Hike in MSP

June 14, 2023

Context:

The Centre recently announced a 5.3% to 10.35% hike in Minimum Support Prices (MSP) of all mandated Kharif crops for marketing season 2023-24.

About Minimum Support Price:

Introduced in the 1960s to overcome India’s food deficit, MSP is the minimum price that the government considers remunerative for agricultural production and is hence deserving of support.
In event of fall of prices in notified agricultural commodities, the government provides price support by procuring the farm produce at MSP.
MSP is considered as one of the most important measures to ensure Food security and alleviate rural poverty, procure food grains for Public distribution, etc.

Current Status of MSP:

At present, MSP is declared for 23 agricultural commodities by the government on the recommendation of the Commission for Agricultural Costs and Prices (CACP) before cropping season, apart from this Fair and Remunerative Price for Sugarcane is also declared.
Currently, MSP is declared for 23 agricultural commodities.
- 7 types of cereals (paddy, wheat, maize, bajra, jowar, ragi and barley),
- 5 types of pulses (chana, arhar/tur, urad, moong and masur),
- 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower, niger seed),
- 4 commercial crops (cotton, sugarcane, copra, raw jute)
The government is not legally bound to pay MSP even if the market rates are below the threshold prices. MSP is run entirely on executive directions and isn’t guaranteed by law.

M S Swaminathan Committee’s Recommendation on MSP:

Recommended MSP should be at least 50% more than the weighted average cost of production.
Arrangements for MSP need to be put in place for crops other than paddy and wheat. Also, millets and other nutritious cereals should be permanently included in the PDS.

Importance and Benefits oF MSP Regime:

Safety net or insurance and higher investments in agriculture and adoption of technology.
Protection from fluctuation in global markets and food security is achieved.
Alleviation of Rural poverty prevents rural-to-urban migration for jobs.
Ensures remunerative income and helps to make informed decisions.
Acts as a benchmark for private buyers and counters price volatility of agricultural commodities.
Improve economic access of food to people (through procurement and distribution).
Crop Diversification: There are slightly higher increases in the MSP for pulses, oilseeds and coarse cereals which helps in achieving the motive of diversifying crops.
Forward Chain: The MSP leads to higher farm profits which encourage farmers to spend more on inputs, technology etc.
Atma-nirbhar Bharat: The government has focussed on increase in production per acre to fullfill the objective of Atma-Nirbhar Bharat.
- For instance -MSP for lentils (Masur) and mustard increased by 9% (Rs 500 per quintal) and 8% (Rs 400 per quintal) to encourage farmers to go for more production of pulses.

Impact of MSP on Cropping Pattern:

MSP backed procurement of Wheat and Rice, especially from Punjab and Haryana has promoted rice/wheat monoculture despite lack of favourable conditions.
Traditionally, the mainstay of Indian agriculture, millets (especially Jowar and Bajra) saw a decline.
Heavy FRP (Fair and Remunerative Price) and SAP (State Administered Price) regime is one of the prime reasons for sugarcane cultivation in UP, Maharashtra and Bihar.
Inadequate MSP protection and low procurement has led to shrinkage of area of cultivation in pulses and oilseeds and resorting to imports in times of scarcity.

About Fair and Remunerative Price (FRP):

It is the minimum price at which sugarcane is to be purchased by sugar mills from farmers. It is fixed by the Cabinet Committee on Economic Affairs (CCEA)) on the basis of recommendations from the Commission for Agricultural Costs and Prices (CACP) every year before cropping seasons.
Average annual production of sugarcane is around 35.5 crore tonnes (As per Economic Survey 2021-22), which is used to produce around 3 crore tonnes of sugar.
India has emerged as the world’s largest producer and consumer of sugar as well as the world’s 2nd largest exporter of sugar.

Challenges Associated with MSP Regime:

Distortion of cropping pattern and impacts on Environment
Still yield per hectare is the lowest among economies with a large agriculture sector.
Can cause inflation and Detrimental to competition
Sugar Industry: Arbitrary fixation of cane prices by state governments over and above the MSP fixed by the centre has been adversely affecting the sugar mills and they are not able to pay the dues of farmers.
Degradation of agricultural ecosystem: Crops which are not aligned with the agro-climatic region lead to depletion of water table, soil degradation and deterioration in water quality.
- Rice, despite being unsuitable for growth in Punjab and Haryana (semi-arid regions), is widely grown there. This has led to deterioration of the groundwater table.
- Stubble burning is also a consequence of Rice monoculture.
Low awareness, accessibility and regional imbalance
Delau in payments, debt obligations and market distortion.
Agriculture exports remain curbed as MSP prices are higher than international Markets.
The Shanta Kumar committee’s report on agriculture estimates that just around 6% of the country’s farmers benefit from the MSP system.
Excess Storage: The stock has now become double the requirements under the schemes of PDS, Buffer stock etc.
Challenges in WTO: India’s MSP scheme for many crops has been challenged by many countries in the WTO.
- 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 per cent norm for subsidy on farm production set by the WTO.
Economically Unsustainable: The economic cost of procured rice and wheat is much higher for the FCI than the market price of the same.

Way Forward:

Recommendations of NITI Aayog:
- Improved facilities at procurement centres, such as drying yards, weighing bridges, toilets, etc.
- More godowns should be set up and maintained properly for better storage and reduction of wastage.
- The Procurement Centres should be in the village itself to avoid transportation costs. o The MSP scheme requires a complete overhaul in those States where the impact of the scheme is `nil’.

Recommendation of National Farmers Commission:
- Improvement in implementation of Minimum Support Price (MSP): MSP arrangements must be made for crops other than paddy and wheat. Millets and other nutritious cereals should also be included in the PDS permanently.
- Minimum capping on MSP: MSP should be at least 50% more than the weighted average cost of production.

Price Deficiency Payment (PDP) Scheme By NITI Aayog:

The NITI Aayog in its Three-Year Action Agenda suggested a Price Deficiency Payment System.
Under PDPS, Farmers are compensated for the difference between MSPs (for select crops) and prevailing market prices via subsidy.
The subsidy will be paid via Direct Benefit Transfer (DBT) into the farmer’s Aadhar seeded Bank Account.
To avail the benefit, the farmer would need to register with the nearest APMC and report the total area sown.
The extent of the subsidy may be capped by the Centre. NITI Aayog suggests that differences up to 10% may be compensated.
As the MSP regime is working well in Rice and Wheat, the PDPS system would apply to crops other than these.

News Source: The Hindu