The idea of setting up a price stabilisation fund (PSF) for sensitive agri-commodities, mooted at last week’s conference of State food ministers and also mentioned in the BJP’s election manifesto, is worth pushing for. Potatoes, for example, are today selling in Kanpur mandi for about ₹1,650 a quintal; they were ruling at ₹700 only five months ago, when the rabi crop arrivals were taking place. What if a government agency had procured and cold-stored the tuber in adequate quantities earlier for release in the market through the summer and monsoon months, before the arrival of the next kharif crop from October? A PSF that enables States to undertake effective market intervention would have been useful in cooling potato prices, currently retailing at ₹25-30/kg.

Market intervention through PSF, if implemented the proper way, would work differently from the existing public distribution system — under which wheat is being sold at ₹2 a kg when it costs the Food Corporation of India (FCI) almost ₹20 to procure, stock and distribute this grain. The PSF’s objective should be limited to ensuring a modicum of stability in market prices as opposed to guaranteeing ‘food security’. The Centre could designate agencies to buy and sell produce in the market, without distorting the normal pattern of prices going up between harvest time and the off-season. The idea here is to only prevent extreme and abnormal price swings that we now see. PSF-supported market intervention operations should neither result in large subsidy outgo nor in government agencies becoming hoarders: Unlike FCI, they would buy during the harvest period in order to sell at higher price without holding stocks beyond 6-7 months.

For the PSF idea to succeed, it makes sense to also rope in corporates, traders and cooperatives as implementation agencies. If the aim is to deliver price stability, it shouldn’t matter whether purchase and sale on government account happens through the FCI, Nafed and National Dairy Development Board or ITC, Reliance and Amul. The Centre could nominate any state, private or cooperative agency to procure and store onions or potatoes from a particular area on its behalf. It can even, say, exercise a call option to take delivery of the produce at a specified price on a given future date. The sheer volume of business guaranteed by the Government will probably induce the agencies to undertake the most efficient procurement operations and offer to supply at the lowest possible rates through a transparent, competitive tendering process. Money from the revolving PSF could be made available to any designated agency undertaking purchases on government account. A beneficial by-product of these operations — given their potential scale — would be the creation of a nationwide backend infrastructure for the procurement, storage and marketing of agri-produce. And the best way to do this is through public-private-partnership.

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