The government of India has said that Bonus announced by various state governments over and above the minimum support price fixed by the central govt for procurement of crops have been putting adverse impact on procurement from farmers. Sources in the union govt informed OpIndia about this after the Chhattisgarh Chief Minister Bhupesh Baghel wrote to Prime Minister Narendra Modi, requesting for the central govt to pick up the paddy the state government has procured under the central pool.
CM Bhupesh Baghel writes to PM
The CM had written a letter to the PM on 30 December, informing the state govt has purchased around 47 lakh tonnes of paddy from 12 lakh farmers, out of the total amount of 60 lakh tonnes approved for Chhattisgarh. But, the Food and Public Distribution department of the Govt of India is yet to approve the transfer of the paddy to the Food Corporation of India under the central pool.
CM Baghel wrote that as they are unable to transfer the stock to FCI, the warehouses in the state are filled with paddy, and the stock may got damaged if it is not lifted soon, and the distribution of rice will also be delayed. Saying that livelihoods of 21.52 lakh farmers in the state will be impacted due to this, the CM requested the PM to approve the procurement of the paddy by FCI from the state govt.
Bonus above MSP increases subsidy burden
Responding to the letter by the Chhattisgarh CM, sources in the ministry informed OpIndia that the reason behind not-approving the procurement under the central pool is the additional bonus announced by the state govt above the MSP.
State Govts often declare state bonuses for procurement of crops, which is a monetary scheme to incentivise their farmers over and above MSP declared by the Government of India. In some states, the bonuses are crop-specific whereas in another these are of generic form.
According to the GOI, it is perceived that declaring a bonus over MSP distorts the market and cultivation patterns at the cost of other crops. Since the procurement under the price support scheme (PSS) is open-ended, procuring agencies like FCI are forced to procure quantity much more than the requirement under the central pool, thereby increasing the subsidy burden on the union government.
MOU with states limit purchase under central pool if bonus above MSP declared
The GOI has tried to contain such a tendency, and with a view to have a uniformity in procurement across the country, has devised an MOU to be followed by DCP (Decentralised Procurement) / Non-DCP States, as the case may be.
The provisions at Point No. 3 of MOU of DCP States mention that that “In the situation of the state giving bonus/ financial incentive over and above MSP, surplus stock exceeding the State requirement under NFSA/ OWS shall be treated to be outside the Central Pool”.
Similarly, the provision under point number 4 of the MOU of non-DCP states mentions that, If the State Government announces bonus/ financial incentive, in direct or indirect form, over and above MSP, FCI will not take part in the procurement operations in the State concerned; and State Govt. will have to mobilize resources and take care of the entire procurement operations in the State on their own, including the arrangements to be made for the storage of procured food-grains. With respect to such States, FCI in consultation with the Department of Food and Public Distribution, will decide the quantum of the rice and rate at which the stock to be taken from the concerned State in that Marketing Season and shall restrict the central pool procurement to that extent. The rest of the stock procured by the state shall have to be disposed off by the State Govt. concerned at its own risk and cost”.
These provisions make it clear that if any state declares Bonus for crop procurement, the FCI will not pick-up stock above the quantity specified for the central pool. The balance quantity will have to be purchased by the state governments on their own.
MOU provisions implemented for all states which have declared bonus
Accordingly, these provisions are being implemented for the states which have announced bonuses. For example, Madhya Pradesh had announced incentive of Rs 160 per quintal over and above MSP of wheat in Rabi Marketing Season 2019-20 under their own scheme named “Jan Kishan Samridhi Yojna”. Since the state govt had declared bonus without prior consent of GOI, a decision was taken by GOI to restrict the total procurement in central pool to 67.25 LMT which was the total quantity procured two years back, i.e., in RMS 2017-18, the year in which no bonus was given.
The same happened with Chhattisgarh, which has been consistently declaring bonus/incentive on Paddy over and above MSP since 2016-17. And due to this, the central pool procurement of paddy from the state in the previous years since 2016-17 has been limited to 24 Lakh tonnes. This is as per established rule which is applicable to all the states, as whenever the states give incentives or bonus, the central pool procurement gets limited.
In accordance with the MOU provision, the central govt had limited the central pool procurement of paddy from the state at 24 lakh tonnes, as the state had announced an enhanced MSP of Rs 2500 per quintal during Kharif Marketing Season (KMS) 2019-20, which is more than the MSP announced by GOI. The state govt had sought relaxation from the MOU provision for delivering the excess quantity to the central pool, but the ministry had declined the request.
As a result, the state govt had announced in November that for the KMS 2019-20, paddy will be procured at the MSP declared by the GOI, so that entire procured quantity can be delivered to the central pool. But, the state govt subsequently announced the Rajiv Gandhi Kisan Nyay Yojna, and under this scheme, crop-specific bonus to acreage was provided to farmers for various crops like paddy, maize, soybean, pulses, groundnut, seam seed etc for KMS 2019-20. State Govt has declared a similar incentive scheme for KMS 2020-21 also.
States like Kerala, Jharkhand and Tamil Nadu etc have been also declaring bonus/ incentives over and above MSP of paddy.
FCI has been of the view that all sorts of such schemes or incentives have to be seen as bonus whether in direct or indirect form, as it is paid over and above MSP without prior approval of GOI. The Ministry is also of the view that giving bonus/ incentive leads to huge increase in procurement in the state leading to surplus stock in central pool and therefore any relaxation in MOU has not been agreed to, in general, on a number of occasions.
However, DBT transfer to all farmers without linkage to any crop is the only scenario which can be treated as crop neutral and not falling in the category of direct or incentive. But as the Rajiv Gandhi Kisan Nyay Yojna announced by Chhattisgarh govt is linked to 14 specific crops, it has been considered as just another form of Bonus, and hence it has attracted the provisions of the MOU.