Price Stabilization Fund (PSF) runs dry

Subject :Economy

Section: Monetary Policy

Key Points:

Department of consumer affairs (DoCA) under the Ministry of Consumer Affairs, Food & Public Distribution plans to approach the Union finance ministry for about ₹5,400 crore for its price stabilization fund (PSF) to procure onion and pulses in the rest of the financial year.
When prices of vegetables and pulses shot up this year, the department began buying them at steep prices and selling them at cheaper rates.
Since the department needs to procure more onions and masur (lentil) to enhance the buffer stock, it has decided to move the finance ministry without waiting for a budget allocation.

Setting up of PSF:

The Price Stabilization Fund (PSF) was set up in 2014-15 under the Department of Agriculture, Cooperation & Famers Welfare (DAC&FW) to help regulate the price volatility of important agri-horticultural commodities like onion, potatoes and pulses were also added subsequently.
The PSF scheme was transferred from DAC&FW to the Department of Consumer Affairs (DOCA) w.e.f. 1st April, 2016.
The fund allowed the government agency National Agricultural Cooperative Marketing Federation of India (Nafed) to purchase a food item for which the government foresaw a possibility of high inflation and then sell it at a reasonable rate when the prices go up.
Nafed procured rabi onions from the open market in March-April of 2016-17 and sold them in July-October when onion prices shot up.
Some states have used the Public Distribution System and ration shops to distribute certain food items, apart from wheat and rice, at a lower rate than the market.
The Union government has also directly sold pulses and edible oils through Mother Dairy booths and outlets of government-owned retail stores.

What is the Price Stabilisation Fund?

Under the PSF, government agencies can even purchase a food item at a price higher than the minimum support price (MSP), and the same can be sold with a reasonable markup or even at a subsidy if the market prices move up in the off-season.
The PSF is utilized for granting interest free advance of working capital to Central Agencies, State/UT Governments/Agencies to undertake market intervention operations.
Apart from domestic procurement from farmers/wholesale mandis, import may also be undertaken with support from the Fund.
The Price Stabilization Fund will be managed centrally by a Price Stabilization Fund Management Committee (PSFMC) which will approve all proposals from State Governments and Central Agencies.
The PSF will be maintained in a Central Corpus Fund account to be opened by Small Farmers Agri-Business Consortium (SFAC), which will act as Fund Manager.