Farmers’ groups have started agitating on the lack of announcement on MSP rates.
Government had decided to offer a minimum support price (MSP) of at least 1.5 times the expenses borne by farmers for all crops. (in Union Budget 2018)
Niti Aayog, in consultation with Central and State Governments, had to put in place a fool-proof mechanism so that farmers will get adequate price for their produce.
PM Modi recently assured that the Cabinet would soon decide on fixing the MSP for kharif crops at 150% of the production cost.
However, question arises –
Even though the above intent to tackle farm distress is laudable, can hefty hikes in MSPs be counterproductive?
Many have questioned the rationale behind raising the MSP at 1.5 times of the production cost.
Why hefty hikes in MSPs could be counterproductive?
It could push domestic prices out of sync with global prices and destroy market discipline in crop choice, cost control and efficiency.
If the MSP scheme takes the form of actual procurement, state outlay would have to cover, over and above the cost of procurement, the cost of storage, transport, spoilage and pilferage, besides significant costs such as market taxes and loading and unloading charges.
A rise in the MSP will lead to increase in food inflation.
Farmers would still be exploited in case of overproduction when middlemen cartels purchase their produce at a much lesser rate.
MSP would only benefit a margin of farmers and not those who hold small tracts of land. There are chances that all farmers will not reap the benefits of maximum MSP. Besides, the fact that the MSP of only Kharif crops has been increased, it is unlikely that a large pool of farmers will benefit. There are chances that there will be a large-scale disparity between the income of farmers belonging to a different state.
Policy should pursue what is best for Indian farming, not populist glory.
The way ahead:
Policy focus should be rather on investment — in efficient water management and irrigation, plant breeding and genetics, crop husbandry, market linkages — and in breaking the middleman’s hold over the farm-to-consumer value chain, replacing it with farmer-led enterprises, whether cooperatives or producer companies, that allow farmers to capture a share of the value added to their produce along its journey to the dining table/factory.
Since, government attempts to make every village electrified, agro-processing industry in rural areas is a real possibility, not just climate-controlled storage.
Productivity should be raised in every crop, considering the rise in demand for superior foods with rising income levels.
Good roads in rural areas, together with a rational approach to trade, would allow conversion of local gluts into supplies to the global markets that enhance farmer incomes.
It can be reiterated that the long-term solution to farmer distress would be through improving the supply chain, establishing agro-processing zones and creating a better agri-logistic platform.
Connecting the dots:
Can Government’s efforts to increase MSP by 1.5 times for all crops alone tackle farm distress? Discuss what more needs to be done.
India needs both price and income support for farmers to tackle farm distress. Do you agree? Discuss.
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Model questions: (You can now post your answers in comment section)
Q.1) Recently, Centre had constituted a Committee to deal with faster resolution of stressed assets and Committee had recommended the creation of an asset management company. The committee is headed by –
