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Market Assurance Scheme

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December 28, 2017

What is the issue?

  • Central government proposes to launch the new “market assurance scheme” (MAS).
  • Given the shortfalls with similar systems already in place, the proposal needs a relook.

What is the market assurance scheme?

  • It is a new price support scheme under which states would be free to procure from farmers all crops for which MSP is announced.
  • States can procure any quantity of coarse grains, millets, pulses and oilseeds, except rice and wheat.
  • As, rice and wheat are already being procured by the centre for the public distribution system.
  • Under MAS, the centre will compensate states for any losses due to procurement, capped at 30% of the procurement cost.
  • For hill states and those in the north-east, the ratio of compensation will be 40%.
  • It will be the concerned states’ responsibility to dispose of the procured crops.

What is the need?

  • The proposal comes in the backdrop of protests and demands by farmer groups for remunerative crop prices and loan waivers.
  • Currently MSPs are announced for 23 crops but only paddy and wheat procurement is effective.
  • Procurement by the centre of pulses and oilseeds in small quantities calls for a better system in place to address farmer distress.
  • Under MAS, states are given the freedom to choose which crop to procure and in what quantities, when wholesale prices drop below MSPs.
  • States will also be free to use the procured crops for targeted nutrition support programmes or sell them in the open market.
  • The scheme proposes to strengthen the procurement mechanism by ensuring farmers do not suffer from marketing inefficiencies.

What are the concerns?

  • Markets - Poorly functioning agriculture markets with lack of competition, cartelization and opaque price discovery which are causes of price distortions stand unaddressed.
  • Infrastructure - The scheme will require the deployment of huge manpower and creation of massive infrastructure for purchasing, transporting and storing.
  • Ensuring these may not be affordable for the state governments.
  • Agri practices - The earlier physical market intervention-based system of price assurance in the case of wheat and rice has not been without its own disadvantages.
  • It has resulted in:
  1. distortion of the cropping pattern
  2. alienation of the private trade from the grain market
  3. unwarranted accumulation of stocks on the government account
  • Replicating the same in other crops would be ill-advised.
  • Fiscal - There is a concern that the scheme could place fiscal pressures on the Union government.
  • There are also some unfulfilled preconditions in place for the successful functioning of a scheme that spends public money.

What should be done?

  • A lasting solution lies in making farming profitable by reducing production costs and improving returns on the produce.
  • In this context, MAS is a more temporary measure and an eventual solution is to bring in greater competition in agricultural markets.
  • Agricultural marketing reforms wooing private investment in setting up crop mandis to enhance competition must be expedited.
  • The price deficiency payment mechanism is another novel way to address price distress. Click here to know more.
  • There is also a need to put in place stable policies for agricultural pricing and trade, both external and domestic.
  • In all, the Centre should take lead to put a proper system in place instead of passing on the responsibility to the states.

 

Source: Business Standard, Livemint

 

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