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Minimum Support Price for Pulses and Oilseeds hiked by Centre

Minimum Support Price for Pulses and Oilseeds hiked by Centre

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  • GS 3 || Economy || Agriculture || Agricultural Credit

Why in the news?

The Cabinet Committee on Economic Affairs (CCEA) has hiked the minimum support price (MSP) for common paddy to 1,940 a quintal for the approaching Kharif season.

What is MSP?

  • The MSP concept was initially proposed in 1966-67, mostly to encourage farmers to utilize dwarf “miracle” wheat types during the green revolution.
  • The Minimum Support Price, or MSP, is a method of safeguarding Indian farmers from market and natural disasters such as hail storms and drought.
  • The MSP provides a “safety net” for farmers, and it is at the heart of India’s agricultural revolution, which has resulted in a food surplus.
  • The MSP is established by the cabinet committee on economic matters. The PM is the chairman of the cabinet committee on economic issues.
  • CCEA announces the MSP on the proposal of the Commission on Agricultural Costs and Prices (CACP).
  • The CACP was established in January 1965 as an affiliated office of the Ministry of Agriculture and Farmers Welfare.
  • The crops comprise 14 kharif crops, 6 rabi crops, and two additional commercial crops. The CCEA has announced MSP for a total of 24 crops.
  • Factors for fixing MSP include:
  1. Demand and supply; Manufacturing costs (A2 + FL technique)
  2. Market price movements, both domestic and foreign;
  3. Price parity between crops;
  4. Agri-business and non-agribusiness trading terms;
  5. A minimum profit margin of 50% above the cost of manufacturing; and
  6. MSP’s likely effects on that product’s customers.

Significance of MSPs:

  • Crop Diversification: MSP rises for pulses, oilseeds, and coarse cereals are slightly greater, assisting in the goal of crop diversification.
  • Differential remuneration and protection for farmers: It aids in crop diversification and land use pattern diversification. It protects farmers from unjustified price fluctuations caused by foreign price fluctuations. Any significant drop in a commodity’s market price may be handled since MSP acts as a shock absorber.
  • Increased emphasis on nutrient-dense crops: The increased emphasis on nutrient-dense cereals is intended to encourage their production in regions where rice-wheat cannot be produced without long-term negative consequences for the groundwater table.
  • Correct demand-supply imbalances: Efforts to realign MSPs in favor of oilseeds, pulses, and coarse cereals were undertaken in concert. To rectify the demand-supply mismatch, it encouraged farmers to migrate to bigger areas under these crops and implement best technology and agricultural practices.
  • Consumer needs: MSP guarantees that the country’s agricultural production adapts to changing consumer demands. For example, the government increased the MSP of pulses to encourage more planting.
  • Forward chain: The MSP increases agricultural income, encouraging farmers to invest more on inputs, technology, and other items.
  • Food Crops: The MSP encourages the development of a specific, in-demand food crop.
  • Atma-nirbhar Bharat: The government boosted the support price of tur by Rs 300 to Rs 6,300 per quintal for the 2021-22 crop year, up from Rs 6,000 per quintal last year, in order to enhance pulses and oilseeds output and lessen the country’s reliance on imports.

What is the problems within the MSP?

  • There is a lack of state procurement equipment for all crops except wheat and rice.
  • Crop production: Crop production remains unviable, and the assistance prices offered do not rise in lockstep with increases in production costs.
  • Procurement related problems- Only 1/3 of the cereals will be sold on the open market.
  • It hinders producers from making a profit.
  • This has resulted in a crop scarcity on the open market.
  • It has resulted in a shift in consumer preference for non-cereal meals.
  • Lack of knowledge regarding MSP
  • Excess storage: A lack of storage has resulted in massive stockpiles.
  • WTO issues: Many nations have challenged India’s MSP plan for many crops in the WTO. For example, Australia has expressed dissatisfaction with the MSP on wheat.
  • Though MSP provides assurance to farmers that their crops will be sold at a fair price, encouraging them to grow more, it is not advantageous to farmers or agriculture growth in the long run:
    • Despite the fact that MSP covers more than 25 commodities on paper, its execution is connected to Wheat and Rice, which has resulted in deception in the production of dal and oilseed.
    • Inflation of proteins: Reduce Dal production and import it as a result of the overemphasis on wheat and rice. Dal is critical for the labor class and farmers’ food baskets, as inflation has surpassed 10% in the previous two years.
    • Ground water: The MSP on sugarcane encourages farmers to grow sugarcane in Marathwada, which is a water-scarce region, and farmers use ground water for agriculture, resulting in the table deepening to more than 10 meters.
    • Loss to farmers also: MSP appears to be beneficial to farmers at first, but it increases inflation, which hits farmers the hardest.

Government’s Efforts:

  • In addition to the aforementioned steps, the government is pursuing a holistic approach to assisting farmers and facilitating farming-related operations during the COVID-19 lockdown.
  • Farmers are attempting to market their agricultural products more easily.
  • In addition, the government’s Umbrella Scheme ‘Pradhan Mantri Anna data Aay Sanrakshan Abhiyan’ (PM-AASHA) introduced in 2018 would help farmers be paid for their products. On a trial basis, the umbrella system includes three sub-schemes: ‘Price Support Scheme’ (PSS), ‘Price Deficiency Payment Scheme’ (PDPS), and ‘Private Procurement and Stockist Scheme’ (PPSS).
  • In addition, during the lockdown period from March 2020 to date, nearly 8.89 million farmer households have benefited from the ‘Pradhan Mantri Kisan Samman Nidhi’ (PMKISAN) Scheme, with a sum of Rs. 17,793 crore given so far.
  • Bhavantar bhugtan yojana launched by MP govt. was one of the very good initiative taken by the govt. to curtail the lose faced by the farmers
  • To ensure food security in the face of the COVID-19 epidemic, the government has decided to provide pulses to eligible families under the Pradhan Mantri Garib Kalyan Yojana (PM-GKY).

NITI Aayog’s Recommendations:

  • Reform Initiatives: The Aayog proposed a number of reform measures in its ‘Strategy for New India@75′ paper to boost agriculture sector growth and quadruple farmers’ income by 2022.
  • Alternatives to MSP: Investigate alternatives for incorporating private traders into markets to supplement the MSP regime through a system of incentives and commission payments.
  • Minimum Reserve Price: The NITI Aayog should form a committee to look into replacing the minimum support price (MSP) with a minimum reserve price (MRP), which may serve as the starting point for mandi auctions. The committee should also look at whether MSP may be set based on three distinct criteria: excess produce, items that are in short supply in the home market but are available worldwide, and products that are in short supply in the domestic market but are accessible globally.
  • Agriculture Tribunal: In accordance with Article 323B of the Constitution, the government should consider replacing the Commission on Agricultural Costs and Prices (CACP) with an agriculture tribunal.
  • Modernization: Improving irrigation facilities, marketing reforms, post-harvest management, and crop insurance products are all ways to modernize the agriculture industry.
  • Unified National Market: Create a competitive, stable, and unified national market to enable better price discovery and a long-term trade regime favorable to exports. Raising MSP or prices can only be a partial solution to the problem of ensuring remunerative returns to farmers; a long-term solution lies in the creation of a competitive, stable, and unified national market to enable better price discovery and a long-term trade regime favorable to exports.
  • Future Trade and Contract Farming: The study also endorsed contract farming. The need of encouraging futures trading and lowering entry barriers to improve market depth was emphasized.
  • Maintain Food Security: The policy environment should make it easier for farmers to earn a living while also ensuring the country’s food security.
  • Agricultural Export Strategy: The government should develop a clear and stable agricultural export policy for farm exports, ideally with a five to ten-year time horizon and a built-in contingency for market fluctuations.

Way forward:

In India, the minimum support price (MSP) has traditionally been utilized as a political tool rather than a tool to help farmers. Economists have long advised the government to abandon the MSP system in favor of a free market economy. However, at times of crisis, such as COVID-19, national lockdown, and subsequently locust invasion, farmers and other agriculture and related activities urgently require government involvement to absorb economic shocks and recover. Despite the fact that Indian agriculture has remained resilient in the face of the crisis, structural reforms and assistance for farmers are critical demands for the economy. The agriculture sector urgently requires MSP support at this critical juncture.