MSP & Direct benefit transfer  – Punjab Case Study

  • IASbaba
  • March 13, 2020
  • 0
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Topic: General Studies 2:

  • Government policies and interventions for development in various sectors and issues arising out of their design and implementation. 

MSP & Direct benefit transfer  – Punjab Case Study

Context: Government plans to implement direct benefit transfer (DBT) in MSP payments in Punjab starting with the wheat crop that will arrive in the mandis from April.

The current system

  • Minimum Support Prices (MSP) are announced by Central Government on recommendation of Commission on Agricultural costs and Prices (CACP)
  • The Food Corporation of India and state agencies undertake grain procurement through commission agents in APMC mandis
  • The payment is made into the agent’s account, who then makes a payment to farmer who sells the produce to him.

Situation in Punjab State

  • Punjab has some 48,000 of these mandi intermediaries, of which 28,000-odd are active and each dealing with anywhere from 20 to 200 farmers.
  • In 2018-19 alone, 169.16 lakh tonnes (lt) of paddy and 129.12 lt of wheat got procured from Punjab. 
  • These, at their respective MSPs of Rs 1,770 and Rs 1,840 per quintal, would have been worth almost Rs 53,700 crore
  • At 2.5%, the commission payments over and above this to the commission agents would have been around Rs 1,342.5 crore.
  • Also, landless tenants represented an estimated 30-35% of Punjab’s farmers who cultivate land belonging to others that include government employees, NRIs and permanent urban residents within and outside the state.

Concerns of Landless tenants

  • Not being either the owner or a registered tenant farmer means that they cannot access any crop credit from the local primary agricultural cooperative society, 
  • They even cannot benefit from the government’s loan waiver 
  • Not eligible for the Centre’s Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) income support schemes
  • Under PM-Kisan, there are 22.40 lakh farmers in Punjab receiving annual income support of Rs 6,000 each which includes only landowning farmers
  • Even at the time of sale at the agriculture produce market committee (APMC) mandi the documents (‘J form’) which gives details of the crop, quantity and price, mentions only the name of the landowner.


  • The Punjab government, at the nudging of the Centre, has made it compulsory for agents to provide bank and Aadhaar numbers of all their farmers. 
  • This data is to be linked to the Centre’s Public Financial Management System (PFMS) network, which will enable direct payment of MSP monies into the accounts of farmers rather than that of the agents
  • For collecting the details of landless farmers, the government is, therefore, relying on the agents. 

Challenges/Opposition to DBT

  • Tenants: 30-35% of Punjab’s farmers are unregistered landless tenant farmers. As a result, even though they are the actual cultivators, they would not be eligible (lack of necessary documents) to receive MSP money into their accounts
  • If MSP payment is transferred directly into bank accounts, only the landowners will benefit.
  • Commission Agents: They, of course, are least inclined to support the scheme as they stand to loose their 2.5% commission fee on MSP procurement. Also, their power and role in the entire supply chains gets diminished
  • It was commission agents in APMC mandis who used to provide loans to landless tenants to raise their crops. Hence, if the government reduces the role of agent it will inturn impact their ability to provide loans to tenants. This affects the working capital availability for these tenants

Way forward

  • Conducting a single census on landless farmers in the state
  • Ensuring the regularisation of the tenancy. This means flexibility in State tenancy laws. Adoption of Model Tenancy Act of Centre would be a step in the right direction.

Connecting the dots

  • DBT in fertilizers
  • Food Coupons Vs Subsidised food provision
  • Price deficiency Payment Scheme

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