FinMin presses agri ministry for reworking MSP procurement models

FinMin presses agri ministry for reworking MSP procurement models

New Delhi, May 21: The central government had earlier indicated that funds would not be a constraint for fulfilling the key announcement of developing a foolproof procurement model for crops whose prices have fallen below the minimum support price (MSP). However, the finance ministry is learnt to have told the agriculture ministry that it would not be possible to bear any annual expenditure above Rs 200-250 billion in the long run.
At a meeting held three weeks ago, senior policymakers in North Block told officials from the agriculture ministry that the latter needed to rework its proposal with regard to funding and methods of procurement.
“The projections that the agriculture ministry has made are, in our view, over-estimated. There were gaps in the proposal, on funding, methods of procurement, the system of procurement, which options are workable, or not. These were pointed out to them. We are awaiting a workable proposal from them,” said a senior official.
“They had given a number which they themselves said was at the outer limit of their estimates,” the person said, adding that the amount sought was higher than Rs 250 million.
Another official said that NITI Aayog has also been directed to re-work some of the models of procurement suggested by them, and also carefully evaluate all the proposals for their financial implication, as launching any programme which could have a huge financial burden might be difficult to handle.
“It’s a commitment of the government so we are bound to meet that, but there has to be a realistic assessment of costs involved and also the process in which this could be done,” the second person said.
He said whatever be the methodology, it would be difficult to sustain an expenditure which is more than Rs 250 billion per year, while the proposals put forward by both agriculture ministry and NITI Aayog total nearly Rs 300 billion.
Government would move ahead with the scheme only after proper clarity is obtained and all pros and cons of the three models suggested by NITI Aayog and agriculture ministry is properly evaluated. It is also planning to commission a high-powered study by a reputed agency to study Madhya Pradesh’s Bhawaantar Bhugtan Yojana (BBY) – one of the models suggested by the Aayog, as an option to direct procurement.
Under the Bhawaantar Bhugtan Yojana of Madhya Pradesh government, the state pays a portion of the loss suffered by farmers for selling below the MSP capped up to a limit.
Madhya Pradesh started the scheme from the 2017 kharif season and was planning to carry it on during the next rabi season as well, but had to abruptly withdraw the main commodities after the Centre declined financial support, awaiting a formal national roll-out. The scheme was being studied by other states as well and had been riddled with allegations of malfunctioning and hijacking by traders.
The other model which the Central government is trying to push is a more direct model of purchase where states are free to purchase commodities if prices fall below MSP, while the Centre shares a portion of the loss. Referred to as the Market Assurance Scheme (MAS), this scheme gave operational freedom to states to intervene in the market in case of a fall in prices.
Finance Minister Arun Jaitley in his 2018-19 Budget speech, while announcing that henceforth, all MSP would in-principle be fixed at 50 per cent more than their cost of production (A2+FL) also directed the NITI Aayog to finalise a procurement model which would ensure that maximum farmers get the benefit of MSP.
Accordingly, the NITI Aayog has come out with a concept paper that highlights three models of procurement that include MAS, Price Deficiency Payment and also procurement by private agencies. The paper was finalised after extensive discussion with states.