Price Deficiency Payment

Why in news?

The Niti Aayog, has recently released a three-year action agenda for the Centre suggesting the 'Price Deficiency Payment' (PDP) system among other reforms.

What is Price Deficiency Payment system?

• Under this, farmers will be compensated for the difference between the MSPs for select crops and their actual market prices.
• For crops such as rice and wheat where MSP is effective now, the same will continue.
• For other targeted crops, price deficiency payments system will be introduced.
• However, notably there may be a cap on the extent to which the Centre will bridge the gap between MSP and market price.
• A farmer would have to register with the nearest APMC mandi and report the total area sown, to avail this benefit.
• The subsidy would be paid via Direct Benefit Transfer (DBT) into the farmer’s Aadhaar-linked bank account.

What are the benefits?

• Subsidy Bill - The government has been accumulating large food grain stocks in its godowns over and above the buffer requirement,  leading to storage and wastage costs.
• Under the new system, the government can pay in cash to farmers, the difference between the support and market prices.
• This will actually reduce the need for the government to procure food crops, transport and store them, and then dispose of them under PDS.
• Resultantly,  as Niti Aayog proposes, this system can keep India’s bill on food subsidies, and storage and wastage costs under check.
• It can also address to an extent the world nations' concern on India’s procurement subsidies being trade-distorting.
• MSP - The MSP system has many flaws in execution which include:

1. limited geographical coverage.
2. actual procurement being restricted to a few crops such as paddy and wheat despite announcements for 20-plus crops.
3. skewed cropping pattern in favour of rice and wheat as a result of this.
4. soil degradation and susceptibility of crops to pest as a result of this monoculture, leading to higher usage of chemical fertilisers and pesticides.

• The PDP system is expected to address these shortfalls and negative results of MSP scheme.
• As, it could be more effective than MSPs in ensuring that cropping patterns in India respond to consumer needs and that farmers actually benefit from price support.

Source: BusinessLine