Open Market Sale Scheme: Significance and recent changes

Introduction

The Open Market Sale Scheme (OMSS) has been in the news recently. Apart from the distribution carried out under the National Food Security Act (NFSA), several states, including those governed by Opposition parties, have their own welfare schemes to provide subsidized or free grains to targeted segments of the population. For this, states rely on OMSS bulk sales for additional food grain procurement.  However, the sudden changes to the scheme announced by the centre have drawn criticism from Opposition-ruled States such as Karnataka and Tamil Nadu. 

What is OMSS and what are the objectives? 

Open Market Sale Scheme (Domestic) [OMSS (D)] refers to selling of food grains by Food Corporation of India (FCI) at a predetermined prices in the open market from time to time. 

Through the OMSS, the FCI sells excess food grains, particularly wheat and rice from the central pool, in the open market.  

This is done through e–auctions, allowing traders, bulk consumers, and retail chains, among others, to purchase these surplus stocks. 

Usually, states are also allowed to procure food grains through the OMSS without participating in the auctions, for their needs beyond what they get from the central pool to distribute to NFSA beneficiaries. 

FCI utilizes the OMSS (D) to sell surplus stocks from the Central Pool at predetermined prices to achieve following objectives: 

• To enhance the supply of food grains during the lean season and deficit regions
• To moderate the open market prices
• To offload the excess stocks
• To reduce the carrying cost of food grains

What are the advantages of OMSS?  

Price stabilization: The OMSS is essentially a measure to curb food grain inflation. For example, earlier in 2023, the prices of Wheat declined by 19 percent in a period of 45 days due to FCI’s OMSS (D). 

Reducing wastage: Every year, more than 1500 metric tonnes (MT) of food grains get wasted in FCI godowns, due to lack of storage facilities and unscientific methods of storing food grains. The scheme helps to prevent the wastage of excess food grains by offloading excess stocks in the open market. 

Reduced carrying costs: A portion of the total food subsidy also goes towards meeting the carrying cost of the buffer stock as buffer subsidy. Timely OMSS reduces this cost by maintaining optimal buffer stocks. 

What are the changes made to the OMSS? 

The central government has made two major changes in the OMSS. 

Firstly, the government has restricted the quantity that a single bidder can purchase in a single bid under the OMSS. Previously, buyers were allowed to buy a maximum quantity of 3,000 metric tonnes (MT) per bid. Now, it will range from 10-100 metric tonnes (MT). 

Secondly, it has discontinued the sale of rice and wheat from the central pool under the OMSS to State governments. 

What are the reasons for the changes?  

For reducing bidding quantities: 

The bidding quantities have been reduced to accommodate more small and marginal buyers and to ensure wider reach of the scheme.  

The government has argued that it will allow the supplies to reach the general public immediately.  

It is argued that by permitting smaller bids from small buyers, it will foster competition and break the monopolistic hold of bulk buyers.  

Consequently, this is expected to control retail prices by encouraging more competitive bidding and ensuring a fairer market environment. 

For discontinuation of OMMS grains to the states: 

The central government has given three reasons for the discontinuation of OMSS for State governments: 

One, it claims that the OMSS can be more successful in curbing the inflationary trend in food grains if the grain is released through the market rather than through States/the PDS.  

Two, the government argued that it needs to maintain adequate food grain stock in the central pool as it expects lower procurement this year. This is because the output of some crops has been hit due to adverse weather events like untimely rains and high temperatures.  

Three, the central government has cited its obligation towards consumers who are not covered by the NFSA but are affected by fluctuations in retail prices of food grains. It argued that while the state governments will allocate food grains to the NFSA beneficiaries, as well as for beneficiaries of state-specific schemes, the interest of general consumers has been ignored. 

What are the critical arguments against the government’s actions? 

Firstly, the critics argue that there is no difference in releasing the grain through the market or through the states. Price stabilization can happen in both cases. Also, there is concern that private traders who get OMSS rice at fixed prices will not pass on the benefits to consumers. 

Secondly, the current buffer stock position is more than adequate. On average, for the past five years, stocks have been generally twice as high as the buffer stock norms. 

Thirdly, if States are forced to go to the open market, rice and wheat prices are bound to go up. This will defeat the Centre’s objective behind restrictions on quantity sold through OMSS. 

What should be done? 

Expansion and diversification of the PDS: The Centre and the States should focus more on making the Public Distribution System foolproof than on expanding existing schemes. The centre should update PDS coverage by using the projected population for 2023. At the all-India level, the under-coverage results in the exclusion of an estimated 113 million people. Besides inadequate coverage, in most States, the PDS does not provide nutritious food items such as pulses and oil.  

Seek alternative sources: When it comes to implementing State schemes in the food sector, the States must identify their own sources, and in a cost-effective manner. For example, Odisha and Chhattisgarh procure food grains locally to add on to PDS coverage. 

Cooperative federalism: The centre should grant more freedom to state governments to design their own food security system because the state government machinery knows better about the requirement of their local population. 

Sources: The Hindu (Article 1, Article 2 and Article 3) and Indian Express.