Price Stabilisation Fund Scheme - Objectives and Highlights

Price Stabilisation Fund Scheme - Objectives and Highlights

Question - Effective financial support for distribution agencies of the government has many benefits for the Indian agricultural system. Discuss the Price Stabilisation Fund Scheme approved as a Centrally Sponsored Scheme by the Union Ministry of Agriculture recently.

The Department of Agriculture and Cooperation under the aegis of the Union Ministry of Agriculture has approved the Price Stabilisation Fund Scheme as a centrally sponsored scheme on 26th March 2015.

Objectives of the Price Stabilisation Fund Scheme/PSF

• This scheme aims to offer interest free advances of working capital to governmental agencies associated with the procuring and distribution of perishable agri-horticultural commodities

• Tension-free flow of funds provides agencies with the ability to regulate volatility of commodities in an efficient way

• The scheme also works for the promotion of direct purchase by government agencies from farmers/farmer’s associations

• Price Stabilisation Fund scheme also helps in the maintenance of strategic buffer stock for discouraging hoarding and speculation

• PSF protects consumers through supply of commodities such as these at affordable prices through calibrated release of commodities stock

• Objective of the PSF is provision of financial relief to growers when commodities prices fall below a certain level

Highlights

• This scheme works for the creation of a INR 500 crore corpus fund named Corpus Fund for Procurement and Distribution of Identified Agri-Horticulture Commodities

• For operationalising the fund, the Small Farmers Agri-Business Consortium/SFAC will open a savings account Corpus Fund for Procurement and Distribution of perishable agri-horticulture commodities in a nationalised bank which has a flex-deposit option. Amount available through the government will be placed in this account.

• SFAC will be the fund manager and it will maintain an account of receipts and expenditure incurred from the corpus and provide the report for this to the Price Stabilisation Fund Management Committee

The Corpus Fund has two streams:

- Stream A: States will be provided single, onetime interest free advance that will be placed in a revolving fund account established for the purpose of use by the State. Contribution to this state level fund by the Central and State governments will be 50:50 for all states except the north east where it will be 75:25

- Stream B: Central government agencies manage this stream. Under Stream B, funds will be provided to Central government agencies under an interest free advance associated with the proposal for market intervention for price control. This too is established as a revolving fund.

• Proposal placed by the state agencies will be approved by state level committees similar to the PSFMC by the concerned state governments

• Advances which have been received cannot be used for any other purpose by either the state or central government

• In case losses are incurred by the central government agencies during the operation of the scheme, it will be met by the Central Corpus fund

• Those losses which are incurred by the states during the scheme’s operation is to be shared in the ratio 50:50 between Centre and State except in the north east where the ratio is 75:50

• At the point where the accounts are closed, profits earned via the interventions will be placed back in the Central Corpus Fund for extending 100% in case of
central government agencies and 50% as far as the state government is concerned.

• As per this fund, government agencies will be involved in the procurement of notified agri-horticultural commodities directly from the farmers/farmer’s organisation

• Commodities will then be provided at a reasonable rate to consumers who can otherwise not afford them

• The fund was initially established for onion and potato only.

• This fund is to be implemented during 2015-2016 and 2016-2017. It may continue for further years as well.

• Scheme is subject to audits by the CAG of India

• Scheme also involves creation of a Price Stabilisation Fund Management Committee

Price Stabilisation Fund Management Committee (PSFMC)

• This is an administrative agency which implements the PSF scheme. Its objectives are as follows:

• PSFMC invites and appraises as well as accepts proposals from state governments/central agencies and approve the amount of advance

• It will decide regarding the placing of excess surplus n the Central Corpus Fund in other bank instruments such as fixed deposits for efficient and optimal returns

• It will also monitor the operational side of the scheme by the agency implementing it. It will provide suitable measures and corrective actions during the course of implementation

• The overall aims and objectives of the scheme will be kept in mind

• This committee will also review wholesale and retail prices of essential commodities and guide or propose any interventions

• This committee is headed by the Secretary of the Department of Agriculture and Cooperation.

Facts and Stats

• Price Stabilisation Fund has been established with a corpus of INR 500 crore inclusive of INR 482.88 crore as a single, one time contribution by the government at the centre. INR 17.12 crore will be the non refundable contribution on an initial stage by participating growers at the rate of INR 500 per grower.

• The fund’s corpus is to be benchmarked as applicable on the GPF, SDS and similar funds in public account

• Corpus fund will remain untouched and interest rates will be used for operationalisation of the scheme. Trust fund is to be administered by NABARD and audited by CAG of India

• The scheme covers 3.42 lakh growers with those having operational holdings of not more than 4 hectares

• A uniform band of 40% is adopted for the commodities with a price band spectrum of more or less than 20 percent from the 7 years moving average of global prices