Farmer support: Centre looking to spend Rs 200-250 bn on MSP procurement

The Central government is looking at spending a minimum of Rs 200-250 billion initially along with the states in ensuring that farmers get the benefit of Minimum Support Price (MSP) either through direct procurement of goods or a system of Price Deficiency Payment on the lines of Madhya Pradesh’s Bhawaantar Bhugtan Model.

Officials said though a detailed cabinet note is being prepared on the finer details of the share in which Centre and states bear the financial burden, but one thing is increasingly looking eminent is that government won’t impose any one of the procurement models, but instead leave it to the states to either go for direct procurement called Market Assurance Scheme (MAS), Price Deficiency Payment (PDPS) or even Procurement By Private Agencies on behalf of the government.

“The financial burden was earlier estimated to be around Rs 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 said.

He said the high-powered panel of ministers formed under Home Minister Rajnath Singh which has representatives from all major ministries including agriculture, food etc has also looked into the various options.

“Though the Budget hasn’t made any specific provision for a scheme to ensure that maximum farmers get benefit of MSP, but finances can be arranged through supplementary demand for grants later during the year,” the official added.

NITI Aayog has suggested three models for procurement of farm products under the Minimum Support Price (MSP) mechanism, but the Centre isn’t keen to adopt one system nationally and might leave it to the states to choose any of the three.

Infact, a concept note floated by the Aayog few weeks back, too seems to favour not one single model for all states and talked of either adopting one model or a combination of more than one model for ensuring the maximum farmers get the benefit of increased Minimum Support Price.

Under the direct procurement model called, Market Assurance Scheme (MAS), the Centre as per a concept note floated by the NITI Aayog suggests Centre compensates 100 per cent to state if the loss in procurement and other operations is up to 25 per cent of the MSP value of a crop, the compensation will be shared between Centre and States in the ratio of 60:40 if the loss in procurement is 25-30 per cent of value of MSP and it will be shared in the ratio of 50:50 if the loss in procurement is 30-40 per cent of the 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.

This is assuming that wheat and rice don’t fall part of this procurement mechanism and almost 40 per cent of total production is sold in the market as surplus.

The second option of Price Deficiency Payment Scheme (loosely based on Bhavantar model of Madhya Pradesh) is expected to cost the exchequer much lower around Rs 22,584 crore if 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. Here too, wheat and rice won’t fall part of the procurement mechanism.

However, not many states seem to be in favour of this model and only few of them who participated in the discussion seem to support the model.

The private procurement model in which players independent of the government machinery are invited to participate in the purchases through a transparent process was third which was discussed.

All states seem to interested in it, but mostly as a supplement to the other two mentioned ideas and independently in some case, the note added.

The state which implements the private procurement model gets compensated while the private player is also offered some concessions and relaxations such an in IT etc.

The note also says that implementing MSP along with raising it to 50 per cent of production cost (A2+Fl) will push up agriculture incomes by atleast 24 per cent, but could have strong implications for inflation and consumers. This could be addressed by efficient supply chain and competitive markets.