Recently, the Supreme court  urged the Centre to consider the demands of farmers while responding to a fresh plea seeking a legal guarantee for Minimum Support Price (MSP). 

Background

• Subsidies: In India, the government provides subsidies on various agricultural inputs such as fertilizers and electricity to support farmers.
• Fertilizer Subsidy: If the price of a fertilizer is ₹500 per kg, the government mandates companies to sell it at ₹300. The remaining ₹200 is reimbursed to the fertilizer company by the government as a subsidy.
• Electricity Subsidy: Many states provide free or subsidized electricity to farmers, particularly for irrigation purposes, promoting affordability.
• MSP Expansion: Traditionally focused on rice and wheat, the MSP system has now been expanded in several states to include other crops, ensuring better price support for farmers.
  • All these measures are examples of agricultural subsidies, aimed at reducing costs for farmers and ensuring economic and food security.
• Impact of Government Intervention: Government interventions often create inefficiencies but play a critical role in ensuring well-functioning markets.

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Steps Government should take to Improve Agriculture Pricing

• Enhancing Market Accessibility: Ensure information symmetry by providing real-time data to farmers and consumers. Develop physical infrastructure such as roads, storage facilities, and logistics.
• Efficient Value Chains: Facilitate institutional innovations to reduce price spreads between farmers and consumers.
  • An efficient agricultural value chain is a system that adds value to agricultural products at each stage, while minimizing waste and inefficiency.
• Forward-looking Mechanisms: Promote futures markets to minimize risks and enable farmers to make planting decisions based on future price forecasts rather than historical prices.
  • For example, during the Rabi season, a farmer plants wheat and signs a pre-selling agreement to sell 3,000 kg of wheat at a predetermined price after six months.
  • If this agreement is signed before sowing, it provides the farmer with price assurance, minimizes risk, and helps in better planning of resources. 
• Market-driven Pricing: Align agricultural reforms with India’s 1991 liberalization policies to integrate market forces into the agricultural sector.

Manmohan Singh’s Contribution to Economic Reforms

• Industrial Liberalization: Freed industrial policies from governmental controls and dismantled the Licence Raj. He liberalized the exchange rate and reduced import duties, opening India to global trade.
• Agriculture Exclusion: Agriculture was not included in the reforms due to its classification as a state subject.
• Urea Price Reform :  He proposed a 30% hike in urea prices to reflect rising costs but faced resistance from within the Congress party due to fears of losing electoral support.

Background of Minimum Support Price

• Food Shortages in the 1960s: India imported 10 million tonnes of wheat annually under the PL-480 agreement with the U.S. Foreign aid was politically conditioned
  • For ex: the U.S. suspension of food shipments for 72 hours over India’s pro-Vietnam stance.
• Green Revolution: The import of high-yielding wheat seeds from Mexico in 1966 marked a turning point. MSP for wheat and paddy was established to support the adoption of new agricultural practices.
• Population  Pressure in 1965: With a population of 500 million, food security was a critical concern, necessitating price support mechanisms for staple crops.
• Origin of MSP: The Centre introduced MSP in 1965 to address food security concerns during shortages of staples like wheat and rice.
  • MSP was tied to the Agricultural Prices Commission (APC), aimed at stabilizing farmer incomes and ensuring food availability.

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Present Status Agricultural produce in India

• Population and Food Security: India, with 1.43 billion people, provides free wheat and rice (5kg/person/month) to over 800 million beneficiaries under the Public Distribution System (PDS).
• Global Role: India is the largest exporter of rice globally, with a significant surplus in production.
• Excessive Stockpiling: The Food Corporation of India (FCI) holds rice stocks nearly three times the buffer stock norms, highlighting inefficiencies in procurement and storage.

Challenges Associated with MSP

• Expansion of MSP Basket: Originally designed as an indicative price for crises, MSP now covers multiple crops due to political pressures.
• Agriculture as a State Subject: Activists opposed central farm reforms, arguing agriculture falls under state jurisdiction. However, the demand for legalizing MSP contradicts this stance, as states should ideally bear responsibility for such policies.
• Regional Overproduction: Open-ended procurement in states like Punjab and Haryana has resulted in excessive rice production, driven by reliance on free power and subsidized fertilizers, which encourage monocropping.
• Ecological Consequences: Overproduction of rice is causing groundwater depletion, soil degradation, Greenhouse gas emissions especially Methane emissions from paddy cultivation contribute to climate change.
• Public Distribution System (PDS) Challenge: The PDS system provides free wheat/rice to 57% of the population, creating a self-reinforcing loop Free grain distribution necessitates the procurement of approximately 60 million tonnes annually.
  • This massive procurement fuels inefficiencies and disrupts market dynamics.
• Dependency: Despite claims of lifting 248 million people out of poverty, continued reliance on free distribution suggests systemic issues in addressing economic dependency.

Way Forward

• Revisiting the MSP Framework: The current Minimum Support Price (MSP) framework requires significant reform, not by making MSP legal, but by addressing inefficiencies in the pricing of agricultural products and inputs like fertilizers and electricity.
• Pricing Reforms: Allow market-driven pricing for both outputs (rice and wheat) and major inputs (fertilizers and power).
• Land Market Reforms: Open up land lease markets and reduce regulatory controls to enhance efficiency in land use.
• Improving Subsidy Mechanism: India’s digitalized food system provides an opportunity to improve subsidy mechanisms, ensuring more efficient and targeted support for beneficiaries.
• Direct Cash Transfers: Implement direct cash transfers for targeted beneficiaries based on economic need 
• • Extremely poor: Receive large subsidies. 
  • Above poverty line: Receive lesser support.
• Input Subsidy Reform: Aggregate input subsidy support should be distributed on a per-hectare basis, ensuring fairness and efficiency.
• Market-driven Pricing: Free up the pricing of food and agricultural inputs like fertilizers and power to eliminate distortions.
• Utilizing Efficiency Gains: Redirect savings from subsidy reforms into:
  • Agricultural R&D and extension.
  • Education and skill development.
  • Irrigation and water management.
  • Physical infrastructure: Roads and rural markets

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Conclusion

To achieve the vision of Viksit Bharat by 2047, India must prioritize sustainable and impactful reforms over competitive populism.

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