Decentralised procurement

Also called: DCP · Topic: Agricultural Marketing, MSP, Buffer Stocks and PDS · NCERT: Beyond NCERT

Meaning

Decentralised procurement (DCP) is a system, started in 1997-98, in which a state government buys foodgrains at MSP, stores them and gives them out through its own PDS (Public Distribution System, the network of ration shops). The Centre pays back (reimburses) the state's costs, and the state hands any surplus grain to FCI for the central pool.

It matters because it cuts the cost of moving grain across the country. It also spreads MSP buying beyond a few states, so more farmers can sell to the government.

Explanation

How DCP works

Step 1: the state buys. The state government or its agencies buy wheat and rice from farmers at the MSP (Minimum Support Price, the price the Centre announces before sowing and promises to pay).
Step 2: the state stores. The grain stays in the state's own godowns (warehouses). It does not go to FCI first.
Step 3: the state distributes. The state uses this grain for its own PDS and other welfare schemes.
Step 4: the Centre reimburses. The Government of India pays the state back for the cost of buying, storing and handling the grain.
Step 5: the surplus goes to FCI. Grain left after the state's own needs is handed over to FCI (Food Corporation of India). It joins the central pool, the combined stock of wheat and rice held by FCI and state agencies on behalf of the Government of India.

DCP compared with centralised procurement

Centralised procurement:
FCI buys for the central pool, either directly or through state agencies.
FCI stores the grain and moves it from surplus states to deficit states.
→ Grain travels long distances → transport and handling costs are high.
DCP:
Grain grown in a state goes to ration shops in the same state.
→ Less long-distance movement → lower transport and handling costs.
→ More states start buying at MSP → procurement spreads out.

A simple example (illustrative numbers)

A DCP state buys 50 lakh tonnes of rice at MSP.
Its own PDS needs 35 lakh tonnes in the year.
Surplus handed to FCI = 50 − 35 = 15 lakh tonnes.
The Centre pays the state back for the cost of the grain it bought and handled.

What makes DCP work well or badly

Works well when:
The state has enough purchase centres, godowns and trained staff.
The state has the money to buy grain up front before the Centre pays it back.
Works badly when:
The state has little storage or few purchase centres.
The state's finances are weak, so it cannot pay farmers on time.
→ The main limit of DCP is that it depends on each state's capacity and finances.

In India

Start: DCP began in 1997-98.
Background: before that, India relied mainly on FCI. FCI was created under the Food Corporations Act 1964 and set up on 14 January 1965 to buy, store, move and distribute grain and to hold buffer stocks.
Who does the work: state governments and state agencies buy, store and distribute. FCI takes the surplus into the central pool. The Government of India reimburses the costs.
Which grains: mainly wheat and rice. These are bought under open-ended procurement, which means the government buys all grain offered at MSP that meets the FAQ (fair average quality) standard, with no quantity limit.
Why DCP is needed: procurement is still concentrated in Punjab, Haryana, MP, Telangana, Chhattisgarh and Odisha.
The Shanta Kumar High Level Committee (2015) found that only about 6% of farmers sell to a procurement agency at MSP.
Wider DCP, with purchase centres in eastern states, is one suggested fix.
Link to the central pool: DCP surplus adds to central-pool stocks. On 1 July 2025, the central pool held 736.61 LMT (lakh metric tonnes) of rice and wheat against a norm of 411.20 LMT, about 1.8 times the norm [1].
Scale of central buying: FCI procured 266 LMT of wheat in RMS 2024-25 (Rabi Marketing Season, which normally starts on 1 April) [2].

Don't confuse with

Centralised procurement: FCI buys, stores and moves grain across states. In DCP, the state buys, stores and distributes, and only the surplus goes to FCI.
Open-ended procurement: this is about how much is bought (all FAQ wheat and rice offered at MSP, with no limit). DCP is about who buys and distributes (the state, not FCI). A DCP state can also buy on an open-ended basis.
PDPS (Price Deficit/Deficiency Payment Scheme) under PM-AASHA: no grain is bought at all. The farmer gets the gap between MSP and the market price in cash. DCP is physical buying of grain.
Price Support Scheme (PSS): central agencies (NAFED, NCCF) physically buy pulses, oilseeds and copra. DCP is about wheat and rice for the PDS.

Prelims Hooks

DCP began in 1997-98. The state buys, stores and distributes grain under the PDS. The Centre reimburses the costs.
Under DCP, grain left after the state's own PDS needs is handed to FCI for the central pool.
Main merit: it saves transport and handling costs and spreads procurement to more states. Main limit: it depends on the state's capacity and finances.
Central pool = stock held by FCI and state agencies on behalf of the Government of India. So DCP grain held by states can be part of the central pool.
Trap: "Under DCP, FCI buys grain and moves it to deficit states." Wrong. That describes centralised procurement.
Shanta Kumar HLC (2015): only about 6% of farmers sell at MSP to procurement agencies. This is the main argument for spreading DCP.

Mains Points

DCP as a way to spread MSP benefits more widely:
Procurement is concentrated in a few states, and only about 6% of farmers benefit (Shanta Kumar HLC, 2015).
DCP lets states outside the core belt set up purchase centres and buy local grain.
→ Farmers are less forced into distress sales to traders → the price floor reaches more farmers.
Link to federalism (GS-II) and farm income (GS-III).
Cost saving versus state capacity:
DCP cuts transport and handling costs because local grain feeds the local PDS.
But weak states lack godowns, staff and money.
→ Slow payments to farmers and poor storage can cancel out the gains. Capacity building has to come before expansion.
DCP and excess stocks:
DCP surplus still flows into the central pool, which stood at 736.61 LMT against a norm of 411.20 LMT on 1 July 2025 [1].
Wider DCP without crop diversification could add to paddy–wheat stocks, carrying costs and the food subsidy.
For pulses and oilseeds, schemes like PDPS may be better, because they pay cash and do not build stocks.

Related concepts

Procurement and buffer stocks: FCI, the central pool and non-cereal support

Sources

1Centre has surplus Rice and Wheat stocks above buffer norms (PIB, 2025)pib.gov.in · tier 1
2FCI procures 266 LMT wheat during RMS 2024-25 (PIB)pib.gov.in · tier 1