To implement the policy of assured procurement of whatever quantity that comes to the market of 23 agricultural crops at 1.5 times the production costs (A2+FL), the Centre is likely to come out with three options, including one involving private traders, where the cost to the exchequer is the lowest.
While 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 Rs 1.13 lakh crore, excluding paddy, wheat and sugarcane — government officials told FE that for all 23 crops, the additional cost to the Centre could be Rs 15,000-20,000 crore in FY19, largely to cover the 14 kharif crops. In FY20, the Centre’s extra expenses would be about Rs 33,000 crore as all 23 crops and both kharif and rabi seasons will be covered.
However, the official estimate is based on 40% marketable surplus and a combination of the three MSP support schemes. Analysts had pointed out that the policy would drive the farmers to bring all their produce to the markets, inflating the schemes’ costs to the government.
It is also not clear how much difference between the market prices and MSPs will be assumed by the government to arrive at the cost estimates.
The NITI Aayog had earlier estimated the total cost of nationwide implementation of Market Assurance Scheme (MAS), which involves decentralised procurement and disposal of the stocks by states, at a little over Rs 1.11 lakh crore, assuming all the 23 crops identified including wheat and rice are covered up to 40% of the marketable surplus and capping the prices loss (difference between farm harvest prices and the minimum support prices) to be eligible for compensation at 25% of the MSPs.
The Cabinet, the sources said, would likely take up the latest proposals firmed up by the ministry of agriculture by August-end to ensure smooth implementation of the schemes by the states ahead of the kharif harvest in October.
To encourage the private agencies, the government might exempt these entities from import/export restrictions to enable sale of surplus in overseas markets. Under the scheme that ropes in private traders and stockists, a commission (including mandi taxes, handling charges and other fees) of 5% or as determined by the states through a bidding process for each crop could be paid to empanelled agencies (traders) for procuring at MSP rates.
The costs of the schemes to states are seen to be much lower than the Centre’s.
According to a NITI Aayog estimate earlier, the Centre will bear the entire procurement cost and 100% of the price loss cost up to 20% of the 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% .
Assuming that procurement would be 40% of the marketable surplus, the annual extra cost to the Centre under the new policy is estimated to be around Rs 42,000 crore under MAS, Rs 28,000 crore under PDPS (sans procurement, the price differential is paid to farmers) and about Rs 13,000 crore under the option involving private trade, an official said. However, he admitted that the actual costs could be higher if procurement is above 40% of production.
NITI Aayog vice-chairman Rajiv Kumar said these numbers were too hypothetical. “We know that each state will have the choice of adopting one or more of the three procurement modalities as their procurement package. In case they adopt the private traders option, the costs will be a fraction of those under the market assurance scheme or the Bhavantar scheme (PDPS) are adopted, alone or together,” Kumar added.
In 2017-18 (October-September), the Centre expended close to Rs 60,000-25,000 crore to meet the procurement costs of wheat, rice and coarse cereals under the National Food Security Act and a record Rs 35,000 crore for the price support scheme for pulses and oilseeds.