Minimum Support Price (MSP)

Home > Minimum Support Price (MSP)
About This Project

UPSC MAINS SYLLABUS GS3 PAPER: Issues related to Direct and Indirect Farm Subsidies and Minimum Support Prices

WHY IN THE NEWS? 

  1. Recently, the Union Cooperation Minister Amit Shah assured the farmers that the two cooperatives, the National Agricultural Cooperative Marketing Federation of India Limited (NAFED) and the National Cooperative Consumers’ Federation of India Limited (NCCF) would procure the pulses produced by the farmers at the Minimum support price (MSP) 
  2. For this purpose, the Ministry of Cooperatives has  launched a Tur dal procurement portal through which farmers can register and sell their produce to NAFED and NCCF. 
  3. The step is being taken to promote cultivation of pulses on a large scale to reduce dependency on imports with the target of becoming self reliant in pulses by 2027. 

WHAT IS MINIMUM SUPPORT PRICE (MSP)?

  1. MSP is an informal tool which acts as a Floor price for procurement of food grains by the Government thus acting as Market price benchmark.
  2. It acts as a Price support mechanism that acts as a safety net given to farmers to ensure guaranteed prices and assured markets for their products.
  3. The Agriculture Price Commission (APC) was set up in 1965 on the recommendation of  the Dantwala Committee to decide the MSP for rice.
  4. The APC was reconstituted as the Commission for Agricultural Costs and Prices (CACP) in 1985 as a statutory body. 
  5. The CACP currently recommends the MSP for 23 commodities and Fair and Remunerative Price (FRP) for Sugarcane & Jute. 
  6. NOTE: CACP only recommends the MSP which is finally decided by the Central government (Cabinet committee on Economic Affairs).
  7. MSP is determined by the CACP by calculating the following costs: 
    • A2 – It covers all cash & kind expenditure incurred by the farmer on Seed, fertilizer, chemicals, hired labour, fuel & irrigation. 
    • FL – It includes the Imputed value of unpaid family Labour
  8. However following costs are not included in the MSP: 
    • C2 – Revenue forgone on own land (Rent) & cost of development & interest incurred on the Fixed Capital Assets (Interest).
  9. There are various factors considered by the CACP for deciding of MSP: 
    • Cost of Production 
    • Demand & Supply 
    • Trend in Domestic & International Prices Trend 
    • Inter-Crop price parity 
    • Term of Trade between Agriculture and Non-Agriculture sectors 
    • Implication of MSP on the consumer of that product (Inflation) 
  10. Since the Budget 2019-20, MSP is set at least 50% more than the weighted average cost of production as recommended by the Swaminathan Committee. 

SHORTCOMINGS OF THE MSP: 

  1. While the Government does declare the MSP twice a year, there is no law making MSP mandatory. Thus though the government buys MSP from farmers, it is not legally obliged to do so. 
  2. Also there are no laws which direct the private traders to buy at MSP thus sale at Mandis takes place on demand & supply mechanism. For example, this caused the huge inflation seen in the prices of tomatoes in 2023. 
  3. These were major concerns of the farmers during protests which led to the repeal of 3 Farm laws introduced by the Government as they did not require prices for sales to private parties to be linked to the MSP — a key factor governing the mandi structure.
  4. Without this protection, farmers with small landholdings were left vulnerable to price exploitation by corporates or large-scale purchasers. It may be noted that 86% of the country’s farmers have landholding less than 2 hectares. 
  5. Further, the DIU analysis for the last decade showcases that in the regime of  successive UPA and NDA governments, there is prevailing latency in procurement of food grains by the Government at the MSP. 
  6. At the same time under the ‘Open ended procurement’ government can’t decide the quantity it wants to buy thus how much ever grains are offered by farmers, the Government has to purchase which has led to excessive food stocks rotting in warehouses.
  7. Under the NSFA 2013, Government majorly procures wheat & rice from the farmers although it declares MSP for 23 crops. This has led to huge concentration in growing water-intensive crops such as Rice in water deficit belts of Northern India leading to alarming decline in groundwater table.
  8. This concentration of large farmers in growing cereal crops has led to deficit in production of nutritious crops. For example, even though India is the largest producer and consumer of pulses in the world, but still 25 % of the pulses consumed are imported.
  9. As highlighted by the Shanta Kumar committee report 2015, only 6% of farmers in India actually succeed in selling their crops at MSP. 
  10. Also, the World Trade Organisation (WTO) lists India’s MSP as a trade distorting measure and placed it under Amber box provisions at WTO meaning it has to be capped at 10% of the total value of the concerned product.

WAY FORWARD: 

The need of the hour is that the Government shall come up with a suitable pricing policy and it must be market driven based upon “free market” theory. At the same time, to ensure sustainable prices to the farmers, a deficiency payment scheme like the Bhavantar Bhugtan Yojana (BBY) of Madhya Pradesh can be initiated. Further as envisaged in the Budget 2023, strengthening of the  Farmers Producer Organisations (FPOs) to increase bargaining power of farmers is the ideal way forward. 

UPSC MAINS 2024 PRACTISE QUESTION:

Q: What are the direct and indirect subsidies provided to farm sector in India. Discuss the issues raised by the World Trade Organization (WTO) in relation to agricultural subsidies. (15 M, 250 Words) 

 

0 Likes