Budget 2018: Centre ready to take a hit over crop minimum support price

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The Union Budget 2018-19 is likely to give freedom to states to intervene in agriculture markets so that  prices don’t crash sharply, but the Centre may have to bear up to 40 per cent of the losses suffered by states due to the Minimum Support Price (MSP) of a crop.


The proposal is being seen as a move to address the continuing rural distress. 


The scheme could cover all commodities for which the Centre fixes MSP, except wheat and rice. There won’t be any cap on the quantity to be purchased by the states.


Perishables like onion, potato and tomatoes won’t come under the purview of the programme either, for the time being, it is learnt.


The Central share would include compensation for losses suffered by states on procurement of crops, their storage, sale, interest cost and other ancillary expenses. 


For instance, chana’s MSP for the 2017-18 rabi season has been fixed at Rs 4,400 per quintal. If a state suffers a loss while procuring, storing and distributing it, the Centre will compensate it at the rate of Rs 1,760 per quintal. The remaining will have to be borne by the state government itself.


The big advantage of the proposed scheme, which is being called ‘Market Assurance Scheme’ (MAS), is that it will give operational freedom to states to intervene in agriculture markets to purchase directly from farmers as soon as prices start falling instead of waiting for a formal approval from the Central government. In fact, that has been the case with existing price support programmes like Market Intervention Scheme (MIS) and Price Support Scheme (PSS) as well.


In both MIS and PSS, the Centre too shares 50 per cent of the losses suffered by the states, but a formal approval is needed from it before a state can start purchasing. 


The disposal of procured agriculture commodities too has to be in coordination with the Centre, which results in unnecessary delay.


Under MIS in 2017-18 financial year, data shows that till December 18, the Central government spent around Rs 13.87 billion from its kitty to help states procure over 920,000 tonnes of onions, potatoes, red chilies and garlic.         


This was the highest ever funds allocated by the government under the scheme in the last six years starting from 2011-12.


Similarly, under the Price Support Scheme (PSS) for oilseeds and pulses, the Centre along with states procured 1.2 million tonnes of these commodities, spending around Rs 57.43 billion so far as its share. This too was by far the highest fund spent on the scheme since 2012-13. Through this, around 0.70 million tonnes of oilseeds have been procured so far while 0.50 million tonnes of pulses have been bought from farmers.


The procured quantity is a small fraction of the total production, leaving millions of farmers out of the safety net of official procurement. In 2017-18 kharif season, prices of all commodities grown have been ruling below their state fixed MSP despite a series of tariff changes by the government.

Relief to farmers
  • Centre to bear loses upto 40% of MSP of a crop whose price has dropped 
  • In case of hilly and Northeastern states, the compensation can extend to upto 50% of MSP
  • The compensation will cover losses suffered by states in procurement and distribution of agriculture commodities
  • It will include expenditure incurred on procurement, storage, interest cost and ancillary expenditure
  • At present, Centre operates two programmes called MIS and PSS to help states intervene in the market

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