The Hindu Business Line : Price Stabilisation Fund for commodities

The Union Minister for Commerce and Industry, Mr Arun Shourie, receiving the report on the price stabilisation fund for small growers from the Additional Secretary, Mr. L.V. Saptharishi, in the Capital on Saturday.

NEW DELHI, Nov. 30

THE Committee on the Operational Modalities of the Rs 500-crore Price Stabilisation Fund (PSF) for small growers in the tea, coffee, rubber and flue cured Virginia tobacco sectors has suggested a modified PSF in which participating grower and the Government, both the Centre and State, share the onus of contributing and sustaining the Fund.

The report of the Committee, headed by Additional Secretary, Ministry of Commerce, Mr L.V. Saptharishi, was presented to the Union Minister of Commerce and Industry, Mr Arun Shourie, here today. It studies price stabilisation scheme, modified price stabilisation fund scheme and multi-

Purpose Loan Scheme.

The modified PSF recommended by the Committee to be operational initially for 10 years commencing from April 2003, would come into force in a particular State only after that State Government has made its contribution in full. It suggests that a Trust Fund could be created for operating this MPSF.

Other members of the Committee include, Dr Prodipto Ghosh, Additional Secretary, Prime Minister's Office, and senior officials from the department of commerce, expenditure, economic affairs, consumer affairs and Nabard, besides the Director-General of NCAER, Mr Suman Bery, and the NCAER Principal Economist, Dr Anil Sharma.

The fund seeks to evolve price stabilisation for each of the commodities without resorting to the practice of procurement operations by the Government agencies. Intervention through the PSF meant that when the prices dip, the growers participating in the scheme would be compensated through the fund and in the boom years, the growers would have to fork out to the PSF.

The Committee said several methods for determining the normal level of prices for each of these commodities were considered. But keeping in view the complexities of the concerned commodity markets and ease of operation, the Committee has recommended adopting a uniform band of 40 per cent for all the four commodities, with a price spectrum band of plus/minus 20 per cent from the seven year moving average of international prices.

Each participating grower would be required to make a non-refundable initial contribution of Rs 500 as entry fee to the Fund and open an MPSF account with a nationalised bank. In normal years when the prices remain within the price spectrum band, the grower would be required to deposit Rs 500 each year to the MPSF account by a specified date.

The Government would also contribute up to Rs 500 to the individual grower's account in these years.

When prices pierce the upper band, the grower's contribution would be minimum Rs 1,000 while the Government will not make any contribution. When prices fall below the lower band, the grower would not be required to contribute any amount; but the contribution of the Government would be up to Rs 1,000 per account. Government's contribution would be pro rata reduced if the interest earning from the corpus were insufficient.

Mr Shourie said the report would be forwarded to the Cabinet Committee on Economic Affairs (CCEA) for final clearance.

He said the Fund would "serve as an insurance scheme" to benefit 3.42 lakh plantation workers across the country with holdings up to 4 hectares.

The Committee suggests that the Government should take initiative and facilitate the establishment of commodity exchanges with provision for future trading.

It is of the view that the corpus could be built up over a period of two financial years according to contributions coming from the Central government/state governments/subscribers in suitable instalments.

Depending upon its efficient operations, the Fund should attract contributions from IDA credit (soft loan arm of the World Bank) or other multilateral funding bodies.

It is also suggested that commercial banks with maximum exposure to the plantation sector should come forward and participate in the scheme at some stage or other by contributing to the Fund appropriately.

The Committee categorically stated that the fundamental principle is that the corpus of the fund remains "undisturbed and the interest earnings alone be utilised for operations with respect to different commodities".

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