Explained: Punjab’s moong MSP experiment, its impact on state finances

Around 4 lakh quintals moong is expected to be produced in Punjab and against 2.98 lakh quintals last year, according to the state government.

Nearly 2.20 lakh quintals have arrived in mandis so far, out of which 1.95 lakh quintals (89%) have been purchased by the private players and 23,924 quintals (around 11%) have been purchased by the government on MSP.

Why are farmers selling below MSP?

Due to stringent conditions imposed for MSP purchase, farmers have been selling their moong produce to private players below MSP.

Of the total purchase till date, almost 90% has been sold below MSP ranging between Rs 5,000 per quintal to Rs 6,500 per quintal. The price was decided as per moisture level.

How much has Punjab’s moong MSP drive cost the state so far?

For the state, the nodal procurement agency is MARKFED, and so far it has spent Rs 17.40 crore on purchasing moong (23,924 quintals) on MSP. But the purchase so far has been funded by the Centre as it had agreed to support moong procurement in the state by buying 25% of the total produce at MSP under its Price Support System. Since the state has not breached that target, it has technically not spent anything from its coffers.

“Currently we are procuring for the centre on MSP, the funding of which is being provided by the Centre,” MARKFED’s chief manager (marketing) H S Bains said.

What about gap funding?

“The state government has kept Rs 66 crores for ‘gap funding’ in case farmers’ crop is sold below MSP to private players,” said Bains.

Gap funding is paying the gap between the MSP and the actual price at which farmers sold their crops. The government has kept different slabs of the compensation with an upper limit of Rs 1,000 per quintal.

The difference between MSP price and the actual purchase price will be paid by the government but not beyond Rs 1,000 cap.

At this rate, the total cost to the exchequer for ‘gap funding’ for moong sold to private players would not exceed Rs 40 crores even if the government pays Rs 1000 per quintal compensation for the entire moong production in the state. But that is not the case.