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REPORT OF THE COMMITTEE ON PRICE STABILISATION FOR COMMODITIES PRESENTED TO ARUN SHOURIE

Date : 30 Nov 2002
Location : New Delhi
 

The final Report of the Committee on the Operational Modalities of the Rs. 500 crore Price Stabilisation Fund for Commodities was presented to Shri Arun Shourie, Minister for Disinvestment and Commerce & Industry here this morning by Shri L.V. Saptharishi, Additional Secretary (Plantations), Department of Commerce, who chaired the Committee.

Deeply concerned with the problems being faced by the growers of coffee, tea, rubber and tobacco due to prevailing all time low prices of these commodities for quite some time and with a view to demonstrating Governmentís commitment to safeguard the interests of the growers of these commodities, the Department of Commerce, Ministry of commerce & Industry, had obtained in-principle approval from the Government during June 2002 for the setting up of a Price Stabilisation Fund (PSF) with an initial corpus of Rs. 500 crore. In order to work out the operational modalities of the Fund, a Committee was set up under the chairmanship of Shri Saptharishi. The members of the Committee were Dr. Prodipto Ghosh, Additional Secretary, Prime Ministerís Office, Shri A. K. Thakur, Joint Secretary, Department of Commerce, Shri R.N. Choubey, Joint Secretary, Department of Expenditure, Dr. S.N. Kaul, Consultant, Department of Economic Affairs, Shri N. Srinivasan, Chief General Manager, NABARD, Dr. Kalyan Raipuria, Sr. Economic Adviser, Department of Consumer Affairs, Shri Suman Bery, Director General, NCAER and Dr. Anil Sharma, Principal Economist, NCAER. Smt. Priya Kumar, Deputy Secretary, Department of Commerce served as Member Secretary of the Committee. Welcoming the Report, Shri Shourie indicated that its recommendations would be submitted soon to the Cabinet Committee on Economic Affairs for clearance.

The corpus of Rs. 500 crore will include contribution of Central Government, growers and the concerned State Governments where these crops are primarily grown. The Committee has recommended that the corpus of the Fund should remain undisturbed and interest earnings alone be utilised for operationalising the Scheme. A Trust Fund may be created for operating this fund and the monitoring of the Fund be entrusted to a Committee set up under the Department of Commerce and comprising of representatives of the Ministry of Finance, NABARD/designated bank/participating banks, representatives of the concerned State Governments, distinguished economists and commodity experts.

The Scheme will be operational initially for ten years commencing from April, 2003.

The Fund seeks to bring about price stabilisation for each of the commodities without resorting to the practice of procurement operations by the Government agencies. Intervention through the PSF means that when the prices worsen, the growers participating in the scheme will be compensated through the fund and in the boom years the growers will have to contribute to the PSF.

Several methods for determining the normal level of prices for each of these commodities were considered by the Committee and 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 +/- 20% from the seven year moving average of international prices.

The Committee considered three alternative schemes to support growers through the PSF, viz., Price Stabilisation Scheme, Modified Price Stabilisation Fund Scheme (MPSF) and Multipurpose Loan Scheme. After examining the merits and demerits of each of the three schemes and evaluating them on the basis of various objective criteria, the Committee has recommended adoption and implementation of the MPSF which is based on the principle of suitable contributions from the Government, as well as from the growers during the normal/boom/distress periods. The Committee has recommended that to begin with the Scheme may cover only about 3.42 lakh growers, being the most needy amongst those having an operational holdings of upto 4 hectares.

Under this scheme each of the participating grower will be required to make a non-refundable initial contribution as entry fee to the fund and open an MPSF account with any nationalised bank. During normal year when the prices remain within the price spectrum band, the grower will be required to deposit certain amount to the MPSF account. The Government from the interest earnings of the corpus will also contribute to the individual account of the growers. During boom year when the prices pierce the upper band, the grower shall contribute to his MPSF account while the Government will not make any contribution. In the distress year when the prices fall below the lower band the Government will contribute and grower shall not be required to contribute to his account.

The Committee has also recommended that Government should take initiative and facilitate the establishment of Commodity exchanges with provision for futures trading.

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SB/PM/MRS

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