Bonus to paddy farmers to cost Odisha Rs 6000 crore annually

To fulfill its election promise of a 42% bonus over the minimum support price (MSP) to paddy farmers, the new government in Odisha has to make budgteray provision in excess of Rs 6000 crore per annum, given the curent level of procurement in the state, official sources said.

The largesse will also require the food ministry to give an exemption to the Odisha government for procurement of surplus paddy above what is needed for the central pool, as done for Chhattisgarh in the ongoing procurement season – 2023-24 (October-September). The sources indicated that ministry is not quite inclined to accord this waiver, as it will inflate the economic cost of grains due to the higher storage and transport costs. A rise in economic cost of grains handled for the Natioinal Food Security Act will result in higher food subsidy.

The BJP in its manifesto for Odisha promised to buy paddy at Rs 3,100/quintal, against the MSP of Rs 2,183/quintal for the current procurement season under the proposed Samrudh Krushak Niti. The MSP for the 2024-25 season is likely to be revised upward shortly and agencies have purchased 6.39 million tonne (MT) of paddy in the state in the ongoing season.

The centre bears the MSP payment to farmers while bonus is paid from the state government’s budget.

Under the Kirshak Unnati Yojana launched in March, Chhattisgarh paid a bonus amounting to Rs 13,320 crore or a differential of Rs 917/quintal over MSP to 2.4 million paddy farmers last year. The bonus is provided as an input assistance of Rs 19,257/acre to farmers, which aims to enhance their income, crop production, and productivity while reducing cultivation costs.

Chhattisgarh and Odisha have a share of 16% and 9% respectively in the total paddy purchase of 75.29 MT across key growing states in the current season.

Typically, when a bonus over MSP is offered for a crop, the farmers tend to grow that in more areas, leading to surplus output. This is because the Centre is firm that it is against taking over surplus rice and wheat stocks from these states for the ‘central pool,’ beyond the requirement for the public distribution system and buffer.

In 2021, a memorandum of understanding (MoU) was signed between the food ministry and decentralised procurement (DCP) and non-DCP states for procurement of paddy. It stated ‘in the situation of State giving any bonus of financial incentive in direct or indirect form, over and above MSP, if the overall procurement of the State is in excess of the total allocation of the state made by the government under TPDS, such excess quantity shall be treated to be outside the central pool.”

Sources said after the exemption against the existing guidelines was provided to Chhattisgarh, the state agencies in the 2023-24 season have purchased a record 12.38 MT of paddy against procurement of 8.75 MT in 2022-23 season.

“If we provide an exemption to Odisha on bonus, all other paddy growing states may demand similar concessions,” an official said.

Under the Kirshak Unnati Yojana launched in March, Chhattisgarh paid a bonus amounting to Rs 13,320 crore or a differential of Rs 917/quintal over MSP to 2.4 million paddy farmers last year. The bonus is provided as an input assistance of Rs 19,257/acre to farmers, which aims to enhance their income, crop production, and productivity while reducing cultivation costs.

Currently, FCI holds 50 MT — 32.31 MT of rice stocks and 17.91 MT of grain receivable from millers. The stock is against the buffer of 13.54 MT for July 1. The government needs about 38 MT of rice annually to supply under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY).

Because of rising stocks, officials said at present FCI has been unable to receive rice given from milling due to space constraints across several states including Punjab, Haryana and Chhattisgarh.

In 2014, the central government, through an official communication, had discouraged states from declaring bonuses over MSPs. The letter had stated that if a surplus DCP state declares a bonus over MSP, the Centre would limit its procurement for the central pool only to the extent required for managing the public distribution system in the state,

States including Punjab, Haryana, Chhattisgarh, Odisha, Telangana and Andhra Pradesh contribute significantly to the central rice pool which is used for supplying grain to PMGKAY beneficiaries. The rice procured from grain surplus states is also used for keeping a buffer stock with FCI.

After paddy is procured from the farmers by FCI and state agencies, it is handed over to millers for conversion into rice. Paddy to rice conversion ratio is 67%.