The Centre's move comes after it realised that the cost of implementing this scheme would be higher than the estimated cost
The Centre is planning to spend nearly Rs 20,000-25,000 crore along with states in the initial phase to ensure that farmers receive the benefit of increased minimum support price (MSP), according to a report in Business Standard.
Farmers will be able to reap MSP benefits through a direct procurement of goods or a system of Price Deficiency Payment, similar to Madhya Pradesh’s Bhawaantar Bhugtan Model.
The Centre's move comes after it realised that the cost of implementing this scheme would be higher than the estimated cost.
“The financial burden was earlier estimated to be around Rs 12,000 crore (110-120 billion) but after detailed discussions with a host of stakeholders including states, this looks inadequate. In any case, finances will never be a constraint for implementing the programme as it is now a stated policy of the government as announced in Budget 2018-19,” a senior official told the paper.
A detailed Cabinet note listing the share of Centre and states' burden is being prepared, officials told the paper, adding that the government may not impose a particular procurement model. The states will be free to adopt either of the three models — market assurance scheme (MAS), price deficiency payment (PDPS) or procurement by private agencies on behalf of the government — proposed by NITI Aayog.
The direct procurement model or MAS suggests the Centre to provide 100 percent compensation to state if the loss in procurement and other operations is up to 25 per cent of the MSP value of a crop. In case, loss in procurement is 25-30 per cent of value of MSP, the compensation will be shared between Centre and States in the ratio of 60:40 and burden will be shared in the 50:50 ratio if the procurement loss is 30-40 per cent of the value of MSP.
A rough calculation shows that the total expenditure works out to be around Rs 40,331 crore if the price loss is upto 15 per cent. The total expenditure increases to Rs 53,775 crore if the price loss is upto 25 per cent of value of MSP.
In the first, that is when the price loss is upto 15 per cent, the total expenditure works out to be around Rs 40,331 crore and if the price loss is upto 25 per cent of value of MSP, the total expenditure works out to be around Rs 53,775 crore.
If the Centre follows Price Deficiency Payment Scheme model, the cost is expected to be around Rs 22,584 crore in case of 15 per cent loss in value of MSP and it will rise by Rs 36,300 crore if the loss in value is upto 25 per cent.
These calculations are based on the assumption that wheat and rice do not fall part of this procurement mechanism and almost 40 per cent of total production is sold in the market as surplus.
NITI Aayog had earlier spoken about either adopting one model or a combination of more than one model for ensuring that maximum farmers get the benefit of increased MSP.
Implementation of MSP along with raising it to 50 percent of production cost (A2+Fl) will push up agriculture incomes by at least 24 per cent. This may have strong implications for inflation and consumers, however, this could be addressed by efficient supply chain and competitive markets, the note stated.