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Friday, 09 February 2018 04:14
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Deficiency payments swell due to market manipulation


While the government has yet to work out the modalities of its proposed MSP-based deficiency payments scheme, the lessons from the state—Madhya Pradesh (MP)—that is experimenting with this scheme are worrying. For one, as MP brings out, the scheme lends itself to manipulation from traders, as a result of which even though the scheme is intended to benefit farmers, the biggest beneficiaries are local traders who manage to depress the market and the lower bureaucracy that decides which farmers get to register for the scheme. While MP has traditionally had lower prices than other states for most crops, after the implementation of the scheme in September 2017, the price difference has risen. Urad prices, for instance, fell by 51% in 2017-18, a fall not seen even when there was a bumper harvest. Urad prices in MP were 93% of those in Rajasthan in FY17 but this fell to 77% in FY18, and from 65% to 57% when a comparison is made with Uttar Pradesh. What made things worse, and this will happen in the central government scheme also, is the dramatic increase in market arrivals since the government has assured a high price relative to the market—compared to 1.5 lakh tonnes in FY17, market arrivals for urad rose to 6.3 lakh tonnes in FY18 while for soybean and maize they rose by around 50% over the same period.

So, if in the past, marketable surpluses that the government had to procure at the MSP used to be quite small, in the new scheme planned they will be very large. Based on this, this newspaper has estimated that the additional cost of such a scheme on a pan-India basis can be upwards of Rs 80,000 crore. An average price difference of 20% has been assumed between MSP and the market price of the commodity for this estimate, though the difference has been as high as 43% in the case of urad in MP and 24% for moong—the difference would have been higher if only mandi prices in the state were used, but the MP government has included prices in other states also to calculate the reference price for the compensation. The scheme has cost the state around Rs 1,950 crore for eight crops in Kharif 2017. This, however, will increase dramatically once more farmers learn of the scheme.

While just around a third of urad production was registered for the scheme in MP, it was under a fifth for soybean, a tenth for maize, a twentieth for groundnut—had the entire output been compensated, MP’s deficiency payments would have risen to around Rs 8,500 crore or almost its total agriculture budget. Since it is not clear how these defects in the scheme can be plugged, ideally the Centre would do well not to implement the scheme and, instead, perhaps distribute cash to farmers based on the size of their landholdings—this will at least ensure that middlemen don’t corner the benefits meant for farmers.


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