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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.

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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:

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:

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

Subjects : Economy

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