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Punjab’s wheat payment crisis strengthens the case for direct transfers in MSP operations.

By: Express News Service |
Updated: April 22, 2016 12:20:08 am
wheat procurement crisis, Punjab farmers, Punajb wheat procurement crisis Wheat brought by farmers being cleaned at Khanna mandi in Punjab. (Express Photo: Gurmeet Singh)

For a state whose farmers have already suffered from crashing basmati paddy prices and damage to their cotton crop from whitefly pest attacks, the current payment crisis in wheat couldn’t have come at a worse time. Government agencies have so far procured over 6.5 million tonnes (mt) of wheat from Punjab in the new marketing season from April 1. But farmers haven’t got the payment for this wheat, which would be worth over Rs 9,900 crore at the minimum support price (MSP) of Rs 1,525 per quintal. The reason: Non-availability of working capital from banks for funding procurement. The banks have cited a mismatch in accounts for previous years — monies lent for procurement, they say, are not backed up by actual grain stocks with state agencies — for refusal to sanction fresh cash credit limits. The Punjab government, in turn, has denied the allegation of “missing stocks”. Caught in the crossfire have been the state’s farmers, who are awaiting payments that would ordinarily have come within 48 hours of procurement.

Banks may well be justified in demanding settlement of previous years’ accounts and reconciling stock discrepancies, if any. An RBI directive asking them to provide for any potential losses on food loans may also have prompted their action. But should this have been the time for it, just when the wheat crop harvested by farmers is being procured? A politically explosive situation has seemingly been averted for now. The Centre’s intervention — possibly guided by assembly elections due next March — has led to the release of a cash credit installment of Rs 17,523 crore to cover procurement of up to nine mt, as against the targeted 11 mt from the state. The Centre has also constituted a committee to look into the reconciliation of stocks, which should, hopefully, settle the dispute.

The Punjab wheat payment crisis, however, also raises the larger question of the very need for physical procurement, stocking and distribution of grain on the scale done now. These operations entail an economic cost of over Rs 23 per kg for wheat, which then gets sold at Rs 2/kg under the National Food Security Act. That makes the system inherently leaky and prone to “missing stocks”, whether in Punjab or elsewhere. When technology today enables farmers to be paid the difference between MSP and the market price directly into their Aadhaar-seeded bank accounts, why have such a complex system of handling some 30 mt of wheat and 48 mt of paddy annually?

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