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Minimum support price (India)

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The minimum support price (MSP) is the minimum price for select crops raised in kharif and rabi seasons that the Government of India considers as remunerative for farmers and hence deserves support. This is different from procurement price and issue price. It is generally announced before the sowing/planting season.[1] It is approved by the government and aims to safeguard the farmer to a minimum profit for the harvest while at the same time increasing food security in the country.[2][3] MSP was initially an incentive for farmers to adopt technology with an aim of increasing the productivity of agricultural land in the 1960s, however in the 2000s it is seen as a market intervention and farmer income scheme.[4][5] The effectiveness of such a price policy has varied widely between states and commodities.[6][7] Awareness among farmers of the existence of an MSP is poor at 23%, while awareness of MSP procurement agencies is also poor with only about 20–25% of wheat and paddy produce being sold at MSP.[8][9]

The Indian government sets the price for about two dozen commodities twice a year.[10][11] MSP is fixed on the recommendations of the Commission for Agricultural Costs and Prices (CACP),[12][13] an apex advisory body for pricing policy under the Ministry of Agriculture.[14] CACP in turn recommends the pricing according to a diverse range of factors including national requirements, available resources, farmer wages, cost of living and product competitiveness.[15] However, not all recommendations of CACP are adopted, sometimes, there can be significant difference with the price approved by the government.[16] Food Corporation of India (FCI) and the National Agricultural Co-operative Marketing Federation (NAFED) are involved in implementing the MSP at the state level.[16] While providing a support price to farmers, MSP also supports the public distribution system which provides subsided food.[8]

History

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Guaranteed MSP is one of the major demands of the 2020–2021 Indian farmers' protest.[17]

In the 1960s, India saw food shortages such as the Bihar famine of 1966–1967, resulting from droughts and war.[18] During the prime years of the green revolution in India in that decade, a number of agriculture policy strategies were mooted including a government price policy for food grains.[19][20] One of the main goals was to increase the productivity of agricultural land.[21] High yield varieties, better equipment and fertilizers were among the strategies adopted.[21] Price policy support aimed at increasing land productivity was part of this.[21]

This led to the setting up of the Agricultural Price Commission (APC) in 1965.[19] The Commission introduced a number of price policies including procurement at pre-decided prices, minimum support prices and a distribution system to supply food grains at subsidised rates.[18][1] This body was reconstituted into the Commission for Agricultural Costs and Prices (CACP) in March 1985 with a new and broader terms of reference.[22] A number of other institutions are involved in the process of implementing the MSP, including central organisation along with their state level bodies. This includes the Food Corporation of India (FCI) and the National Agricultural Co-operative Marketing Federation (NAFED).[16]

These changes resulted in increased production of grains such as wheat and rice resulting in grain shortages to grain surpluses.[21] At the same time the implementation of these price policies was biased and resulted in a decreased focus on diversification, creating shortages in pulses and edible oils.[21] The severity of these adverse impacts vary according to state, region, commodity, and farmer.[23] India is highly skewed in the distribution of its agricultural resources, and accordingly, select regions have benefitted from a MSP.[24]

As per 2013 Ministry of Statistics data only 23% of farmers in the rural agricultural households in India are aware of MSP of crops.[8] Awareness varies from 0 to 50% according to state.[8] Even fewer are aware of an procurement agency buying at MSP.[8][25] In 2018-19, a quarter of the total paddy sales and only 20% of wheat were sold at MSP.[9] Attempts to ensure MSP is fulfilled have included the decades-old Price Support Scheme (PSS),[26] the 2015 Decentralized Procurement Scheme (DCP),[27] and more recently the 2018 umbrella campaign, the Farmer Income Protection Scheme (PM AASHA).[28] Under AASHA, a price deficiency payment (PDP) system has been launched under which the government will partly compensate farmers for those who have had to sell their crops at market prices less than the MSPs.[29] This could result in large savings for the government as it would not have to procure and store the crops.[29]

Determinants of MSP

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While recommending price policy of various commodities under its mandate, the Commission for Agricultural Costs and Prices (CACP) keeps in mind the various Terms of Reference (ToR) given to it in 2009.[15]

To advise on the price policy of paddy/rice, wheat, jowar, [...] and such other commodities as the Government may decide from time to time, with a view to evolving a balanced and integrated price structure in the perspective of the overall needs of the economy and with due regard to the interests of the producer and the consumer.

According to the terms of reference, the Commission has been advised to keep a few points in mind when recommending the price policy. This includes incentivising the farmer for production as per national requirements, allowing for the rational use of resources, the impact on wages, cost of living and product competitiveness. The Commission can also recommend non-price measures and ways to make the price policy implementation effective.[15] However, sometimes there are large variations between what is recommended by the CACP, and what is declared by the government due to selective politics.[16]

There are a number of different ways MSP is calculated and it is not always clear what is intended in policy documents such as 2018 Union budget of India.[3]

Commodities under MSP

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Main crops boosted through price policy implementation
Wheat
Rice
Sugarcane
Cotton
Among food grains wheat and rice have unintentionally benefitted from biased implementation of MSP to the detriment of other crops covered under MSP such as pulses and oilseeds. Among other crops sugar cane and cotton have benefitted.[30]

A total of 23 commodities are covered by MSP mechanism:[13] including FRP for Sugarcane.

  • Cereals:
  1. Paddy
  2. Wheat
  3. Maize
  4. Sorghum
  5. Pearl millet
  6. Barley
  7. Ragi
  • Pulses:
  1. Chickpea / Gram / Gramme
  2. Tur
  3. Moong
  4. Urad
  5. Lentil
  • Oilseeds:
  1. Peanut
  2. Rapeseed
  3. Soyabean
  4. Sesame
  5. Sunflower
  6. Safflower
  7. Niger seed
  • Commercial crops:
  1. Copra
  2. Sugarcane
  3. Cotton
  4. Raw jute

Timeline

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  • 1964: Under L. K. Jha, the Report of the Jha Committee on Foodgrain Prices[31] was the first step in organizing an agricultural price policy for the country.[32]
  • January 1965: Agricultural Prices Commission (APC) set up.[32]
  • August 1965: Under M. L. Dantwala, APC submits its first report.[32] The commission suggests MSPs for paddy.[18]
  • 1985: Agricultural Prices Commission reconstituted as the Commission for Agricultural Costs and Prices (CACP).
  • 1980: S. R. Sen Committee publishes report Cost of Cultivation.[33]
  • 1990: C. H. Hanumantha Rao report.[18]
  • 2015: Shanta Kumar Committee Report recommends better price support for pulses and oilseeds. It also suggests competitive MSPs with regard to imports.[30][34]
  • 2018: The finance minister announces that MSP on Kharif crops will be 50% more the production cost.[35]
  • 2020: Farmers demand MSP guarantee as part of the demands during the 2020–2021 Indian farmers' protest.[17]

Challenges

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On a larger scale, trade policy is disconnected from MSP.[30]

Disparity among states

  • For example , In 2021 , 95% paddy growers benefited from MSP , while mere 3.6% in UP.[36]

Skewed Procurement

  • Largely confined to rice & wheat.

Ecological harm

  • it promotes rice-wheat system , thereby causing
    • Water scarcity
    • Soil & Water pollution
    • Stubble burning etc.

Fiscal burden

  • in 2023-24 budget , food & fertilizer subsidy alone constituted 1/8th of total Budget.

Inflation

  • Economics have noted around 15 bps rise in inflation per 1 percentage point rise in MSP.[37]

WTO issue

  • Under India's Public Stockholding Policy, the government, through agencies like the Food Corporation of India (FCI), procures crops like rice and wheat from farmers at the Minimum Support Price (MSP) to be distributed under welfare schemes such as the Public Distribution System (PDS). However, procurement at prices higher than market prices is considered to be subsidized, as per WTO rules. Hence, the support provided is counted towards the overall ceiling on trade-distorting support (Amber Box measures). Thus, it should not breach the ceiling (de minimis)—10% of the value of total production, as set by the WTO for developing nations under the Agreement on Agriculture. However, India has breached this limit. For example, it informed the WTO that the value of rice production in 2022-23 was $52.8 billion, while it provided subsidies of $6.39 billion, equaling 12.1%. Thus, for the fifth time, India has invoked the Peace Clause set out in the Bali Ministerial Decision on Public Stockholding for Food Security Purposes, which allows developing nations to breach the ceiling without legal consequences, though as an interim measure until a permanent solution is achieved. [38][39][40]

See also

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References

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  1. ^ a b Committee on Doubling Farmers' Income report, Vol. 1 (2017), pp. 35–36.
  2. ^ Deshpande 2003, p. 3–4, 12.
  3. ^ a b Bera, Sayantan; Roche, Elizabeth (1 February 2018). "Budget 2018 on Agriculture: Can new MSP prop up rural economy?". mint. Retrieved 22 November 2021.
  4. ^ Deshpande 2003, p. 12.
  5. ^ "Govt ushered historic increase in MSP, doing everything possible to double farmers' income: PM Modi". The Economic Times. PTI. 24 February 2021. Retrieved 24 November 2021.
  6. ^ Bhalla, Randhawa & Tyagi 1989.
  7. ^ Deshpande 2003, p. 40–42.
  8. ^ a b c d e Aditya, K. S.; Subash, S. P.; Praveen, K. V.; Nithyashree, M. L.; Bhuvana, N.; Sharma, Akriti (2017). "Awareness about Minimum Support Price and Its Impact on Diversification Decision of Farmers in India". Asia & the Pacific Policy Studies. 4 (3): 514–526. doi:10.1002/app5.197. ISSN 2050-2680. S2CID 158304705.
  9. ^ a b Kapil, Shagun (14 September 2021). "Most farmers did not know of agencies that procured crop under MSP: Report". Down to Earth. Retrieved 25 November 2021.
  10. ^ Chand, Ramesh (31 January 2018). "Budget 2018: Focus on MSP ideal for tackling farm distress". The Economic Times. Retrieved 22 November 2021.
  11. ^ Damodaran, Harish (3 February 2018). "Agriculture: Union Budget promises MSP 50% above cost, doesn't define which cost". The Indian Express. Retrieved 22 November 2021.
  12. ^ "Calculation of MSP". Press Information Bureau. Ministry of Agriculture & Farmers Welfare, Government of India. 3 March 2020. Retrieved 5 December 2020.
  13. ^ a b "CACP". cacp.dacnet.nic.in. Commission for Agricultural Costs and Prices, Department of Agriculture and Cooperation, Ministry of Agriculture. Retrieved 24 September 2020.
  14. ^ Deshpande 2003, p. 23.
  15. ^ a b c "Mandate. Terms of Reference of the Commission vide Ministry of Agriculture (Department of Agriculture and Cooperation)'s Resolution No. 49011/6/2009-EA". Commission for Agricultural Costs and Prices, Department of Agriculture, Cooperation and Farmers Welfare, Ministry of Agriculture and Farmers Welfare. 30 July 2009. Archived from the original on 11 November 2021.
  16. ^ a b c d Deshpande 2003, p. 24.
  17. ^ a b Kishore, Roshan; Jha, Abhishek (23 November 2021). "Guaranteed MSP? Both farmers and govt need to look at three key points". Hindustan Times. Retrieved 24 November 2021.
  18. ^ a b c d Deshpande 2003, p. 4.
  19. ^ a b Integrated Research and Action for Development (2007), pp. 3.
  20. ^ Nair, KP Prabhakaran (19 January 2021). "The minimum support price conundrum and Indian farming". Down to Earth. Retrieved 24 November 2021.
  21. ^ a b c d e Integrated Research and Action for Development (2007), pp. 4.
  22. ^ Deshpande 2003, p. 6-7.
  23. ^ Integrated Research and Action for Development (2007), pp. 5.
  24. ^ Krishnaji 1990.
  25. ^ Jadhav, Radheshyam (3 November 2021). "How many agricultural households are aware of MSP?". The Hindu BusinessLine. Retrieved 25 November 2021.
  26. ^ "Price Support Scheme (PSS). The Operational Guidelines" (PDF). agricoop.nic.in. Department of Agriculture & Farmers Welfare, Ministry of Agriculture and Farmers' Welfare.
  27. ^ "Decentralised procurement to be encouraged to enhance the efficiency". Press Information Bureau. Ministry of Consumer Affairs, Food & Public Distribution, Government of India. 15 December 2015. Retrieved 23 November 2021.
  28. ^ "Functioning of PM-AASHA Scheme". Press Information Bureau. Ministry of Agriculture & Farmers Welfare, Government of India. 21 September 2020. Retrieved 23 November 2021.
  29. ^ a b Nirmal, Rajalakshmi (10 January 2018). "All you wanted to know about Price Deficiency Payment". The Hindu BusinessLine. Retrieved 26 November 2021.
  30. ^ a b c Committee on Doubling Farmers' Income report, Vol. 1 (2017), pp. 94.
  31. ^ "Report of the Jha Committee on Foodgrain Prices. For 1964-65 season". Commission for Agricultural Costs and Prices, Department of Agriculture, Cooperation and Farmers Welfare, Ministry of Agriculture and Farmers Welfare. Archived from the original on 9 September 2021.
  32. ^ a b c Deshpande 2003, p. 3.
  33. ^ Chikermane, Gautam (4 August 2018). "70 Policies — Agricultural Prices Commission, 1965". ORF. Retrieved 24 November 2021.
  34. ^ "Recommendations of High Level Committee on restructuring of FCI". Press Information Bureau, Government of India. Ministry of Consumer Affairs, Food & Public Distribution. 22 January 2015. Retrieved 25 November 2021.
  35. ^ "Union Budget 2018: Govt says MSP of Kharif crops to be at least 1.5 times of production cost". Hindustan Times. PTI. 1 February 2018. Retrieved 24 November 2021.
  36. ^ "Repeal of agri laws: Why some farmers are now insisting on legalising MSP". The Times of India. 29 November 2021. ISSN 0971-8257. Retrieved 4 February 2024.
  37. ^ Varma, Sonal; Nandi, Aurodeep (27 February 2018). "The changing politics of food price inflation". mint. Retrieved 4 February 2024.
  38. ^ "WTO | Ministerial conferences - in brief". www.wto.org. Retrieved 8 September 2024.
  39. ^ Suneja, Kirtika (8 April 2024). "India uses peace clause fifth time, for rice subsidies given in 2022". The Economic Times. ISSN 0013-0389. Retrieved 8 September 2024.
  40. ^ "Used Peace Clause to Provide Excess Support to Rice Farmers: India to WTO". Outlook Business. 9 April 2024. Retrieved 8 September 2024.
Bibliography

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