CACP is right, open-ended procurement must go

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Published: November 4, 2019 12:45:51 AM

CACP, in its latest report for rabi season, has batted for direct procurement by private players, as envisaged under the Private Procurement Stockist Scheme.

agriculture, agriculture sectorThe government has taken steps to liquidate 15 mt of stocks, but hasn’t met much success.

If the visuals of rotting grains over the years had not made this clear, the Commission for Agricultural Costs and Prices (CACP) has recommended that the government review (read scrap) its open-ended grain procurement policy. As of October 1, against a buffer requirement of 30.8 million tonnes (mt) of wheat and rice, the total central pool stock, including stock in transit, stood at 64.2 mt—109% more than the requirement. With paddy procurement yet to happen, this quantity will shoot up. The government has taken steps to liquidate 15 mt of stocks, but hasn’t met much success here. CACP, in its latest report for rabi season, has batted for direct procurement by private players, as envisaged under the Private Procurement Stockist Scheme. While the purpose of open-ended procurement was to provide support to farmers, given the MSP hikes, this seriously weighed down the government’s finances. The Centre has made the Food Corporation of India shoulder this burden. Even as the economic cost of wheat increased 31.3% between FY14 and FY19, despite a 10-15% fall in the sale of subsidised grains, with no change in selling price via ration shops, the subsidy bill doubled from Rs 92,000 crore in FY14 to Rs 1,71,298 crore in FY19. This is the reason why long-term debt levels for FCI stand at Rs 200,000 crore, with an additional Rs 80,000 crore of short-term debt.

While CACP suggestion of reviewing open-ended procurement and shifting towards private procurement to correct market inefficiencies is worth serious consideration, these measures still not don’t address the more significant issue. As long as the government continues with MSP as its primary tool for farm support, kindling private players’ interest in procurement of grains will prove difficult since no private trader will be willing to procure grains at a price higher than the market price, which is usually the case with MSP. Apart from quality issues with grains, the MSP regime also hinders liquidation of stocks through export since it will trigger violations of WTO norms. Given how MSP benefits only a small pool of farmers from a handful of states while distorting agricultural production in favour of a few crops, the government will be meaningfully supporting farmers if it were to give per-acre support. Along with the quasi-universal basic income scheme, PM Kisan, and the insurance scheme, PM Fasal Bima Yojana, a per-acre support will mean the farmer will be able to make choices based on market requirement, rather than producing to benefit from an open-ended grain procurement policy. This will also, perhaps, mean judicious use of resources, if the choice of crop shifts from a water-intensive one to one more suited to water availability in a region; the success of Punjab’s experiment with water and DBT shows how well the plan can work. While MSP guarantees that farmers grow only certain kinds of crops, and subsidies on fertiliser and electricity mean indiscriminate use of these resources, a fixed per-acre support scheme will help cut down wastage. More important, it shall also address demand-side constraints. FCI can still maintain its buffer stock, but the PDS can be disbanded, as a NITI Aayog study shows that people tend to graduate to a higher quality of grains once they are allowed freedom and flexibility to choose.

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