Economics Current

MSP to Farmers

MSP to Farmers
What is Minimum Support Price? Minimum Support Price is the price at which the government purchases crops from the farmers, whatever may be the price for the crops in the market. MSP is announced by the government at the beginning of the sowing season. They are recommended by the Commission of Agricultural Costs and Prices (CACP) and approved by the Cabinet Committee on Economic Affairs. What are the crops covered under MSP? The MSP is announced by the Government of India for around 25 crops currently at the beginning of each season (Rabi and Kharif). The following are the crops: •Cereals (7) – paddy, wheat, barley, jowar, bajra, maize and ragi. •Pulses (5) – gram, arhar/tur, moong, urad and lentil. •Oilseeds (8) – groundnut, mustard, toria, sunflower seed, soyabean, sesamum, safflower seed and nigarseed. •Copra •De-husked coconut •Raw cotton •Raw jute •Sugarcane (Fair and remunerative price) •Virginia Flu Cured (VFC) tobacco How MSP is decided? The government decides on the support prices for the agricultural commodities after taking into consideration the following factors: •Recommendations of the Commission of Agricultural Costs and Prices. •Views of State Governments •Views of Ministries •Other relevant factors What is the need for MSP? The MSP is required to fulfill the following prevailing problems in Indian society: •The share of agriculture in India’s GDP has fallen considerably yet, more on half of India’s population depends on agriculture for livelihood. •It protects the farmers from any sharp fall in the market prices. •It helps farmers from market fluctuations and market imperfections. •It gives security to the farmers when there is a crop failure on less yield. •It is a tool to achieve food security. •MSP is announced at the beginning of the season; this helps the farmers to decide on what crop to plant for a better income. •MSP is used as an incentive to produce a particular crop that is short in supply in the market. •MSP motivates farmers to produce targeted crops and increased production. What are the drawbacks of MSP? •MSPs have unequal access: The benefits of this scheme do not reach all the farmers and for all crops. There are many regions of the country like the north-eastern region where the implementation is too weak. This problem has been in existence since the start of the scheme. •Crop production: Even after so many years of implementation, the crop production is still increasingly unviable. The support prices for the crops do not increase in par with the cost of production. The price of the crops has reduced considerably from 2014-17 and it is very less than it was during 2009-13. The deceleration in the prices especially when the international prices are equivalent to domestic markets would only make the sale of low imported goods to sell better in the markets. This would affect domestic produce. •Procurement related problems: Almost 2/3rd of the total cereal production is taken through the route of MSP, leaving only 1/3rd for the open market. As a result, a farmer who chooses the MSP route cannot take advantage of beneficial market prices and has to depend solely on the MSP. It prevents the earning of profit by producers. This has created a shortage of crops in the open market also which has a serious impact on It has shifted consumption towards non-cereal foods (that are available more in open market relatively), but production has not risen simultaneously, causing a production-demand gap. •Excess storage: This kind of procurement of seeds with no proper storage facilities has resulted in the piling of stocks in warehouses. The stocks have become double the requirements under the schemes of PDS, Buffer Stocks, etc. •Issues with WTO: India’s MSP scheme for many crops has been challenged by many countries in the WTO. For example, Australia has complained of the MSP on wheat, US and EU complained of sugarcane and pulses MSP. They have been claimed to be highly trade-distorting by its method of calculation. If the current process continues, the country will face international criticism for breaching the 10 percent norm for subsidy on farm production set by the WTO. •Market distortion: It distorts the free market. It favors some particular crops over other crops. Not all farmers have been able to get the benefits of MSP because of a lack of awareness. Higher MSP over-incentivize production leading to supply glut. Hikes in MSP also adversely affect the exports by making Indian farm goods competitive especially when international market prices are lower. It does not cover perishables. •Ecological issues: MSP leads to the use of non- scientific agricultural methods which lead to the degradation of groundwater and salinization of the soil. •Killing of competition: Any interference by the government kills the competition. This affects the agents who procure the crops at lower prices and sell them at higher prices and earn profits. This mainly disturbs the working of people who sell these outputs from farmers into the open market. Agriculturists and scientists have suggested the following in response to the MSP question: •Instead of relying on MSP alone, the government needs to explore alternative models to boost farmer’s income. •NITI Aayog is already working on an alternative mechanism. A counterpart of the MSP is the Market Intervention Scheme (MIS), under which the state government procures perishable commodities like vegetable items. •The procurement system of the government needs to be streamlined. •To solve the problem of MSP, Both NITI and Economic Survey recommend Price Deficiency Payment (PDP). •Declare MSP for all types of crops. •Easing the role of procurement agencies and minimizing storage losses and costs. •As an alternative, Inputs subsidy policy should have been formulated to watch the interest of the farmers. •Some states like Madhya Pradesh have launched price deficit financing schemes (Bhavantar Bhugtan Yojana), in which the government pays the farmers the difference between modal rate (the average prices in major mandis) and the minimum support prices (MSPs). The scheme appears to be a better alternative, which faces challenges of storage and liquidation. •Similarly, the Haryana government is following Bhavantar Bharapai Yojaan for vegetables.

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