PM-AASHA scheme: Government's attempt to help distressed farmers through new procurement policy

PM-AASHA scheme: Government's attempt to help distressed farmers through new procurement policy

  • The government of India has announced the PM-AASHA scheme with the aim of ensuring that farmers are remunerated.
  • States will have the choice of three schemes to choose from to compensate farmers.
  • While this may provide temporary relief, it may have negative long-term effects on the economy.
After years of protests and requests to the government of India, it seems to have finally borne fruit with the Cabinet approving a new procurement scheme for farmers in the country. It’s basically how the government can buy agricultural produce from the farmers and ensure remunerative prices.

The umbrella scheme is called ‘Pradhan Mantri Annadata Aay Sanrakshan Abhiyan’ (PM-AASHA) and has three sub-schemes within - the Price Support Scheme (PSS), the Price Deficiency Payment Scheme (PDPS) and the Pilot of Private Procurement & Stocklist Scheme (PPSS).

The government is following up on its promise of providing minimum support price to farmers through these schemes. But, there's a catch. The government is only applying this to 25% of the agricultural produce. The rest of the 75% will still have to be sold on the open market.

That being said, there’s an argument to be made for whether or not this is really the best solution on the table.

It’s not just about the procurement costs

While the procurement may be in the name of the scheme, the government buying more agricultural produce is about more than just the basic cost. Once the stock has been bought there are incidentals, distribution costs and the carrying/storage cost.

This may not fall into in the paradigm of the PM-AASHA scheme, but it will definitely increase the operational costs for the Food Corporation of India (FCI), which in turn is a government-run operation.

Price distortion

The issue with meeting the MSP has never been the intention of ensuring that farmers get proper prices, but the fact that it deviates the market from following the basic fundamentals of supply and demand.

So while the MSP increases the cost of foodgrains, it also floods the market with excess supply at the same time. And, since the general price level is really sensitive to changes in foodgrain prices, the economy sees an inflationary trend.

As the prices continuously increase, the government has to keep increasing the MSP, and thus, the food subsidy bill goes on increasing.

On the other hand, if the government was to look into measures that actually stabilise the farmer’s incomes instead, the solution may be sustainable. It would imply that their remuneration wouldn’t be as susceptible to supply shocks and price hikes.

The focus, instead, could be on modernising the agricultural sector so that it can compete in a fully liberalised market and improving landholding patterns to accommodate greater productivity.

Because at the end of the day, the inflationary trend put into place will hurt the rural poor the most, who depend on the market for their consumption needs. And, the government will also have to bear the brunt of the eventual fiscal squeeze.