Q. In recent years there has been number of farmer protest around India demanding increase in Minimum support price (MSP). In this light discuss the effectiveness of MSP and need for replacing it with Price deficiency payment system.

Structure of the answer:

  • Introduction
  • Deficiencies in the MSP system
  • Importance of price deficiency payment system
  • Final analysis

Model Answer

MSP is the base price set by the Government and whenever the market prices fall below the announced MSPs, procurement agencies step in to procure the crop at the support price. In India, the MSP are recommended by the Commission for Agricultural Cost and Prices (CACP) for 23 crops based on A2+FL formula i.e. actual cost paid plus imputed value of the family labour.

However, the use of MSP as a method of agricultural pricing is criticized on various grounds such as:

  • NITI Aayog evaluation report (2016) on MSP noted that 79% farmers are not satisfied with MSP regime due to reasons such as delay in payments, distance to the procurement centers, delayed announcement of MSP rates
  • Farmers have also claimed that the prices in wholesale markets are often lower than the MSP. In such a scenario, whatever MSP the government declares might not matter much.
  • Further, only 6% of farmers are able to sell their produce at MSP. Moreover, the MSP operation is limited only to few states.
  • Lastly, the procurement is limited to few crops such as rice and wheat leading to cropping pattern distortion.
    Various PDPS schemes of states:
    • Bhavantar Bhugtan Yojana (BBY) by MP: It applies to eight kharif crops such as soybean, til, maize, urad, tur
    • Rythu Bandhu scheme of Telangana: To relieve farmers from taking loans from moneylenders the scheme provides farmers Rs 4,000 per acre for the kharif and rabi seasons.

This system will address the issue of price crash after the bumper harvest.Therefore, the states such as Madhya Pradesh and Telangana have moved to price deficiency payment system (PDPS). Under it the government simply pays the difference between the MSP and the market-determined price. This system has many advantages such as follows:

  • It will also resolve the issues involved with MSP mechanism such as lack of awareness, procurement confined to selected crops that too from selected states, distortion of the agricultural market and cropping pattern.
  • It will also resolve the issue of needless accumulation of the food stock by FCI involving maintenance cost and storage losses.
  • Such a mechanism is also needed as other risk management instrument such as crop insurance and future trading have not made much headway.

In light of the above, it will be effective and efficient to shift to the new mechanism of PDPS.

Subjects : Economy

One thought on “Q. In recent years there has been number of farmer protest around India demanding increase in Minimum support price (MSP). In this light discuss the effectiveness of MSP and need for replacing it with Price deficiency payment system.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: