Open Market Sale Scheme (OMSS)

The Open Market Sale Scheme (OMSS) is an important initiative implemented by the Food Corporation of India (FCI) under the Department of Food and Public Distribution (DFPD), Ministry of Consumer Affairs, Food and Public Distribution, Government of India. The scheme enables the government to sell surplus food grains (mainly wheat and rice) in the open market at predetermined prices to stabilise supply, control inflation, and manage buffer stocks effectively.
The OMSS acts as a key market intervention mechanism, balancing the interests of farmers, consumers, and the government by ensuring price stability, availability of essential grains, and efficient stock management.

Background and Evolution

The concept of the Open Market Sale Scheme (OMSS) was introduced in the 1990s as part of India’s broader food management system. The Food Corporation of India (FCI), established in 1965, procures food grains from farmers at the Minimum Support Price (MSP) and maintains buffer stocks for the Public Distribution System (PDS) and food security operations.
However, with the accumulation of surplus food grains—especially after good harvests—storage costs and wastage risks increased. Simultaneously, prices in the open market often fluctuated due to uneven supply. To address these issues, the government launched the OMSS, allowing the FCI to offload excess stocks into the open market, thus:

• Preventing wastage and storage overflow,
• Stabilising prices during shortages or inflationary trends,
• Ensuring better stock rotation and food quality.

Over the years, OMSS has evolved into a flexible policy instrument, used periodically to influence market prices of food grains, particularly wheat and rice, and to support the Government of India’s food and price policy objectives.

Objectives of the OMSS

The Open Market Sale Scheme serves multiple economic and policy objectives:

1. Price Stabilisation:To moderate the open market prices of food grains by increasing supply during price spikes or shortages.
2. Inventory Management:To liquidate excess FCI stocks and prevent wastage or deterioration of food grains.
3. Revenue Realisation:To generate non-tax revenue through the sale of surplus grains.
4. Support to Welfare Programmes:To supply food grains to states and institutions (e.g., prisons, defence establishments, and welfare agencies) outside the regular PDS at economic cost.
5. Supply Augmentation:To ensure adequate food grain availability in markets during lean seasons or natural calamities.
6. Market Intervention:To manage volatility and discourage speculative hoarding by increasing public supply.

Structure and Administration

The Food Corporation of India (FCI) is the implementing agency for OMSS under the supervision of the Department of Food and Public Distribution (DFPD).
The scheme operates under three broad components:

1. OMSS (Domestic):

Sale of wheat and rice in the domestic market to bulk consumers, traders, millers, or state governments through e-auctions.

2. OMSS (Export):

Sale of food grains to exporters when authorised by the central government, to stabilise domestic stocks or earn foreign exchange.

3. OMSS (Levy):

Sale of grains at predetermined prices to certain government or semi-government institutions, welfare agencies, or cooperatives for specific purposes (e.g., food supply to defence or police canteens).

Operational Mechanism

The OMSS operates through a well-defined process to ensure transparency and efficiency:

1. Identification of Surplus Stocks:The FCI assesses the quantity of food grains available beyond the buffer norms required for the Targeted Public Distribution System (TPDS) and other welfare schemes.
2. Fixation of Sale Price:The government announces the Reserve Price (minimum sale price) for OMSS grains, typically higher than the Central Issue Price (CIP) but lower than the prevailing market price to attract buyers while maintaining affordability.
3. Mode of Sale:Sales are conducted primarily through online e-auctions on designated platforms such as the National Commodity and Derivatives Exchange (NCDEX) or the MSTC portal, ensuring transparency and competition.
4. Eligibility:Participants include flour millers, food processors, large traders, and state governments. Retail consumers may purchase limited quantities through state-level arrangements.
5. Allocation and Distribution:Successful bidders lift the allotted quantity directly from FCI godowns within the stipulated time.
6. Monitoring and Review:The DFPD reviews the OMSS periodically to adjust quantities, prices, and release timings in response to market trends and stock positions.

Key Features of OMSS (Domestic)

• Grain Types: Primarily wheat and rice; occasionally coarse grains like maize or barley.
• Auction Frequency: Conducted weekly or fortnightly, depending on market conditions.
• E-Auction System: Ensures transparency and reduces scope for corruption.
• Regional Pricing: Reserve prices vary by state and storage location to reflect transportation and handling costs.
• Stock Points: Food grains are released from designated FCI depots across the country.
• Quantity Limits: Set per bidder to prevent stockpiling or speculative hoarding.

Price Determination

The Reserve Price for OMSS sales is fixed by the Government of India after considering factors such as:

• Economic cost of procurement and storage.
• Prevailing market prices of food grains.
• Buffer stock requirements.
• Inflationary pressures.
• Transportation and handling costs.

Generally, the OMSS sale price lies between:

• The Economic Cost (which includes procurement, storage, and distribution costs), and
• The Market Price, ensuring both affordability and cost recovery.

Example: OMSS Interventions in Recent Years

1. Wheat Price Control (2023):In early 2023, following a sharp rise in wheat prices due to lower procurement and global inflation, the government released over 5 million tonnes of wheat through OMSS (Domestic). This intervention successfully stabilised prices in the retail market.
2. Rice and Wheat Allocation to States (2022):FCI supplied rice and wheat to states like Karnataka, Tamil Nadu, and Odisha under OMSS to meet additional demand during festivals and public welfare programmes.
3. COVID-19 Pandemic (2020):During the pandemic, OMSS facilitated supplementary grain supplies to states to strengthen food security under welfare and relief programmes.

Advantages of the OMSS

1. Price Stabilisation:By releasing stocks during shortages, OMSS prevents sharp price escalation of essential food grains.
2. Efficient Stock Management:Helps FCI reduce surplus inventory, lowering storage and maintenance costs.
3. Market Transparency:E-auctions ensure fair price discovery and eliminate middlemen.
4. Fiscal Gains:Generates revenue that partially offsets FCI’s operational costs.
5. Consumer Welfare:Ensures adequate market availability and affordability of essential staples.
6. Policy Flexibility:Allows the government to adjust release volumes in response to market and seasonal variations.

Challenges and Limitations

Despite its effectiveness, the OMSS faces several operational and policy challenges:

• Limited Participation: Small traders and retailers often find it difficult to participate due to large lot sizes and technical requirements of e-auctions.
• Stock Management Issues: Poor coordination between FCI and state agencies sometimes delays releases.
• Market Distortion Risks: Frequent interventions may disrupt private trade if prices fall too sharply.
• Storage and Transport Constraints: High logistics costs and limited godown capacity affect timely grain distribution.
• Price Fixation Complexity: Setting reserve prices that balance cost recovery with market affordability is challenging.

Recent Reforms and Digitalisation

To strengthen the OMSS mechanism, the government has undertaken several reforms:

• Introduction of a fully online e-auction system through MSTC and GeM portals.
• Reduction in lot sizes to encourage participation by small and medium traders.
• Differential pricing based on location and market conditions.
• Periodic release calendars for improved predictability and planning.
• Direct state allocations under OMSS for welfare schemes and public institutions.

In 2023–24, the government further expanded OMSS interventions to manage wheat and rice inflation, releasing over 10 million tonnes of grains to the market.

Economic and Policy Significance

The OMSS serves as a critical tool of food and price policy in India. Its role extends beyond simple sales—it functions as a macroeconomic stabiliser, ensuring a balance between procurement, distribution, and price management.
Key policy roles include:

• Supporting the government’s food security and inflation control objectives.
• Enhancing market efficiency and competition.
• Improving the financial sustainability of FCI through surplus disposal.
• Contributing to price stability, particularly for low- and middle-income consumers.