1. Direct transfer of subsidy to farmers hits wall; here’s why

Direct transfer of subsidy to farmers hits wall; here’s why

The government’s plan to start transferring subsidy directly to cotton farmers without having to procure the fibre through state-run agencies in the current marketing year through September has been dashed, ostensibly by factors beyond its control.

By: | Published: June 9, 2016 7:09 AM

The government’s plan to start transferring subsidy directly to cotton farmers without having to procure the fibre through state-run agencies in the current marketing year through September has been dashed, ostensibly by factors beyond its control.

In a first for the country, the Centre announced in December a pilot project in Wardha district of Maharasthra 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 benchmark rates fixed by the government. It had planned to replicate the model across the country if the project was a success. The aim was to cut costs of cotton procurement, handling and storage, while enhancing the efficacy of government intervention.

A senior government official told FE: “Since cotton prices remained above the minimum support prices (MSPs) in that part of the state, the government intervention was not required this year. So the pilot project couldn’t be started.” Asked if the government intends to scrap the project, the official, however, said: “There is no such plan. We will start when required.”

Cotton prices have been mostly higher than the MSPs in the 2015-16 marketing year in the country. According to 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). 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 (APMC) 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, textile minister Santosh Kumar Gangwar had said the government could incur losses of R2,500 crore in 2014-15, although it was still lower than the initial estimate of R4,000 crore. The CCI procured 8.7 million bales of cotton in 2014-15.

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