For a second straight marketing year, the government’s plan to start transferring subsidy directly to cotton farmers through a pilot project without having to procure the fibre through state-run agencies is unlikely to materialise, as market prices are expected to stay above the state-fixed benchmark rates, according to textile secretary Rashmi Verma.
This also means for the first time since 2013-14, the government may not have to procure much cotton to prevent any distress sales by farmers in 2016-17, as the government intervenes in the market only when prices go below the as minimum support prices (MSPs). The cotton marketing year begins on October 1.
Talking to FE, Verma said, “Currently, market prices are above the minimum support prices (MSPs). When cotton crop floods to the market (in the coming weeks), there could be a decline in prices, but prices may still remain above the MSPs. So it’s expected that we may not have to go for MSP operations this year. This is also the reason why the pilot project may not also take off this year as well.”
In a first for the country, the Centre announced in December 2015 a pilot project in Wardha district of Maharashtra to stop official procurement and instead transfer cash directly into farmers’ accounts for any losses incurred by them due to a drop in the fibre prices from the MSPs. It had planned to replicate the model across the country if the project were a success. The aim was to cut costs of cotton procurement, handling and storage, while enhancing the efficacy of government intervention to prevent losses to farmers.
Cotton prices have been mostly higher than the MSPs since the beginning of 2015-16. This was reflected in the fact that the government’s procurement crashed massively to just 8.44 lakh bales in 2015-16, compared with almost 7 lakh bales in the previous year.
According to the latest official data, the average monthly prices of the Shanker 6 variety have been higher than the MSPs (in the range 11.9-17.5% between December and May — the peak procurement season). Similarly, the prices of another popular variety, bunny brahma, have been higher by up to 14.5% during this period.
Late last year, the government proposed to introduce the so-called ‘Direct Payment Deficiency System (DPDS)’ under which it would bear the difference between the sale price of cotton and the MSP (the sale price has to be lower than the MSP). A farmer would have to submit proof of cotton sold at the Agriculture Produce Market Committee yards and the losses, along with papers including ownership document. Once these are submitted with and verified by the local designated authority, the subsidy amount would be transferred to a farmer’s account directly within two weeks.
The government wanted to try out this system, which has proved to be successful in China as well, another official said. Usually state-run Cotton Corporation of India procures cotton from farmers at the MSPs and sells the stocks in the market later. Any losses out of the procurement operation is reimbursed by the government. However, since such an operation involves huge costs and carries the risk of subsidy leakages, the government wanted to put in place a better system.
Last year, then textile minister Santosh Kumar Gangwar had said the government could incur losses of `2,500 crore in 2014-15, although it was still lower than the initial estimate of `4,000 crore. The estimates of any losses on account of the MSP operations during the 2015-16 marketing year that ended on September 30 are yet to be announced.