Ministry moots buying grains for PDS through futures exchanges

He said this would ensure remunerative returns to farmers and also cut on government's storage costs.

"We have proposed the use of futures exchange platform by the government to buy its grain requirements, rather than procuring them and incurring huge storage costs. I think it is a very workable proposal," Labanyendu Mansingh, consumer affairs secretary said.

He said the government could take positions in the futures exchanges for the month in which it needs grains for running the PDS, equivalent to the quantity of its requirements, and on the due date, ask for delivery. It should take position at a price that it feels is remunerative for the farmers and pay it at the time of delivery, he said.

This would ensure that the government would not even need to fix the minimum support price for wheat and rice.

"Whatever is the price, which government feels should be the MSP, should also be the price at which it should offer to buy grains and additional charges can be paid to the farmers to cover their transportation costs for the designated distribution centre," he pointed out.

He said it will be a win-win situation for all the stakeholders because the farmer will be guaranteed a price he would get at a future date, the government would not have to incur huge storage, and transportation costs and PDS would continue to be run for the poor and needy.

Against the price at which the government would have agreed to take position in wheat and rice futures, farmers would store their grains in accredited warehouses and use the receipts obtained to get credit from financial institutions, he added.

Mansingh said this would improve a farmer's liquidity position and the farmer would not have to make distress sale for the grains produced.

Consumer affairs secretary said that the government is already working on a legislation to make warehousing receipts a negotiable instrument against which the farmers can rightfully get credit from the banks.

The warehouses will be accredited by independent agencies only if they meet the requisite conditions related to grading, storage and transport infrastructure.

Currently, the government spends more than Rs 25,000 crore annually in its grains management operations, which will get drastically reduced if the procurement system is replaced with one linked to futures trading.

The quality specifications will also be met in line with the rules of the concerned exchange and corruption, which emanates from procurement would also be minimised, he said.

Moreover, the system will benefit the farmers on a national scale in contrast to the current system under which grains are procured only from a handful of states such as Punjab and Haryana, Mansingh added.

Food for thought

• The government could take positions in futures exchanges for the month in which it needs grains for running the PDS, equivalent to the quantity of its requirements, and on the due date, ask for delivery.
• Move would ensure that the government would not even need to fix the minimum support price for wheat and rice.