High PSF provision in Budget 2024 revives buzz about merger with PSS

But PM-AASHA allocation indicates otherwise

A concern ahead of the Union budget for 2024-25 (FY25), presented on July 23, was whether it would have enough to tackle the vexatious issue of food inflation. 
 

Admittedly, inflation management is a combination of several factors, and the Budget is just one of the instruments. However, the annual financial statement of the Union government does indicate how it sees the problem and how it plans to address it.

Within the inflation basket, food has been stubbornly high for a year, which has been 
 

attributed to low and inadequate monsoon in 2023 followed by weak post-monsoon showers due to El Nino. 
 

Between July 2023 and June 2024, food inflation, as measured by the Consumer Price Index-Combined has hovered in the range of 6.6 to 11.5 per cent.

 

In the first Budget of the Narendra Modi government’s third term in office, Finance Minister Nirmala Sitharaman said steps were being taken to ensure that an adequate supply of perishable goods reached the markets. This year’s Budget has allocated Rs 10,000 crore under the Price Stabilisation Fund (PSF), which is housed in the Department of Consumer Affairs.
 

The fund will be used for maintaining a buffer stock of pulses, onions, and potatoes, and for ensuring sufficient availability of these commodities in the market to cool prices when required.
 

The PSF was first established in FY15 under the Ministry of Agriculture to help regulate price volatility in important agriculture and horticultural commodities such as onion, potato, and pulses. However, from April 1, 2016, the fund was transferred to the Department of Consumer Affairs.
 

The PSF provision of Rs 10,000 crore for FY25 is among the highest in recent times. Before FY25, the largest expenditure through the fund had been Rs 11,135.30 crore in FY21. Meanwhile, the allocation for the PM-AASHA (Pradhan Mantri Annadata Aay Sanrakshan Abhiyan) scheme, also housed in the Ministry of Agriculture and Farmers Welfare, was substantially raised from Rs 2,200 crore in the Revised Estimates (RE) for FY24 to Rs 6,437 crore in the Budget Estimates (BE) of FY25, an increase of almost 192 per cent.

In fact, from February’s Interim Budget, the PM-AASHA scheme allocation has been raised even higher, by almost 270 per cent.

Merger buzz
 

PM-AASHA promises to guarantee minimum support prices to farmers, particularly those growing oilseeds and pulses, through either direct support or price deficiency payment mechanism.
 

For direct support, the Price Support Scheme (PSS) is deployed to intervene when prices of pulses, oilseeds, and copra fall below the MSP. The PSS is more than three decades old. The Ministry of Agriculture is its nodal agency and it is implemented in collaboration with state governments.
 

The PSS became part of the broader PM-AASHA in September 2018. The objectives of PSF and PSS are similar, but they are operated by two different ministries, occasionally leading to insufficient responses. Therefore, some experts have demanded a merger of the two funds.
 

News reports say a Parliament panel asked the government in March last year to decide on merging the PSF and PSS at the earliest to efficiently tackle price volatility in food items. The Standing Committee on Consumer Affairs, Food, and Public Distribution made this recommendation in a report tabled in Parliament regarding the Demand for Grants for the Department of Consumer Affairs.
 

Earlier, the merger of the two funds was recommended by the government think tank, NITI Aayog, and even considered for inter-ministerial consultations between three departments of Agriculture, Food, and Consumer Affairs.
 

On the status of a merger, the Parliamentary Panel report said the Department of Consumer Affairs had said that an inter-ministerial committee had suggested a “combined scheme” for price support and buffer management by combining PSS and PSF to be implemented by a single ministry, which in this case was Agriculture. It also suggested that the modus operandi for buffer norms and management should remain under the administrative control of the Department of Consumer Affairs.
 

Further, the inter-ministerial committee had decided that “till the final approval is obtained from the Cabinet, status quo may be maintained for implementing PSS and PSF...”
 

To this, the Parliamentary panel as per the news reports had said, “...a decision in the matter should arrive at the earliest so that the government is ready to tackle any possible price volatility and the committee may be apprised about the progress made in the matter.”
 

PM-AASHA’s role
 

Some media reports suggest the jump in allocation for PSF in FY25 is due to the merger of the two schemes. However, experts say if that was the case, the allocation under PM-AASHA, which includes PSS, would not have risen so much.
 

They argue that the fact that the PM-AASHA budget has been substantially raised means PSS is alive and kicking.
 

Apart from PSS, which is specifically for pulses and oilseeds, the Ministry of Agriculture also implements another scheme called the Market Intervention Scheme (MIS). According to a statement in Parliament some years back, the MIS is for procurement of perishable horticultural commodities that are not covered under the PSS. The objective is to protect the growers of these commodities in the event of a bumper crop during the peak arrival period.

The MIS is also implemented at the request of a state government ready to bear 50 per cent of the loss (25 per cent in the case of North-Eastern states), if any, incurred on its implementation. The fund-sharing pattern is different in the case of PSF and PSS.
 

Under the e­ MIS, a predetermined quantity at the fixed Market Intervention Price (MIP) is procured by agencies designated by the state government for a fixed period or till the prices are stabilised above the MIP, whichever is earlier. The Central share of losses, if any are incurred in implementing the MIS, is released to the State procuring agencies as under the proposals received from the State government.
 

However, some experts say though the MIS resides with the Ministry of Agriculture, much of the interventions in the case of perishable commodities such as onions, potatoes, and tomatoes of late have been through the PSF, which is with the Department of Consumer Affairs. 
 

To some, the problem is that the PSF is meant to create a buffer when prices fall and release the buffer stocks into the market to control inflation, which itself could harm farmers.
 

With the MIS not much in play in the last few years, some experts say the options with the Agriculture Ministry might be limited when it comes to supporting horticulture farmers, particularly those growing onion, potato, and tomato.
 

Unless, of course, the recommendations of the Parliamentary Panel are implemented soon.