Centre finalises option of 2 MSP models for states

NEW DELHI: The Narendra Modi government has devised two potential mechanisms to ensure farmers get the federally fixed minimum support prices (MSPS) for their crops, a key assurance made in the latest Union Budget, and will give state governments the option of choosing either.

The first is the so-called Market Assurance Scheme, under which states will directly buy 20 major crops out of 25 for which MSPS are fixed by the Centre. The scheme leaves out wheat, rice, jute, cotton and coconut because these are already procured by government agencies at MSPS.

The second is the so-called price deficiency payment scheme, under which all farmers who register for the programme will get paid the difference between the MSP and the prevalent average market price. A third proposal to allow private participation in procurement is not being considered at this stage, an official said. Ahead of a general election next year, the government faces the task of ensuring profitable farming, amid falling commodity prices and protests by farmers. Nearly twothirds of Indians depend on agriculture for a living According to the 2011 Census, 56.6% of the labour force also depends on agriculture and allied activities.

Under the market assurance scheme, the Centre will fully reimburse a loss of up to 35% of procurement cost to the states. A loss of 35-40% will be shared by the Centre and states on a 50:50 basis. “Beyond 40%, states will have to bear their own losses because this means the state has been inefficient in procuring and handling the procured produce,” an official familiar with the plan on condition of anonymity said.

Although there is no cap on how much quantity can be procured, the government’s policy think tank NITI Aayog expects the maximum quantity of each crop available for procurement not to exceed 40% of the marketable surplus. The second scheme is a generic version of the MP government’s Bhavantar scheme. Under this, if the market price of a farm commodity dips below the “modal” price — a kind of an average price — then the farmers will be paid the difference between the MSP and the actual price. If any state chooses the second scheme, the Centre will reimburse it up to only 25% of the MSP.

“The terms of trade have moved decisively against agriculture. That is the challenge any government intervention on MSP has to ultimately address,” said economist YK Alagh. Terms of trade in this context means total prices received by farmers compared to total prices paid. Its an economic measure of how profitable a particular trade is.

States will be free to choose either of the two schemes. The proposals will be brought before the Cabinet for approval soon. “Some states may prefer to go with the first, while some may prefer the second scheme. In any case, during consultations, all states agreed to these two models,” the official cited above said.

A group of ministers headed by home minister Rajnath Singh has approved the two proposals, but felt that the mechanism for disposal of accumulated commodities is needed to be finetuned. The final proposals will be placed before the Cabinet Committee on Economic Affairs. “It should happen within a week,” an official said