Package of 3 schemes underfunded, purchase losses could overburden govt
In a slew of decisions on Wednesday, the Union Cabinet sought to help farmers with increased assurance on the minimum support prices (MSPs), reduce the pains to sugar industry and cane farmers owing to surplus production of the sweetener, cut costly edible oil imports and spur higher recovery from ageing hydrocarbon fields. While it sounded the poll bugle with the price support package for farmers, other decisions including 100% electrification of railway lines by FY22 seemed on economic rationale, although some analysts said the sharp hikes in ethanol prices could have unintended negative effect on oil companies.
Rolling out a package — PM-AASHA — of price deficiency support schemes for agricultural crops, the government announced an extra Budget outlay of over Rs 15,000 crore for procurement of non-National Food Security Act (NFSA) crops during the June 2018-July 2019 crop year. It also enhanced the government guarantee for Nafed to undertake procurement of pulses and oilseeds by Rs 16,550 crore to Rs 45,450 crore this fiscal.
The cost of the guarantee and the price losses on non-NFSA crops had added up to around Rs 1,000 crore in FY18, much higher than a couple of hundred crores in the previous year, as the government stepped up procurement of these items. The PM-AASHA comprises three schemes — two involving procurement at MSPs and the third where the differential between the MSP and the market prices will be paid to oilseeds farmers. For oilseeds, states will also have the option to rope in private traders for procurement under a handsome commissions-based incentive scheme.
The existing schemes the Food Corporation of India-led procurement of paddy, wheat and coarse cereals under NFSA — Rs 1.7 lakh crore is budgeted for this in FY19 — and the cotton and jute MSP operations under the ministry of textiles would run parallel to the new schemes.
The Narendra Modi government is banking heavily on the price-support package for farmers — which is meant to ensure that farmers get 150% of their production cost (A2+FL) as the prices for their produce — for its re-election in 2019. For as many as 14 crops in kharif 2018, the government had earlier announced MSP hikes in the range of 4-52% in sync with the policy to keep MSPs at 1.5 times the cost.
Wednesday’s Cabinet decisions imply that the government has indeed weighed the prohibitive costs of its policy that farmers get MSPs for marketable surplus of all crops. It also assumes that the schemes would not be rolled out fully during the current crop year.
Still, the maths may be worrisome for the government ; a 13% hike in paddy MSP itself has inflated NFSA costs this year by Rs 12,000 crore.
Analysing the costs of various price deficiency support schemes, a NITI Aayog paper had estimated that the Centre will have an additional annual outgo of close to Rs 45,000 crore — over the comparable expenditure in 2017-18 — to run the procurement-based price support scheme for 23 agricultural crops. Also, state governments among them will require to shell out some Rs 7,000 crore de novo. If only a Market Assurance Scheme (involving procurement and disposal by government agencies and akin to the price support scheme announced on Wednesday) is implemented, the additional cost could be even higher.
Icrier a few months ago put the cost of the policy (excluding paddy, wheat and sugarcane) at Rs 1.13 lakh crore, assuming the market prices are lower than the MSPs by 20%; the figure was Rs 56,518 crore if the difference was 10% and Rs 1.7 lakh crore if the gap was was 30%. The Icrier analysis, however, was based on the assumption that only the marketable surpluses get MSPs, an assumption that may not hold as assured MSPs could practically bring the entire produce to the market.
Market prices of 12 among the 14 kharif crops for which MSPs were announced were below their respective MSPs between June 15 and July 15, 2018, an analysis by FE of key markets had showed. The gap was above 20% in case of 10 crops, and higher than 40% in case of three of them. “In another one month, we will see how much the government and the private sector can procure to lift market prices to MSP levels,” said noted agriculture economist Ashok Gulati. “If market prices remain depressed, unloading those stocks will entail large losses. Who will bear that?” he asked. “A procurement policy without clarity on disposable strategy is like driving a bicycle on one wheel,” he added. With a steep fall in the prices of pulses and oilseeds, last year saw the price support for these crops to rise to an unprecedented level; Rs 35,000 crore was spent in the year compared with just Rs 13,000 crore in the previous year.