MSP - challenges & way forward

• ! OECD - "Indian farmers have been incurring losses since 2000"
• ! "India is the only country among the 54 major economies, where farm losses aren't covered by any budgetary support or by a way of remunerative price"
• @ MSP benefits only 14% of farmers, currently.
• % even when legalised, it will cover not more than 50% of farmers.
• Situational Assessment survey for agricultural households - by National Sample Survey Office (NSSO) estimates:
  • average household income is Rs. 10,218 per month
  • includes non - farm activities

Terms of reference for calculation includes:

1. implications for consumers
2. terms of trade between agriculture and non agriculture
3. international price competitiveness
4. inter crop parity

• this leads to lowering MSP

One Nation - One MSP - unfit for India

• concerns about equity

• agricultural practices vary across different agro - ecological regions

• Ex: Paddy cultivation

  • major producing states - Punjab - highest yield - 70 quintals per hectare and low production cost Rs. 864 per quintal = highest return of 153% against current MSP
  • states that produce minimum - lowest yield per hectare and high production cost = lowest return ie. less than 50%, sometimes even negative, like in Maharashtra

• Karnataka Agricultural Prices Commission

  • paddy under assured irrigation yields 145 % more than rain fed cultivation
  • this result in cost disadvantage for irrigation farmers
  • production cost for rainfed paddy is 2,368 per quintal while for irrigation, it is 1,306 per quintal
  • this affects dryland farmers incomes as well
  • dry land crops profitability is notably lower with ragi 10%, jowar 37%, sesamum 38%

• $ establishing state specific decentralisation MSP mechanism that guarantees profit margin of at least 50% over cost, prioritising rainfed crops like millets, pulses, oilseeds is imperative.

• The Minimum Support Price (MSP) is a minimum price for any crop at which the government purchases it from farmers,

• based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers.

• MSP does not have any legal basis but has been implemented since the 1960s

• Objectives: Ensuring food security in the country. Protection from price drop for farmers Incentivise desirable crop production.

• Importance of MSP: Safeguard against Price volatility Surety of minimum prices Control crops short in supply Crop Diversification Food security

• Limitations of MSP: Lack of legal guarantee Issues with the cost of production Lack of effective data Ineffective coverage Highly unequal across states Ineffectively Implemented

• Commission for Agricultural Costs and Prices (CACP) recommends MSP for every kharif and rabi crops ini the list

• Costs includes

  • A2 = actuall costs incurred in production of crops
  • A2 + FL = plus family labour
  • C2 = with revenue forgone like rent on land and interests on fixed capital assets
    

• Total crops covered - 14 + 7 + 3 = 24 + 1 (Sugar = FRP)