Minimum support price: Issues related to direct and indirect farm subsidies

General Studies Paper 3

Context: Minimum support price and issues

What is MSP?

• MSP is the minimum price paid to the farmer for procuring food crops.
• It offers an assurance to farmers that their realisation for the agricultural produce will not fall below the stated price.
• MSPs are usually announced at the beginning of the sowing season.
• MSP is recommended by the Commission for Agricultural Costs and Prices (CACP).
• Cabinet Committee on Economic Affairs approves MSP.
• The Food Corporation of India procures food grain under the price support scheme.

Benefits of MSP

• Incentivise production of a specific food crop which is in short supply.
• Protects farmers from any sharp fall in the market price of a commodity.
• Ensures that the country’s agricultural output responds to the changing needs of its consumers.
• Ex: The government hiked the MSP of pulses to expand sowing of pulses.
• Higher farm profits will encourage farmers to spend more on inputs, technology etc
• Protect farmers from the unwarranted fluctuation in prices, provoked by the international level price variations.

Importance

• Almost half of India’s population is dependent on agriculture for livelihood.
• Farming is a risky business with the farmer’s income dependent on the vagaries of weather, as well
• as local and international price trends.The MSP shields farmers to an extent, from such risks, by guaranteeing a floor price for their produce.
• To achieve food security and tackle shortages of key food items.

Concerns / Challenges

• Sharp and frequent increases in MSP can feed inflation too.
• Government procurement at MSP is benefiting the large traders than farmers. Small farmers typically do not have enough marketable surpluses. Their crop is usually sold to traders at low post-harvest prices in the village itself or the nearest mandi.
• The input costs have been rising faster than sale prices, squeezing the meagre income of the small farmers and driving them into debt
• MSP is attractive towards wheat and rice which is produced by large farmers. Small farmers who mostly dependent on vegetables, pulses, coarse grains are at disadvantage.
• The payments are delayed when the farmers are in immediate need of cash.
• purchase centres were located at distance which required high transportation costs

Way Forward

• Revision of MSP and its provisions are required. Diversification towards other crops like pulses must be done.
• Systematic administrative mechanism that includes personnel, system, infrastructure and scientific mechanism.
• Pre and post planning for the procurement at every location.
• The monitoring at every phase for the efficiency of the process and accountability of the people involved in its implementation.