In a landmark change in the way it administers minimum support prices (MSPs) for crops, the central government is set to begin direct transfer of cash into farmers’ accounts, instead of physical procurement of cotton from wholesale markets.

Normally, it intervenes through state federations or its Cotton Corporation of India (CCI) arm, when the market price falls below the MSP. Under MSP operations, CCI has so far this year procured a little over 100,000 bales (170 kg each), largely in a few districts of Telangana and Andhra. Last year, it had procured a record 8.6 million bales, nearly a fourth of overall cotton output.

The Centre is now introducing a ‘Direct Payment Deficiency System (DPDS)’ under which the difference between selling price and MSP would be borne by it. The amount of the price difference would be transferred from the ministry of textiles to the respective state governments for distribution.

“DPDS is currently being worked out on a pilot basis in Hinganghat, Wardha district of Maharasthra. On successful completion, we will be rolling it out in other talukas, districts and states. Hopefully, the scheme will be rolled out through the country this season,” said Kavita Gupta, textile commissioner in the central ministry, while announcing the 74th plenary meeting here of the International Cotton Advisory Committee.

There is currently a lot of expense on procurement, handling, transportation, warehousing and sales of procured cotton. The government compensates the loss incurred by the procurement agencies. "Instead of passing though all such channels, direct transfer would bring efficiency and transparency in MSP operations. Also, it will save a whole lot of expenses incurred by the government in the process,” said Gupta.

CCI, along with The Maharashtra State Co-operative Cotton Growers Marketing Federation, procured 2.3 million bales worth Rs 3,556 crore of cotton in the state last year. Along with procurement, CCI sold cotton through e-auctions.

For availing of the new service, farmers would have to present proof of cotton sold at Agriculture Produce Market Committee yards, plus other papers such as ownership document, yield estimation and other details. On giving these in at local talukas and government inspectors, the difference between actual price and MSP is to be transferred to a farmer's account directly, within two weeks.

The ministry estimates output in India to decline this year to 36.5 million bales, as compared to 38 mn last year. This is due to a fall in sowing area to 11.76 mn hectares, from 13.08 mn last year. The yield is actually estimated to rise significantly this year, to 527.49 kg a ha from 493.77 kg last year, on sowing of higher yielding seed. Gupta said the government had introduced a 'revolutionary technology', used abroad.

Bangladesh was India’s largest importer of cotton in 2014-15, for the first time, due to a sharp slump in Chinese offtake. Bangladesh imported 2.29 mn bales from India in FY15, from 2.16 mn bales a year before. China’s was 1.68 mn bales, down from 6.48 mn in 2013-14.