NITI Aayog to finalise mechanism for MSP payment by March-end

The Central government might formalise a mechanism to ensure farmers get adequate price for their produce by March after making necessary changes to its own Market Assurance Scheme (MAS) or Madhya Pradesh’s Price Deficit Financing Programme (Bhawaantar Yojana) or procurement by private agencies based on suggestions made by states.

The mechanism is expected to be finalized by March-end, an official statement said after the first meeting between State governments and NITI Aayog.

The meeting was held as part of Finance Minister Arun Jaitley’s Budget announcement directing the Aayog to work out a ‘fool-proof’ mechanism to ensure that farmers get adequate price for their produce. 

The price, Jaitley had said will be 1.5 times more than their cost of production.

Officials said the state government representatives and senior officials from the ministry of agriculture, food, PMO and NITI Aayog primarily discussed three main options.

These were the Centre’s own Market Assurance Scheme (MAS). 

Madhya Pradesh’s Bhawaawantar Bhugtaan Yojana (BBY) or Price Deficiency Procurement Scheme. 

Under this scheme, if the sale price is below a modal price then the farmers are compensated to the difference between MSP and actual price subject to a ceiling which may not exceed 25 per cent of the MSP.  

No compensation is due if modal price in neighbouring states is above the MSP.  

The third option which was discussed at the meeting was procurement by private entrepreneurs at MSP and the government provides some sort of policy and tax incentives and a commission to such private entities which may be decided on the basis of transparent criteria. 

The private player is nominated through a transparent bidding process by the state government. 

The ministry of agriculture said that states could adopt more than one procurement model depending upon their own convenience while all the three options might not be considered for the same crop.

The private procurement model found a lot of promise among the participants, the official statement said as it ensures that fiscal liability of states is limited while entry of private parties in agriculture marketing improves completion. 

The government liabilities for storage and post-procurement management and disposal are also avoided, the statement added.

However, critics said that earlier too lot of attempts have been made to involve private sector in procurement operations, but they haven’t been particularly successful and the main reason for this is back-end facililties of storage and warehousing are handed over to them, they simply don’t have the wherewithal to purchase farm goods in bulk.

"We had suggested in our first report on reforming the Food Corporation of India (FCI) that private sector should be entrusted with the task of running assets like godowns and warehouses, but for four years, the government didn’t act on this. Now, they are again talking of involving the private sector in procurement operations, how far this will move remains to be seen,” Ashok Gulati, Infosys Chair Professor for Agriculture in ICRIER told Business Standard.

NITI Aayog vice chairman Rajiv Kumar in his address at the meeting meanwhile also advocated some sort of commission for the private player if he decided to procured farm products on government’s behalf at MSP and also abides by other terms of engagement.