Do you agree with the view that the cash transfers to farmers who sell their produce in the market at below MSP levels can be a better alternative to the procurement under Minimum Support Price scheme? Discuss taking example of the Bhavantar Bhugtan Yojana (price deficit finance scheme) launched in Madhya Pradesh.

Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices. This serves the purpose of protecting farmers from distress sale and procurement of food  for Public distribution system.
In price deficit financing system government would pay the farmers the difference between modal rate (the average prices in major mandis) and the minimum support prices (MSPs).  Bhavantar Bhugtan Yojana has been launched by M.P government to implement this. Cash transfers to farmers who sell their produce below MSP is better alternative to procurement under MSP scheme because of following factors

  • Shortcomings in MSP scheme:
    • Only 6-8% of farmers are covered under the scheme. Studies have shown that farmers in states like Bihar, regions of Eastern U.P were not aware about such scheme.
    • Benefits of MSP are generally reaped by big farmers
    • Inefficiencies of Food Corporation of India, the procuring agency has led to rise in operational cost.
    • Government lacks storage capacity thus huge amount of grains are wasted every year.
    • Procurement mostly limited to cereals like Wheat and Rice.
  • Benefits of Price Deficit Financing scheme
    • Simple and easy method to protect farmers against price crash. Under Bhavantar Bhugtan Yojana, primary agricultural co-operative societies are required to help farmers to register which already has huge presence among farmers unlike FCI.
    • Reduce the wastage of crops in transportation, storage and handling. Farmers will have to carry their produce only to Mandis
    • Increase the saving of exchequer as the government would pay only differential and also save on logistics cost.
    • More farmers would be covered under the scheme.
  • In line with government intention to use DBT for food benefit transfer.


  • Digital connectivity and Aadhar-linked bank accounts are pre-requisites, putting remote regions to disadvantage.
  • Primary agricultural co-operative societies need to be upgraded to handle the registration process.
  • Farmers need to upload the details of crops and yield, this may become disadvantageous for small and marginal farmers as they would have to depend on others for this.
  • Transparency in the functioning of Mandis would need to be ensured.
  • As per the scheme, differential payment would be made with a delay for instance incase of Kharif crops payments would be made in December, which may hamper the liquidity.

Food procurement is necessary for PDS , but with price deficit system in place number of farmers protected from market risk would increase and bring efficiency to the process.


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