FinMin presses agri ministry for reworking MSP procurement models

Govt says excessive financial burden might be difficult to sustain in the long run

The Centre had indicated funds wouldn’t be a constraint when it came to fulfilling the key announcement of developing a fool-proof procurement model for crops whose prices have fallen below the minimum support price (MSP). But, the finance ministry is learnt to have told the agriculture ministry that it won’t be possible to bear any annual expenditure which is more than Rs 200-250 billion in the long run.

At a meeting held three weeks ago, senior policymakers in the North Block told agriculture ministry officials that they needed to rework the proposal with regard to funding and methods of procurement.

“The projections the agriculture ministry have made are, in our view, overestimated. 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 quoted above said, adding the amount sought was higher than Rs 250 million.

Another official said the 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 implications, 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 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 a year, while the proposals put forward by both the agriculture ministry and the NITI Aayog were near Rs 300 billion.

The government will move ahead with the scheme only after proper clarity is obtained and all pros and cons of the three models suggested by the NITI Aayog and agriculture ministry is properly evaluated. For this, 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 the Madhya Pradesh government, the state pays a portion of the loss suffered by farmers for selling below the MSP, capped up to a limit. 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 the MSP, while the Centre shares a portion of the loss. Called the Market Assurance Scheme (MAS), it gave operational freedom to states to intervene in the market in the case of a fall in prices.

Finance Minister Arun Jaitley in his 2018-19 Budget speech, while announcing that henceforth all MSPs will 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 the states.

Under MAS, according to the NITI Aayog paper, the expenditure could be something between Rs 405 billion and Rs 540 billion annually, depending upon the extent of loss shared, while under the price deficiency payment scheme, the expenditure is expected to less than Rs 300 billion. But, central government officials said the expenditure could be much less, around Rs 200-250 billion. The third model which is also being discussed is active involvement of private players to procure at MSP. The private parties are to be selected through a transparent process.