States may pick market assurance mode for new MSP scheme

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New Delhi | Published: September 4, 2018 2:52:34 AM

While the Cabinet is likely to take up the latest proposals of the farm ministry later this week to ensure smooth implementation of the schemes, state governments have already been given green signal to undertake preparatory work.

States may pick market assurance mode for new MSP scheme

A market assurance scheme (MAS) may be the preferred choice of the states while implementing the new minimum support price scheme of the Centre for agricultural crops at 1.5 times the production costs (A2+FL) in the kharif season.

This is because preparations are not up to expectation for the bhavantar and private traders schemes. The MAS involves decentralised procurement and disposal of stocks by states.

As early as this week, the Union Cabinet is likely to give approval to the three options, including the private traders scheme, which will be rolled out on a pilot basis for this year, an official said.

The scheme, where the cost to the exchequer is the lowest, would be made a full-fledged one next year if pilots are successful.

With the new MSP policy likely to be a key plank of the BJP-led government in the run up to general elections, the Centre is looking for a smooth rollout of the policy.

To implement the policy of assured procurement of whatever quantity of 14 kharif crops that comes to the market, bulk of which would be by the BJP-ruled states such as Madhya Pradesh, Haryana, Uttar Pradesh and Rajasthan, the Centre might have to spend an additional `15,000-20,000 crore in FY19. In FY20, the Centre’s extra expenses could be over `33,000 crore once all the 23 crops, grown in the kharif and rabi seasons and for which MSPs are fixed, are covered.

However, the above official estimate was based on 40% marketable surplus and a combination of the three MSP support schemes. Analysts had pointed out that the policy would drive farmers to bring all their produces to markets, inflating the schemes’ costs to the government.

Assuming that procurement would be 40% of the marketable surplus, the annual extra cost to the Centre under the new policy was estimated to be around Rs 42,000 crore if only MAS was adopted, Rs 28,000 crore under the price differential (bhavantar) paid to farmers and about `13,000 crore under the option involving private trade, an official said.

Independent analysts have estimated the cost of the policy’s implementation to the government to be much higher — assuming marketable surplus of 80% and market prices 20% below MSPs. Icrier has estimated the cost to be `1.13 lakh crore, excluding paddy, wheat and sugarcane.

While the Cabinet is likely to take up the latest proposals firmed up by the Ministry of Agriculture later this week to ensure smooth implementation of the schemes ahead of the kharif harvest in October, states have already been given green signal to undertake preparatory work.

“The Centre will give a cafeteria model to the states. Depending on the states’ preparedness, they will roll out schemes to implement the new MSP policy,” an official said. However, a larger share in the kharif season could be MAS (the revised version of the price support scheme) as the implementation framework is already in place, the official added. The preparatory work for bhavantar and private traders schemes fell short of expectations, another official said.

The states, which have prepared data base such as each farmer’s land holding and cropping pattern, could implement the bhavantar scheme as well as pilots on the private traders model.

Under the private stockist scheme that ropes in private traders and stockists, a commission (including mandi taxes, handling charges and other fees) as determined by the states through a bidding process for each crop could be paid to empanelled agencies (traders) for procuring at MSP rates.

According to an earlier NITI Aayog estimate, the Centre will bear the entire procurement cost and 100% of the price loss cost up to 20% of the new MSP and half the price loss cost between 20% and 25% of MSP. On their part, the states will have to spend only half of the price loss cost between 20% and 25%.

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