Financial Daily from THE HINDU group of publications
Saturday, Feb 05, 2005
Agri-Biz & Commodities
The unbearable heaviness of monopoly scheme
Mumbai , Feb. 4
TWO years ago, Maharashtra had virtually abandoned the monopoly cotton purchase scheme because it was unviable with an accumulated loss of Rs 3,500 crore and more. Then it was called "a harsh but prudent step."
Now, with enough funds not available to pay for the cotton bought from farmers at Rs 2,500 per quintal in the current fiscal, those managing it at the political level have re-discovered that it is not practical to continue with it.
By the time this season ends, the accumulated losses would have mounted to an unprecedented Rs 5,500 crore. Not once since 1994-95, has it made even a token profit. Mr Harshvardhan Patil, Minister for Marketing, has in fact urged the Chief Minister, Mr Vilasrao Deshmukh, to call a meeting of all political parties to bury this scheme in vogue since 1971; it was launched then to wrest it from private trade which paid farmers much less than the terminal markets did.
However, Mr Deshmukh does not need much persuasion since it was he who diluted the scheme in 2002-03 during his earlier stint as Chief Minister. He kept the myth of the monopoly alive but allowed private traders to step in. How involved the State was is clear from the low buying that year - 4.9 lakh quintals. A year later, the purchases plunged to a mere 3,200 quintals. However, in 2001-02, when it was a monopoly scheme, 153.17 lakh quintals were bought.
The State clearly wanted to step down till, of course, elections intervened; it promised the highest ever price of Rs 2,700 per quintal for the top-end quality.
Scheme of woes: When the Government started to walk its talk, it realised that it had bitten off more than it can chew and now a loss of "at least Rs 1,500 crore for this year alone" is projected. The loss occurs because the amount paid to the farmer is lower than the price realised by the State Cooperative Cotton Growers Marketing Federation by its sale.
This gap, measured in rupee terms, grows for another reason. Not all that is procured is sold and what present, is sold generally at lower prices. Lack of commercial intelligence and offloading at wrong moments when ruling prices are low have added to the scheme's woes.
Year after year, losses have figured. The Cooperative Marketing Federation, which has been the nodal agency all along, has had to pay the prices that were dictated by the Government. Often the price is more than the Centre's support price.
"If that does not burn a hole in the pocket or smear the books with red ink, what else will," an official asked, pointing it out that this may not have happened if the Government had stepped in only to prop prices when they dipped when the farmers dealt with the private sector buyers.
"Long-sighted politics is sustained by short-sighted economics," he says, requesting anonymity.
Now, for the 156-lakh quintals bought this season, the Government is short of funds. The State's budgetary support is so far limited to Rs 472 crore because of its own strained resources. The apex cooperative bank has assured to lend Rs 1,000 crore and the district cooperative banks will chip in with another Rs 200 crore leaving a gap of Rs 700 crore.
Even this would not be easy to find, the only option being raising it through market borrowings for which the Centre's approval is needed. That would take time and the farmers would be forced to wait for their cheques. Fund-starved, debt-ridden farmers, therefore, prefer the quicker payments from the trader who buys on the farm.
Sources concede that not all that was bought by the Federation at its several purchase centres across Marathwada and Vidarbha were directly from farmers. Many traders masqueraded as agriculturists; they had re-sold to the Government what they picked up from the farmers and made a pile. "That is another weakness of the scheme," the official said.
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