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Engaging private players in procurement at MSP is fraught with challenges

Sanjeeb Mukherjee/New Delhi 13 Sep 18 | 12:21 PM

The Cabinet has decided to allow the entry of private players in the procurement of oilseeds on a pilot basis.

According to the decision taken on Wednesday, private players can procure oilseeds at the state-mandated Minimum Support Price (MSP) for which they would be paid a ‘service charge’ not exceeding 15 per cent of the notified support price.

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Pilot project would be executed in select places once state governments agree to it. Based on the feedback, the scheme might be expanded.

Though private players are already engaged in the procurement of wheat and rice by Food Corporation of India (FCI) since the last few years, the initiative got a fresh impetus after NITI Aayog vice chairman Rajiv Kumar strongly backed it as an idea to ensure MSP to farmers.

Officials said despite best efforts, the experience so far has been rather mixed in engaging private players in procurement operations and the biggest challenge is commercial viability of the entire operation.

“To me the biggest consideration and challenge to involving private players in oilseeds procurement is whether it would be commercially viable and if the offer isn’t viable, I doubt if private companies would be interested," Sanjay Kaul, Managing Director of National Collateral Management Services (NCML), told Business Standard.

NCML, which has been one of biggest private players engaged in the procurement of paddy and wheat on behalf of Food Corporation of India (FCI), said in case of paddy, they set up the procurement centre, purchase paddy from farmers at MSP, store the produce, mill it and thereafter sell it back to the Corporation for which they are compensated at a price which is determined through an open bidding process.

“However, here we don’t know whether the 15 per cent service fee, which the government has fixed, includes the losses incurred in procurement and disposal," Kaul said.

He said if the service charge included losses suffered by a private player in procurement and sale, then it wasn’t a very attractive proposition as government's own agency, Nafed, incurred an expenditure, which was 40-50 per cent of MSP as operational expenditure.

“Agreed, private sector is expected to be more efficient than public sector, but then this difference seems big," Kaul said. He said the second big challenge is to get funds from the government on time.

“In case of paddy, funds are sometimes locked up for more than six months," he added.

In the recent past, the first attempt to involve the private sector was made in 2008 when FCI engaged NCMSL (now known as NCML) and NBHC for procurement of paddy in Odisha and some other states.

Thereafter, in 2016-17, the Centre, along with the FCI, again roped in the private sector for procurement of paddy in eastern India, where the procurement process was weak. This time, it was slightly more structured and modalities were worked out in more detail.

Three private firms, including National Collateral Management Ltd (NCML), were roped in for rice procurement on a cluster basis in Uttar Pradesh, Jharkhand, and West Bengal. The other two firms being Veerprabhu Marketing Ltd and Farmers Fortune (India) Pvt Ltd.

Food Minister Ram Vilas Paswan had told the Rajya Sabha that the rules mandate private companies to furnish daily procurement reports to FCI, which has the right to inspect purchase centres, storage points and miller premises. FCI would do a quality check of the rice at the time of acceptance at its depots.

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