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Personal FinanceTerms

What is (PSF) Price Stabilization Fund?

by Mansi Singhal June 26, 2021
written by Mansi Singhal June 26, 2021
What is price stabilization fund

The Price Stabilization Fund (PSF) is a scheme launch by the government of India on 11th September 2003. It was registered as a Public Trust under the Indian Trust Act, 1882. Jointly by NABARD and the Department of Commerce, Ministry of Commerce & Industry for a period of 10 years. Further, the trust was re-register for the next 10 years beyond 11/09/2013 to 11/09/2023. The purpose behind the PSF is to provide financial assistance to small farmers of coffee, tea, rubber, and tobacco. To avail benefits of PSF, the minimum land holding requirement was set up to four hectares. When the price of such commodities fell below the price spectrum band, financial relief was provided to the farmers. As the fluctuating nature of international prices and increasing dependence of growers on the export market, it will very beneficial.

The initiate was based on the contributions from the growers and the government depending upon the period. The grower members will require to deposit Rs. 500 (non-refundable) as an entry fee, which will be a part of Corpus Fund (discuss later).

  • If the price falls under the normal band, the year will declare as a normal year, and growers, as well as PSFT, will deposit Rs 500 in the PSF saving account (of growers).
  • In case, if the price goes above the band, the year will declare as a boom year, where only the grower will deposit Rs 1000 in the account.
  • If the price falls below the band, the year will declare as a distress year, where the grower will allow to withdraw Rs 1000 from the respective account.

Table of Contents

  • Objectives of PSF
  • Creation of Corpus Fund for PSF
  • Price Stabilisation Fund Management Committee (PSFMC)
  • Frequently Asked Question

Objectives of PSF

The main objectives behind the formulation of PSF was:

  1. To maintain the buffer stock which further eliminates the black hoarding and fake speculation.
  2. It aims to protect customers by ensuring the full supply of such commodities at a reasonable price.
  3. To protect direct purchase from farmers at farm’s gate or mandi.

Creation of Corpus Fund for PSF

A corpus of Rs 500 cr. will provide interest-free money as working capital from State Government/Union Territories (UTs). Whereas, the Central Agencies enable the procurement of perishable products. The fund is known as the “Corpus Fund for Procurement and Distribution of Identified Agri-Horticultural Commodities”. A separate bank account must open by Small Farmers Agri-Business Consortium (SFAC) which will act as a fund manager. The funds which are released by the government will keep in this account. SFAC will also maintain separate accounts of receipts and expenditures from Corpus Fund. Although, it will require to report to the Member Secretary (PSFMC) whenever asked without any fail.

Price Stabilisation Fund Management Committee (PSFMC)

The fund will manage by the “Price Stabilisation Fund Management Committee” (PSFMC) to ensure efficient utilization of the fund. It includes the following members:

  1. Additional Secretary, DAC (Marketing) – Member
  2. AS&FA, DAC – Member
  3. Joint Secretary (Consumer Affair) – Member
  4. DAC (Crops), Joint Secretary – Member
  5. Joint Secretary, DAC (Horticulture) – Member
  6. Chairman & Managing Director, Food Corporation of India – Member
  7. Managing Director, National Horticulture Board – Member
  8. Joint Secretary, DAC (Marketing) – Member Secretary
  • PSFMC will invite and approve proposals received from State Government/Union Territories and Central Agency. Also, PSFMC will approve the amount of advance.
  • PSFM is also responsible to make decisions regarding the surplus amount from Corpus Fund. Usually, such an amount will further invest in some other banks’ instruments to get a better return.
  • PSFMC will meet whenever required to discuss the retail and wholesale prices and will propose required interventions.

Frequently Asked Question

1. What is price stabilization fund?

PSF is a fund created to manage the increase or decrease of the low or high price of agricultural commodities by self-procuring the commodities and further distribute it, to stabilize the price in a range.

2. Is price stabilization fund central sector scheme?

Yes, Rs 500 crore as a central sector scheme was created to support the price fluctuation of the commodities.

3. What is price support system?

The price support system is a government policy to ensure profitable prices to the growers with a vision to increase production and export.

4. What is an example of price stability?

If the price falls under the normal band, it is the price stability of any crop. Basically, there is no fluctuation in the crop price and it will emerge as an expected price.

Related posts:

  1. What is Hybrid Mutual Fund? Types of Hybrid Fund & who should invest?
  2. What is Debt Mutual Fund? It’s working and Types of Debt Funds
  3. Systematic Investment Plan (SIP)- An ideal way to invest in Mutual Fund?
  4. Liquid Fund- Definition and How does it work?
  5. Mutual Fund Structure In India
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Mansi Singhal

Mansi has an insightful exposure to finance. She writes an article on personal finance and shares the easiest way to diversify the investment portfolio with minimum risk. She came out of her comfort zone to learn and explore new things.

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