The Price Stabilization Fund (PSF) proposed by the Finance Minister Arun Jaitley in the last Union Budget is likely to be used exclusively for vegetables and cereals to prevent them from extreme price volatility.
Informed sources said that PSF will be stationed in the ministry of agriculture and an initial Budget has been sanctioned for the same. This is for the first time that a PSF exclusively for fruits and cereals has been created. Until now such a facility was available only for oilseeds and pulses.
Officials in the know said that such fund will be operated through National Agricultural Cooperative Marketing Federation of India (Nafed).
The state governments will purchase vegetables and cereals from open market and distribute it at cheap rates through Nafed outlets and state cooperatives.
"We have not yet received any formal direction from the government.There are some discussions going on in this regard. We have successfully conducted 'Price Support Scheme' for pulses, oilseeds and cotton. In case the government wants us to expand into vegetables and cereals also, we are ready for that," said S K Verma, general manager, Nafed.
Concerned by the recent price hike in onion, potato, green vegetables and supplements, Jaitley allocated Rs 500 crore for establishing a PSF. Currently, the Ministry of Agriculture is preparing a roadmap for utilization of this fund through government agencies.
Meanwhile, the government has already set up a Market Intervention Scheme (MIS) in oilseeds and pulses which runs through state machinery in case of extreme price volatility in these segments. To relieve customers from high prices, the government distributed sugar at subsidized rate through the Public Distribution System (PDS) two years ago. Last year also, the government imported onion for distribution through dedicated retail shops and mobile vans.
As per the existing MIS scheme, the centre bears the difference between the procurement and realization prices. In this also, the Centre will bear the difference between the market price and selling rate of the vegetables and cereals throughthe PSF.
Meanwhile, the government may also engage National Horticulture Board (NHB) for vegetables procurement and distribution.
"We are awaiting government's direction in this regard. Currently, MIS is operated by the Centre in association with the state governments. Whenever, any intervention is required to control price volatility, the state government comes out with a proposal. On accepting it, the Centre allocates funds forprocurement of the respective commodity. However, we are ready to commence procurement if the government directs us to do so," said Rajendra Kumar Tiwari, managing director of NHB.
Market intervention sometimes is needed to control prices of essential commodities from exponential rise.
Sensitive commodities like vegetables, onion and potato have witnessed a sharp rise in prices in the last few weeks. Commodities like onion, potato, green vegetables and supplements have seen upto 60% price rise since June when delay and deficiency in the monsoon rainfalls due to El Nino first came into light.
According to Madan Sabnavis, chief economist, Care Ratings, the government would require to establish distribution channel on its own due to short shelf life of vegetables for which the greater challenge would be to identify the timing of market intervention.
"In most cases, it was seen that by the time government procures commodities either from domestic or overseas markets and distributes them, the price of the same softens. Hence, intervention makes hardly any sense in these circumstances. Therefore, the government will have to keep commodities ready for interventionin case of need," he added.