PM-ASHAA and price deficiency payment: Touted at launch, flat in practice

Both were well-intentioned but inadvertently kept several farmers out and in any case had complicated implementation protocols on MSP

As a legal guarantee for the Minimum Support Price (MSP) takes centre stage after the repeal of the farm acts, various options are being floated to meet the demand of the protesting farmers.

One scheme that has found repeated mention in various commentaries and views is deficiency price payment. This is akin to the Bhawantar Bhugtan Yojana (BBY) started by Madhya Pradesh government a few years back to compensate farmers selling below MSP, without physical procurement of crops.

Price Deficiency Payment (PDP) is part of the broader bouquet of schemes which, collectively called PM-ASHAA or ‘Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA)’, was launched in September 2018.

The scheme has three components (i) Price Support Scheme (PSS), (ii) Price Deficiency Payment Scheme (PDPS) and (iii) Pilot of Private Procurement and Stockiest Scheme (PPPS) and is in addition to the existing schemes of the Department of Food and others for procurement of paddy, wheat, cotton and jute.

PM-ASHAA

A few months before the 2019 elections, as prices of several crops dropped much below their minimum support price, the Centre launched an ambitious scheme to procure a portion of the oilseeds and pulses and coarse cereals from farmers whose prices fall below the MSP.

The procurement was to be done on a request from the state government and the total purchases were to be capped at 25 per cent of the overall production of the crop in the state. This could be expanded up to 40 per cent if the commodity was used for PDS or for any other state welfare scheme.

A sum of Rs 15,000 crore was sanctioned for the scheme spread over a period of two years starting from 2018-19 of which Rs 6,200 crore was to be spent in 2018-19.

Procurement agencies such as Nafed were also given a bank guarantee of over Rs 16,000 crore over and above the existing Rs 29,000 crore.

The guidelines of the scheme laid down a cap on sale by individual farmers at 25 quintals a day. Besdies, no state could levy any tax such as mandi tax etc on such procurement.

The guidelines for PM-ASHAA state that in all the three components of PM-AASHA, the Centre's share of expenditure would be limited to 25 per cent of the state’s total production of oilseeds and pulses, while the state would have to arrange funds from its own resources if it wanted to procure or support over and above that 25 per cent.

Even in the case of Bhawantar (Price Deficiency Payment) where farmers get a differential payment between the Minimum Support Price and a pre-fixed modal rate, the guidelines state that such payout to farmers should not exceed 25 per cent of the MSP value of the crop for which support is being provided.

In the case of Price Support Scheme (PSS), the guidelines state that if any state wants any of the Central agencies to procure pulses, oilseeds and coarse cereals over and above the mandated 25 per cent, the states themselves will have to bear the expenditure for the same.

However, the Central support can expand upto 40 per cent of the season’s production, provided that the commodity is used for Public Distribution System (PDS) or other such welfare schemes at the state’s own cost.

The third important guideline of PM-ASHAA is that farmers, whether under Price Deficiency Payment Scheme or Price Support Scheme or private sector pilots, will have to be paid their remuneration within a fixed time period.

For example, in the case of Price Deficit Payment Scheme (PDPS), farmers have to necessarily be paid within one month of their sale of produce in notified mandis in their respective bank accounts, while in case of Price Support Scheme (PSS), the purchase price should reach farmers within three days of receipt of their produce.

PM-ASHAA progress

The Centre, in a reply given in the last session of Parliament, said that till August 2021, based on proposals given by states and UTs, around 9.2 million tonnes of pulses, oilseeds and copra have been procured under the Price Support Scheme and 1.7 million tonnes of oilseeds have been covered under the Deficiency Price Payment scheme of PDPS.

However, of the three components only the first, that is PSS has taken off.

The Commission for Agriculture Costs and Prices pointed out in a recent report that after the implementation of PM-AASHA, PSS has made significant progress in terms of procurement of pulses and oilseeds by Nafed, but PDPS and PPSS haven't.

The Commission recommended that PDPS and PPSS be strengthened to address procurement issues of oilseeds and pulses as physical lifting of these crops by public agencies isn't feasible due to the lack of regular disposal mechanisms and market infrastructure, unlike wheat and paddy.

The big question will be legalising MSP or giving legal status to PM-ASHAA. Deficiency payment can take off because previous experience with PDPS has not been very encouraging.

The Madhya Pradesh experiment

The Bhawantar Bhugtan Yojana (BBY) of Madhya Pradesh, started in 2017 and touted as India’s first large-scale experiment with Deficiency Price Payment, had been riddled with controversies at the outset.

Under the Madhya Pradesh model, registered farmers were to be compensated for a fall in prices below the MSP, but the payout was capped at pre-fixed ‘model rate’. This model rate was the average price prevailing in nearby mandis to board base the payouts.

Farmers were required to give their land details, along with the crop sown. The average yield of a certain number of years was taken as a benchmark for the payments verified by the competent authority.

If the actual price realisation was below the model rate, farmers got the difference between the MSP and model rate as compensation, but if the difference was more than the model rate, the payment would be capped at the actual difference.

The method of calculation was complicated, as was the process of registration and the multiple paperwork.

Despite several extensions, just about 45 per cent of the total area under eight crops for which the scheme was launched was registered in the kharif season of 2017. 

The maximum number of registrations were of soybean growers as it is one of the biggest crops grown during the kharif season in MP.

According to an Icrier Working Paper titled ‘Supporting Indian Farmers: Price Support or Direct Income/Investment Support?’, written by eminent agriculture economist Ashok Gulati along with Tirtha Chatterjee and former agriculture secretary Siraj Hussain in April 2018, out of the total 9.7 million hectares of area under the eight crops to which Bhawantar was applied in kharif 2017, just around 4.3 million hectares, or around 45 per cent was registered under the scheme.

This also meant that 55 per cent of the land was not even registered under the scheme and farmers in these were out from the scheme’s ambit.

“It is clear that a large number of farmers did not register themselves on the portal and had therefore to sell their produce at prices lower than that of the announced MSPs,” the paper said.

This also meant that despite a sharp fall in prices of most kharif crops in 2017, very few farmers actually benefited from Bhawantar.

If inadequate participation was one part of the problem, a bigger and more pertinent one was the sharp drop in prices once the sale window under Bhawantar opened. 

Allegations abound of farmers conniving with traders to artificially keep prices down to widen the differential between actual price and MSP so that the payout could be shared between the two.

An investigative report by news website scroll.in published in June 2018 based on RTI responses revealed that Madhya Pradesh farmers lost almost Rs 200 crore due to manipulation in the scheme which in some cases was done by traders purchasing the same crop multiple times from a single trader.

The Icrier Working Paper estimated the losses to be much more due to suppression of market price.

In the following rabi season, the Madhya Pradesh government withdrew some of the crops from the scheme and decided to purchase directly from the farmers. A big reason for the pullback was also Centre’s reluctance to share the financial burden of the scheme till the time a decision on its nationwide rollout was taken.

With elections round the corner and farmers facing headwinds due to falling prices, the Madhya Pradesh government months ahead of the kharif season of 2018, abandoned the old model and converted the scheme into a flat bonus payment fixed at Rs 500 per quintal for soybean and maize.

It was named  as ‘Flat Bhawantar Bhugtan’ yojana.