A month into kharif arrivals, there has been no positive turn of events for farmers. Cereals, pulses and oilseeds are selling well below the Minimum Support Price (MSP) in mandis. The government seems to have failed them with the shoddily designed PM-AASHA scheme and its inadequate implementation till now. Immediate steps are required to prevent a recurrence of farmers’ anger spilling onto the streets.
The umbrella policy Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA) announced three ways of ensuring MSP to the farmers — Price Support Scheme (PSS), which is conventional government procurement; Price Deficiency Payment Scheme (PDPS) on the lines of the Bhavantar Bhugtan Yojana; and a Pilot of Private Procurement & Stockist Scheme (PPPS) to rope in private players for procurement.
No State apart from MP has readied the IT infrastructure needed to implement the cash payment scheme. If fully and strictly implemented, the price deficiency payment scheme for all crops may result in a huge financial burden on the government — if market prices are 10 per cent lower than MSP, it could be ₹56,500 crore. This does not include an additional burden through misuse or artificial depression of prices by traders.
Regarding the private stockist scheme, even as guidelines were issued to States recently, it will probably take States and private players about six months to comprehend and participate and government officials are realistically not expecting any takers in the current season.
Thus, for the current season government has no option but to resort to conventional procurement. FCI and NAFED aim to procure 44 lakh tonnes of oilseeds and pulses under the new scheme. However, the government’s bandwidth to tackle procurement on this scale for crops other than wheat and rice is limited.
What about disposal of stocks to be procured?
In a normal supply-demand situation, the government should speedily sell the stocks in the open market post the procurement season. However, under situations of excess supply the government cannot pump the stocks back in the domestic market already reeling under the glut.
In such situations the government must find avenues to facilitate the export of the stocks and siphon them off from the domestic chain. However, this is not easily viable because high MSPs and global supply situation have resulted in lack of export parity for a host of commodities, including pulses and sugar.
To avoid what happened last season with Tur stocks, which rotted in godowns and were distributed at a throwaway price, the government needs to have a disposal plan in place, which may require subsidised exports.
The WTO factor
However subsidised exports beyond a threshold are not WTO compatible. India is already facing allegations at the WTO for providing agriculture subsidies higher than the norm and exporting sugar surplus, adding to the global sugar glut.
In such circumstances, India needs to find ways to incentivise exports that are WTO compatible. One of the ways, which has been tried with sugar, is to reimburse internal transport, freight, handling and other charges to facilitate exports. More such WTO compatible subsidies need to be put in place for commodities like pulses and oilseeds, too, so that surplus stocks can be moved out of the country.
For farmer income support, direct income transfer may be necessary for which a scheme modelled on the Rythu Bandhu Yojana of Telangana seems to be a better option that the Bhavantar model.
The PPPS on the other hand has the potential of benefiting the farmer, who receives MSP, the private player who fulfils his requirements of goods and earns for providing services, and the government which can save money as it need not buy and store physical goods.
However, despite the Central government having approved the scheme, it is yet to be rolled out in any State so far.
In summary, artificial MSPs not aligned to the market have the major pitfall of creating demand-supply mismatches and resultant market distortions. Income support options cause less distortion and these need to be implemented on a wide scale to alleviate farm distress.
The writer is MD & CEO, NCML. Views are personal.