What is the Open Market Sale Scheme (OMSS)?
02-08-2024
06:58 AM

What’s in today’s article?
- Why in News?
- What is the Food Corporation of India (FCI)?
- What is the Open Market Sale Scheme (OMSS)?
- How has the Centre Revised the OMSS?
- What is the Bone of Contention?
- How have States Reacted?
- The Centre’s Argument
Why in News?
- The Centre recently allowed state governments to directly buy rice from the Food Corporation of India (FCI) without participating in e-auction under the open market sale scheme (domestic).

What is the Food Corporation of India (FCI)?
- It is a statutory body set up in 1965 (under the Food Corporation Act, 1964) under the Ministry of Consumer Affairs, Food and Public Distribution, Government of India.
- It was set up against the backdrop of a major shortage of grains, especially wheat, in the country.
- The FCI is the main agency responsible for the execution of food policies of the government.
- Currently, FCI is mandated with three basic objectives:
- Effective price support operations for safeguarding the interests of the farmers.
- Distribution of food grains throughout the country for public distribution system.
- Maintaining satisfactory level of operational and buffer stocks of food grains to ensure National Food Security.
What is the Open Market Sale Scheme (OMSS)?
- The FCI, on the instructions from the government from time to time, sells surplus food grains from the central pool, especially wheat and rice,in the open market to traders, bulk consumers, retail chains, etc., at predetermined prices.
- This is in addition to maintaining buffer stocks and making a provision for meeting the requirements of the National Food Security Act (NFSA) and Other Welfare Schemes (OWS),
- The FCI does this through e-auctions, where open market bidders can buy specified quantities.
- An eligible bidder can bid for a minimum quantity of 10 metric tons (MT) to a maximum of 100 MT in the case of wheat. In the case of rice, traders are eligible and can bid a minimum quantity of 10 MT and a maximum quantity of 1000 MTs.
- States are also allowed to procure food grains through the OMSS without participating in the auctions, for their needs.
- This will be beyond what they get from the central pool to distribute to NFSA beneficiaries.
- The OMSS aims to enhance the supply of food grains (ensuring food security) during the lean season and thereby moderate the open market prices (controlling inflation), especially in the deficit regions.
How has the Centre Revised the OMSS?
- The Centre decided to restrict the quantity that a single bidder can purchase in a single bid under the OMSS.
- While the maximum quantity allowed earlier was 3,000 metric tonnes (MT) per bid for a buyer, it will now range from 10100 metric tonnes.
- The FCI claims that the quantities have been reduced this time to accommodate more small and marginal buyers and to ensure wider reach of the scheme.
- The objective behind the move is also to curb retail prices as allowing smaller bids should ideally break monopolies of bulk buyers, allowing more competitive bids by small buyers.
What is the Bone of Contention?
- Through a new notification, the Centre stopped the sale of rice and wheat from the Central pool under the OMSS to State governments, also disallowing private bidders to sell their OMSS supplies to state governments.
How have States Reacted?
- States such as Karnataka and Tamil Nadu have criticised the government for engaging in “politics” at the expense of marginalised beneficiaries of State welfare schemes.
- In Karnataka, the Anna Bhagya scheme to give rice to marginalised families was a part of the Congress government’s poll promise.
- The leaders have accused Centre of conspiring to “fail” the State government’s poll guarantee by ensuring the State did not receive the required amount of rice to implement the scheme.
The Centre’s Arguments:
- The reason for restricting supplies per bidder and eventually excluding states from procuring through auctions was to curb inflation and regulate supply.
- The Centre was already meeting its obligations to distribute grains to 80 crore marginalised beneficiaries under the NFSA.
Q1) What is the National Food Security Act 2013?
The Act legally entitled upto 75% of the rural population and 50% of the urban population to receive subsidized food grains under Targeted Public Distribution System.
Q2) What is the public distribution system (PDS)?
PDS evolved as a system of management of scarcity through distribution of foodgrains at affordable prices. Over the years, PDS has become an important part of the Government's policy for management of the food economy in the country.
Source: States allowed to buy rice from FCI without e-auction at Rs 2,800/quintal
Impact of Gold Import Duty Cut: Future of Sovereign Gold Bonds Scheme
26-08-2023
01:19 PM

What’s in today’s article?
- Why in News?
- India’s Gold Market
- Impact of Gold on the Economy
- Import Duty Cut on Gold
- Sovereign Gold Bonds Scheme (SGBS)
- Govt to decide future of SGB scheme in September

Why in News?
Following the Budget announcement to cut the import duty on gold, the government plans to make a final decision regarding the future of the Sovereign Gold Bonds (SGB) scheme in September.
India’s Gold Market
- The data on gold industry in terms of its’ size, direct contribution to GDP and employment, is not easily available.
- However, as per the World Gold Council report 2024:
- India, along with China, topped the global demand for gold jewellery in 2023. Despite record gold prices, demand for jewellery remained strong in India.
- Overall, gold demand in 2023 was 747.5 tonnes, down 3 per cent from 774.1 tonnes.
- India remains the second largest gold jewellery consumer in the world.
- India's central bank continued to be a significant buyer of gold, contributing to the global trend of substantial central bank gold purchases in 2023.
- India, along with China, topped the global demand for gold jewellery in 2023. Despite record gold prices, demand for jewellery remained strong in India.

Impact of Gold on the Economy
- Business/employment opportunities:
- Gold is used as a raw material for jewellery fabrication and making coins. This in turn creates business opportunities, value addition and employment.
- The industry provides employment to a significant number of people in India, including miners, artisans, and retailers.
- Current account deficit (CAD):
- India is the world's second-largest importer of gold, which contributes to the country's current account deficit.
- The import of gold requires foreign currency, which puts pressure on the country's foreign exchange reserves.
- It should be noted that the gold imports are also used for export of gold jewellery, it has the potential to mitigate the adverse impact of imports on CAD.
- Inflation:
- Gold is often used as a hedge against inflation, which means that during times of high inflation, demand for gold increases.
- This can lead to an increase in the price of gold, which can contribute to inflation.
- Savings and investments:
- Gold is considered a safe-haven asset and a store of value in India, which means that many people use it as a means of savings and investment.
Import Duty Cut on Gold
- In Budget 2024-25, the government slashed import duties on gold to 6 per cent from 15 per cent.
- While this duty cut led to a decrease in gold prices, it also resulted in increased demand for the metal.
- The duty cut brought down domestic prices of gold last week to Rs 67,500 per 10 grams, their lowest in four months, from a record high of Rs 74,777 in early July 2024.
- Some analysts believe the customs duty reduction aims to curb gold smuggling, which has increased due to recent high gold prices.
Sovereign Gold Bonds Scheme (SGBS)
- About
- The Sovereign Gold Bonds (SGB) scheme is an initiative by the Government of India, launched in November 2015.
- It offers a way for investors to buy gold in a paper or digital form rather than physical gold.
- Objective
- The main objective of this scheme was to reduce the demand for physical gold and shift a part of the gold imported every year for investment purpose into financial savings.
- Issuance
- Bonds are issued by the Reserve Bank of India (RBI) on behalf of the government.
- Denomination
- Available in multiples of grams of gold, with a minimum investment of 1 gram.
- Interest
- Investors earn a fixed interest rate of 2.50% per annum, payable semi-annually.
Govt to decide future of SGB scheme in September
- Future of SGB scheme to be decided in September
- Following the Budget announcement to cut the import duty on gold, the government plans to make a final decision regarding the future of the SGB scheme in September.
- Reasons
- As per the experts, the cost of financing the fiscal deficit through SGBs is quite high and does not align with the benefits accruing to investors from the scheme.
- The Government of India finances its fiscal deficit through various instruments, including dated securities, the National Small Savings Fund (NSSF), provident funds, and SGBs.
- This disparity may lead the government to decide on discontinuing the scheme at the upcoming meeting next month.
- Also, SGBs were brought in as an investment (instrument) with a specific objective of curtailing gold imports and holdings. However, the recent customs duty reduction dampen demand for these bonds.
- The reduction in gold prices following the customs duty cut has impacted returns on all gold investments, including SGBs, physical gold, and gold exchange-traded funds (ETFs).
- As per the experts, the cost of financing the fiscal deficit through SGBs is quite high and does not align with the benefits accruing to investors from the scheme.
- Budget 2024-25 and SGB
- In the Budget presented on July 23, the government reduced the gross SGB issuances to Rs 18,500 crore from Rs 29,638 crore in the interim budget of February 1.
- Net borrowing through SGBs has been cut to Rs 15,000 crore from Rs 26,138 crore previously estimated.
Q.1. What is National Small Savings Fund (NSSF)?
The National Small Savings Fund (NSSF) was established in 1999 by the Government of India. It collects deposits from various small savings schemes, such as Post Office Savings, Public Provident Fund (PPF), and National Savings Certificates (NSCs). These funds are used to finance the government's fiscal deficit and support public welfare programs.
Q.2. What are Exchange Traded Funds (ETFs)?
Exchange Traded Funds (ETFs) are investment funds that are traded on stock exchanges, similar to stocks. ETFs hold assets such as stocks, bonds, or commodities and typically track an index, sector, commodity, or other assets. They offer investors diversification, flexibility in trading, and generally lower fees compared to mutual funds.
Source: After import duty cut on gold, govt to decide future of SGB scheme in September | RBI | NITI Aayog | The Hindu Business Line
Supreme Court Verdict on SC Sub-Categorisation: Implications and Insights
26-08-2023
01:19 PM

What’s in today’s article?
- Why in News?
- Background of the case
- Key highlights of the judgement
- Possible implications of this judgement

Why in News?
In a significant 6-1 majority ruling, a seven-judge Constitution Bench of the Supreme Court declared that Scheduled Castes (SCs) and Scheduled Tribes (STs) do not form a socially homogeneous group. The court affirmed that states have the authority to sub-classify SCs/STs to provide reservations for the more disadvantaged segments within this category.
This decision allows states to ensure that reservation benefits reach those SC/ST communities that are less privileged and have been historically marginalized within the broader SC/ST category.
Background of the case
- Constitutional position and attempts by States to sub-categorise SCs
- Article 341 of the Constitution allows the President, through a public notification, to list as SC “castes, races or tribes” that suffered from the historical injustice of untouchability.
- SC groups are jointly accorded 15% reservation in education and public employment.
- In the last three decades, multiple States like Punjab, Bihar, and Tamil Nadu have tried to bring in reservation laws at the State level in a bid to sub-categorise SCs.
- In 1975, the Punjab government issued a notification dividing its 25% SC reservation at that time into two categories.
- Later, in 2000, a similar law introduced by Andhra Pradesh which was struck down by a five-judge Constitution Bench of SC.
- However, all plans were challenged in courts and the Supreme Court formed its larger Constitution Bench to decide the matter.
- Article 341 of the Constitution allows the President, through a public notification, to list as SC “castes, races or tribes” that suffered from the historical injustice of untouchability.
- E.V. Chinnaiah v State of Andhra Pradesh (2004):
- In this case, apex court held that once a community is included in the Presidential List for Scheduled Castes under Article 341 of the Constitution, they become part of a single larger class of people, casting a wide net for the purposes of reservation.
- The Bench held:
- that the State did not have the legislative power to create sub-classifications within this single class and
- that such an action would violate the Right to Equality.
- The Constitution has provided that these lists can only be made by Parliament and notified by the President.
- Davinder Singh case
- In 2020, another five-member Supreme Court bench in the Davinder Singh case unanimously ruled that sub-categorisation is constitutionally valid and suggested a larger constitutional bench rule on the matter.
- Matter referred to seven-judge bench
- A seven-judge Constitution bench is now examining the validity of its 2004 judgment in E V Chinnaiah vs State of Andhra Pradesh.
- The top court is examining questions:
- whether sub-classification inside the Scheduled Castes and Scheduled Tribes categories be permitted like in the case of other backward classes (OBCs) and
- if the state assemblies are competent to introduce laws empowering the states to undertake this exercise.
Key highlights of the judgement
- Are all castes in the SC list to be treated similarly?
- Article 341(1) of the Constitution empowers the President to specify the castes, races, or tribes in a state that shall be deemed Scheduled Castes (SCs) for constitutional purposes.
- Article 341(2) states that only Parliament can amend this list.
- The current verdict asserted that inclusion in the Presidential list does not create a uniform, homogenous class that cannot be further classified.
- CJI Chandrachud described the Presidential list as a "legal fiction," meaning it is treated as real for legal purposes but does not exist in actuality.
- SCs are recognized by the Constitution to provide benefits to listed communities.
- He emphasized that this legal fiction cannot be extended to ignore the "internal differences" among SCs, thus allowing for sub-classification by states to address varying levels of disadvantage within the SC category.
- Article 341(1) of the Constitution empowers the President to specify the castes, races, or tribes in a state that shall be deemed Scheduled Castes (SCs) for constitutional purposes.
- Can states ‘tinker’ with or sub-classify the Presidential list?
- Articles 15(4) and 16(4) of the Constitution empower states to make special provisions for the advancement of SCs and provide reservations for backward classes in education and public employment.
- In the E V Chinnaiah case, the court ruled that states could only provide reservations for SCs as a whole and could not sub-classify SCs to allocate portions of the reserved quota among state-created sub-classes.
- However, in the recent verdict, the Court held that states can use their power under Articles 15 and 16 to identify different degrees of social backwardness within SCs and provide special provisions, such as reservations, accordingly.
- Justice Gavai emphasized that equality of opportunity (Article 16) must consider the varying social positions of different communities.
- Providing the same opportunities to SC communities with different levels of disadvantage would worsen inequality.
- What is the yardstick for sub-classification?
- The majority opinion in the Supreme Court's ruling set strict guidelines for states on creating sub-quotas for Scheduled Castes (SCs).
- States must demonstrate a need for additional protections, provide empirical evidence, and have a reasonable rationale for sub-classifying SCs.
- This reasoning can be challenged and tested in court.
- CJI Chandrachud emphasized that representation in public services should be "effective representation," not just "numerical representation."
- This means that even if an SC community has adequate numerical representation, they may still lack effective representation if they are not promoted to higher positions.
- Therefore, states must prove that the sub-group identified within the SCs is more disadvantaged and inadequately represented, based on quantifiable data.
- Does the ‘creamy layer’ principle apply to Scheduled Castes?
- Only the opinion of Justice Gavai bats for introducing the ‘creamy layer’ exception for SCs (and STs) that is already followed for Other Backward Classes (OBCs).
- This concept places an income ceiling on reservation eligibility, ensuring that the beneficiaries are those in a community that need quotas the most.
- Four of the seven judges agreed with Justice Gavai’s opinion on the matter.
- Only the opinion of Justice Gavai bats for introducing the ‘creamy layer’ exception for SCs (and STs) that is already followed for Other Backward Classes (OBCs).
- Dissent by Justice Trivedi
- Justice Trivedi, the lone dissenter on the Bench, observed that States do not have the power to alter the Presidential list under Article 341.
- She pointed out that any inclusions or exclusions from the list can only be done by the Parliament.
- The judge further opined that such sub-classifications would defeat the true import of Article 341 —to eradicate any possibility of political factors dictating constitutionally-mandated affirmative action.
Possible implications of this judgement
- Relief to many states
- The ruling is likely to give impetus to States like Punjab, Bihar, and Tamil Nadu which have previously attempted to introduce separate reservations within the SC/ST categories.
- In an election rally in Telangana last year, PM Modi promised to look into the sub-categorisation of Scheduled Castes (SCs) to identify and help the most backward among them.
- This move was seen as an attempt by the then ruling party to woo the Madiga community.
- The Madigas have claimed that their share of representation was being taken up by another SC community, the Malas.
- Demand of caste census
- It is also likely to strengthen the Opposition’s demand for a caste census to ascertain the share of different groups in the reservation pie.
Q.1. What is Article 341 of the Indian Constitution?
Article 341 of the Indian Constitution empowers the President to specify the Scheduled Castes (SCs) in various states and union territories through a public notification. It also states that only Parliament can make any subsequent modifications to this list, ensuring legislative control over the classification of SC communities.
Q.2. What is Creamy Layer?
The "Creamy Layer" refers to the more affluent or higher socio-economic individuals within reserved categories, such as Scheduled Castes and Scheduled Tribes, in India. These individuals are excluded from certain affirmative action benefits and reservations, ensuring that assistance reaches those with greater socio-economic need.
Source: Explained: Sub-classification of SC, ST | The Hindu | Indian Express