Syllabus: Issues related to direct and indirect farm subsidies and minimum support prices
MSP Calculation
- Commission for Agricultural Costs and Prices (CACP) considers cultivation costs, supply-demand situations, market trends, consumer impact, environmental factors.
- Three production costs calculated: A2, A2+FL, and C2 for comprehensive assessment.
- A2 covers seeds, fertilizers, pesticides, labor, and other direct cultivation expenses.
- A2+FL includes A2 costs plus unpaid family labor value added.
- C2 is comprehensive, including A2+FL, rentals, forgone interest on land/capital assets.
- Cabinet Committee on Economic Affairs (CCEA) makes final MSP decisions and recommendations.
Importance of MSP
- Provides fixed remuneration, protecting farmers from market price volatility and crop failures.
- Announced before sowing season, enabling informed crop selection decisions for farmers.
- Encourages crop diversification; expanded from wheat (1966-67) to 24 crops currently.
- Acts as a benchmark for private buyers, preventing drastic price falls below MSP.
- Used as a tool to incentivise the production of crops facing supply shortages.
- Enhances the purchasing power of distressed farmers through guaranteed income support.
Committees on MSP
- Agricultural Prices Commission (1965) was renamed Commission for Agricultural Costs and Prices (CACP).
- National Commission on Farmers (2004) under M.S. Swaminathan recommended 50% profit over costs.
- The Shanta Kumar Committee (2014) recommended a shift from price-based to income-based farmer support.
Issues with MSP
- Non-proportional increase as the MSP growth fell during 2014-17 per CRISIL analysis.
- Limited reach and awareness– weak implementation in the northeastern region,s particularly.
- Causes excess storage, stocks doubled beyond PDS and buffer stock requirements.
- Creates market distortion favouring specific crops over others in agricultural markets.
- Fiscal burden from open-ended procurement of paddy/wheat unsync with market prices.
- Adversely impacts exports, making Indian farm goods uncompetitive in international markets.
- Causes ecological problems through non-scientific practices, degrading groundwater, and causing soil salinisation.
- Reduces crop diversity as farmers prefer MSP-supported crops for guaranteed returns.
Way Forward
- Explore alternate income models like horticulture beyond MSP dependency alone.
- Implement the Market Intervention Scheme for procuring perishable commodities like vegetables.
- Adopt Price Deficiency Payment (PDP) paying the difference between the modal rate and MSP.
- Shift to income support through PM-KISAN, collapsing market-distorting subsidies effectively.
- Ensure stock diversification of essential food items beyond rice/wheat only.
- Balance market prices with farmer support through reforms and targeted cash transfers.