2. What are the key issues in India’s current MSP regime? Discuss. What urgent reforms would you recommend to address the market distortions caused by MSP? Discuss. (10 Marks)
Students are expected to write about the what is the MSP regime and what are the key problems in it. Recommend suggest measures how recent market distortion caused by MSP can be rectified.
Introduction
MSP is the minimum support price. It was first introduced in the 1965-66 season (July-June) for wheat, and it now covers 23 crops. Now that the farm laws are withdrawn there is pressure on the government to legalize the MSP with few reforms in it.
Body
Key issues in MSP regimes:
In most crops grown across much of India, the prices received by farmers, especially during harvest time, are well below the officially-declared MSPs.
While the MSPs technically ensure a minimum 50% return on all cultivation costs, these are largely on paper.
As per Shanta kumar committee MSP only helps 6 per cent of farmers.
Under WTO Norms, that grain stocks with the FCI (being heavily subsidized due to MSP) cannot be exported.
The economic cost of procured rice and wheat is much higher for the FCI than the market price of the same. Due to this there is divergence of funds from being invested in agriculture infrastructure.
Market distortion due to high MSP:
MSPs in Favour of Paddy and Wheat: Skewed MSP dominated system of rice and wheat leads to overproduction of these crops.
Inflation: Giving unrealistically high prices to farmers pushes inflation. This makes domestic prices much higher than global prices, which will strongly hit exports and make way for cheaper imports.
Decline in market competitiveness: If the MSP crops are procured at prices far higher than other crops, there will be little incentive for efficiency and diversification in the crop sector. This will also impact the competitiveness of the market negatively.
Recommendations and Wayforward:
The National Commission on Farmers (NCF) constituted in November 2004 and chaired by Professor M.S. Swaminathan also recommended the use of C2 to determine MSP.
Alternatives to MSP: Examine options for including private traders operating in markets to complement the minimum support price (MSP) regime through a system of incentives and commission payments.
Unified National Market: Raising MSP or prices can only be a partial solution to the problem of assuring remunerative returns to farmers, a long-term solution lies in the creation of a competitive, stable and unified national market to enable better price discovery and a long-term trade regime favourable to exports.
Proper and rigorous implementation of ambitious projects like e-NAM, doubling farmer’s income by 2022, price stabilisation fund, recommendations of Swaminathan and Shanta Kumar committee is required.
Strengthen the Farmers Producer Organization (FPO) in whole farm and non-farm sectors. It will increase bargaining power of farmers on one hand and provide a suitable investment climate on the other.
Agriculture Tribunal: The government should consider replacing the Commission on Agricultural Costs and Prices (CACP) by an agriculture tribunal in line with the provisions of Article 323B of the Constitution.
Conclusion
Apart from it, the government should shift its focus from providing only price support to farmers and focus on building better infrastructure, minimizing the gap between farmers and the market, land reforms, policy reforms to increase flow of credit to farmers, establishing food-processing industries for perishable goods, providing better irrigation facilities etc so, that agriculture emerges as a viable means of sustenance.
