part of price rise is due to widening gap between the wholesale and retail prices. The growing demand for these products due to rising income level, he said.