Price Stabilisation Fund (PSF)

Department of Agriculture Cooperation& Farmers Welfare , Ministry of Agriculture

Context:

Recently, the government has said that prices of onion, tomato and potato are cheaper than last year (i.e 2020).

• Onion buffer has been maintained by the Department of Consumer Affairs under the Price Stabilization Fund (PSF) with the objective of effective market intervention to moderate prices..

About Price Stabilisation Fund (PSF):

• In the Union Budget 2014-15, a Price Stabilization Fund with a corpus of Rs. 500 Crore for agricultural commodities was announced to mitigate the price volatility of agricultural produce.
• Accordingly, the Government of India, in May 2015, approved the creation of a Price Stabilization Fund (PSF), Central Sector Scheme, with a corpus of Rs.500 crores for providing interest free advance to State Governments/Union Territories (UTs) and Central agencies to support their working capital and other expenses they might incur on procurement and distribution interventions for such perishable agri-horticulture commodities. 
• The fund will be released into revolving fund account set up for the purpose by the State Government/UT. 
• Initially the fund was proposed to be used for market interventions for onion and potato only and pulses were added later. 
• Procurement of these commodities will be undertaken directly from farmers or farmers’ organizations at farm gate or mandi and made available at a more reasonable price to the consumers. 
• 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 scheme was transferred from Department of Agriculture Cooperation & Farmer Welfare (DAC&FW) to the Department of Consumer Affairs (DOCA) w.e.f. 1st April, 2016.

Framework and Funding:

• States will set up a revolving fund to which the Centre and State will contribute equally.
• The ratio of Centre-State contribution to the State-level corpus in respect of northeast States will, however, be 75:25

Management of Price Stabilization 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 as a Central Corpus Fund by Small Farmers Agribusiness Consortium (SFAC), a society promoted by Ministry of Agriculture for linking agriculture to private businesses and investments and technology. SFAC will act as Fund Manager.
• Funds from this Central Corpus will be released in two streams, one to the State Governments/UTs as a onetime advance to each State/UT based on its first proposal and the other to the Central Agencies.
• The one time advance to the States/UTs based on their first proposal along with matching funds from the State/UT will form a State/UT level revolving fund, which can then be used by them for all future market interventions to control prices of onions and potatoes based on approvals by State Level Committee set up explicitly for this purpose.
• The Price Stabilization Fund (PSF) was set up under the Department of Agriculture, Cooperation & Famers Welfare (DAC&FW), Ministry of Agriculture. The PSF scheme was transferred from DAC&FW to the Department of Consumer Affairs (DOCA) w.e.f. 1st April, 2016.

Objectives of Price Stabilisation Fund

• To promote direct purchase from farmers /farmers’ associations at farm gate/Mandi.
• To maintain a strategic buffer stock that would discourage hoarding and unscrupulous
  speculation.
• To protect consumers by supplying such commodities at reasonable prices through calibrated release of stock.

Difference between MSP & PSF

• In MSP, when the prices of produce fall below the cost of production, government buys or procures the select produce at a predetermined prices from the farmers so as to mitigate the distress sale by the farmer.
• In contrast to MSP, a PSF is generally conceived to be operative in both directions of price movement, subject to prices crossing some threshold level.

Source: PIB

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