Kharif paddy may fetch 8% over MSP
The draft foodgrain procurement policy has suggested that farmers should be paid 8% more than the Minimum Support Price (MSP) for paddy procured during the forthcoming kharif marketing season (October ‘06 to September ‘07).
By Prabha Jagannathan & Rajeev Jayaswal, TNN |
NEW DELHI: The draft foodgrain procurement policy has suggested that farmers should be paid 8% more than the Minimum Support Price (MSP) for paddy procured during the forthcoming kharif marketing season (October ‘06 to September ‘07).
The additional 8% would result in an outgo of Rs 650 crore while the MSP will continue to function as the floor rate. The policy has been circulated to the finance ministry and the Planning Commission for their comments, and it is likely to be submitted to the Cabinet soon.
Significantly, the draft policy of the food ministry has dropped any pro-active suggestion on state procurement agencies entering into forward contracts in the commodities market. However, it has recommended spot market purchases by agencies including the Food Corporation of India (FCI) to make up for any procurement shortfall in foodgrain requirements for the PDS and other welfare programmes.
The SBI-led 61 bank consortium, already into food credit to the FCI, is expected to extend credit facility for both domestic procurement on the commodities market as well as for imports, should the need arise.
However, the policy will be finalised only after the finance ministry spells out whether, and to what extent, it agrees to additional funding. Given that, entering into forward contract, particularly for state procurement agencies, may not be ruled out.
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“They may object to the proposal to offer the farmer a paddy procurement price of MSP plus 8% upfront and insist that we do price discovery and meet only any procurement shortfall through this payment. Finance ministry may also suggest that state procurement agencies, if not the FCI, enter into forward contracts up to a limit, thus saving on long storage charges for the government. The modalities of how to benchmark this will all be shaped up only later.” The draft policy holds that since in key procurement states such as Punjab, Haryana and Andhra Pradesh, state levies and other incidentals add up to quite a bit of the grain price, the additional 8% procurement price may be diluted there accordingly. In the run-up discussions to the current draft policy, FCI had already asserted that it would not be part of the dual grain purchase pricing proposal and would concentrate on procurement for welfare programmes.
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