Procurement Mechanism

Procurement in India is the process by which the government, through various agencies, purchases agricultural produce directly from farmers at the Minimum Support Price (MSP). This mechanism serves as the backbone of India’s food security system, ensuring price stability for producers and stock for the Public Distribution System (PDS).

Central and State Procurement Agencies

The procurement operation involves a multi-tier institutional structure led by the Central Government but heavily reliant on State-level machinery.

• Food Corporation of India (FCI): The nodal central agency responsible for the procurement, storage, and movement of food grains (primarily wheat and paddy) across the country.
• National Agricultural Cooperative Marketing Federation of India (NAFED): The apex organization for marketing cooperatives, primarily tasked with procuring pulses and oilseeds under the Price Support Scheme (PSS).
• Cotton Corporation of India (CCI) and Jute Corporation of India (JCI): Specialist agencies that handle the procurement of their respective commercial crops when market prices fall below MSP.
• State Civil Supplies Corporations: State-level bodies that act as agents for FCI or operate independently under decentralized procurement models.

Operational Models: Centralized vs. Decentralized

The procurement system functions through two distinct operational models to optimize logistics and storage.

Centralized Procurement System (CPS)

In this traditional model, the FCI procures food grains either directly or through state agencies. The procured grain is handed over to FCI for the “Central Pool.” FCI then releases these grains to states for distribution under the National Food Security Act (NFSA) and other welfare schemes.

Decentralized Procurement Scheme (DCP)

Introduced in 1997-98, the DCP was designed to enhance procurement efficiency and reduce transportation costs.

• Mechanism: Under DCP, the State Government (or its agencies) procures, stores, and issues food grains under PDS directly.
• Financials: The Central Government (FCI) pays the state for the “Economic Cost” of the grains, which includes the MSP plus procurement incidentals (mandi labor, transport, and gunny bag costs).
• Benefit: It encourages procurement in non-traditional “surplus” states and ensures that local varieties of grain are available for local consumption.

Procurement Infrastructure and Process

The physical procurement happens through a network of centers strategically located to minimize farmer travel.

• Purchase Centers: These include permanent APMC mandis and temporary purchase centers opened during the peak marketing season (Rabi and Kharif).
• Direct Benefit Transfer (DBT): Most states have transitioned to the “e-Procurement” module, where payments are credited directly into the farmers’ Aadhaar-linked bank accounts within 48 to 72 hours of purchase.
• Assaying and Quality Control: Grains must meet “Fair Average Quality” (FAQ) standards regarding moisture content and foreign matter to be eligible for MSP procurement.

Procurement of Pulses, Oilseeds, and Copra (PSS)

Unlike wheat and rice, which are procured for the Central Pool for PDS, pulses and oilseeds are procured under the Price Support Scheme (PSS).

• Trigger: PSS is triggered only when market prices of these commodities fall below the MSP.
• Duration: Procurement is typically limited to a specific window (usually 90 days) and is capped at 25% of the state’s total production for that season.
• Loss Sharing: Any losses incurred by NAFED in these operations are fully compensated by the Central Government.

Economic Cost and Food Subsidy

The financial health of the procurement system is measured through the “Economic Cost,” which significantly exceeds the MSP.

Critical Interventions: PM-AASHA

The Pradhan Mantri Annadata Aay Sanraksan Abhiyan (PM-AASHA) was launched in 2018 to fill gaps in the procurement of non-cereal crops through three distinct pillars:

• Price Support Scheme (PSS): Physical procurement of pulses and oilseeds.
• Price Deficiency Payment Scheme (PDPS): Applicable to oilseeds where the government pays the difference between MSP and the selling price directly to the farmer, avoiding physical procurement.
• Private Procurement & Stockist Scheme (PPPS): Pilots the involvement of private players in procurement at MSP in selected districts.

Issues and Constraints in Procurement

• Geographical Bias: Procurement is heavily concentrated in a few states like Punjab, Haryana, Madhya Pradesh, and Chhattisgarh, leaving farmers in Eastern and North-Eastern India dependent on local middlemen.
• Crop Imbalance: The “open-ended” procurement of wheat and rice has led to massive surplus stocks (often double the buffer norms) while incentivizing water-intensive crops in water-stressed regions.
• Inadequate Storage: A significant portion of procured grain is stored under “Cover and Plinth” (CAP), making it susceptible to pests and weather damage.
• Shanta Kumar Committee Recommendations: Suggested that FCI should hand over all procurement operations to states that have gained sufficient experience (DCP states) and focus only on inter-state movement and buffer stocking.

Facts for UPSC Prelims

• Open Market Sale Scheme (OMSS): FCI uses this to sell excess food grains in the open market to stabilize prices during inflation.
• Buffer Norms: The minimum quantity of food grains the government must maintain at the start of each quarter for food security and emergencies.
• FRP for Sugarcane: Unlike other crops, sugarcane is not “procured” by the government; instead, sugar mills are legally mandated to pay the Fair and Remunerative Price (FRP) to farmers.
• Nodal Ministry: The Ministry of Consumer Affairs, Food and Public Distribution oversees the FCI and food subsidy, while the Ministry of Agriculture recommends MSPs through CACP.