Price Deficiency Payment

A price deficiency payment compensates a farmer when the market price of an eligible crop falls below an announced support price. Instead of buying the crop at the Minimum Support Price (MSP), the government pays the calculated price gap directly to the farmer, while the produce is sold to a private buyer.

How the payment works

The farmer registers under the scheme and sells the crop through an approved market or another verifiable channel. The government calculates the deficiency using the verified sale price or an officially determined market price, according to the scheme design.

• The basic formula is: payment = support price minus reference market price, multiplied by the eligible quantity, subject to prescribed limits.
• If the reference market price equals or exceeds the support price, no deficiency payment arises.
• The farmer receives the buyer's payment plus a direct government transfer, bringing the effective realisation closer to the support price.

Why physical procurement is unnecessary

The government acts as the compensating payer rather than as the buyer. Ownership and movement of the produce remain within the private marketing chain, so the government need not transport, store or dispose of the crop.

• Unlike procurement, the mechanism does not automatically create public stocks for buffer operations or food distribution.
• It can reduce handling and storage costs, but the government still bears the fiscal cost of the price difference.

Design requirements and Indian policy

The system requires reliable farmer registration, quantity verification and transparent price discovery. Otherwise, false sales, inflated quantities or price manipulation can increase expenditure.

• Farmers who do not sell through recognised channels, including some tenants and small producers, may find it difficult to claim the benefit.
• The PM-AASHA umbrella scheme, approved in 2018, included a Price Deficiency Payment Scheme as an option for notified oilseeds.
• Price deficiency payment supports marketed output, but it cannot substitute for procurement where the state needs physical food stocks.

How UPSC asks this