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23 Dec, 2021

15 Min Read

Minimum Support Price and Schemes

GS-III : Economic Issues MSP

What is the Minimum Support Price (MSP)?

  • MSP is a form of market intervention by Center to insure agricultural producers against any sharp fall in farm prices (especially in bumper production years).
  • They are announced at the beginning of the sowing season for certain crops on the basis of the recommendations of Commission for Agricultural Costs and Prices (CACP).

  • The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. In case the market price < MSP due to bumper production and glut in the market, Center purchases everything at MSP.

How many Commodities are included in MSP?

  • MSP are currently announced for 24 commodities (7C + 5P + 8O + 4) including
    1. 7 cereals (paddy, wheat, barley, maize, jowar, bajra and ragi);
    2. 5 pulses (gram, arhar/tur, moong, urad and lentil); (Chickpea is in NAFED)
    3. 8 oilseeds (groundnut, rapeseed/mustard, toria, sesamum, soyabean, sunflower seed, safflower seed and nigerseed);
    4. Copra, raw cotton, raw jute and virginia flu cured (VFC) tobacco.

Who decides the MSP in India?

  • State can decide their own MSP but it should be > FCI. State and Center both can procure but the 1st right belong to State now. Whatever extra food grain is there; FCI can procure.
  • Methods of Calculation: Pricing policy is rooted not in cost plus approach. Because along with Cost of production, CACP takes into account
    1. Demand and supply and Trends in market prices.
    2. Cost of production (A2 + FL method) and Changes in input prices.
    3. Input-output price parity and Inter-crop price parity.
    4. Terms of trade between agriculture and non-agriculture
    5. A minimum of 50% as the margin over cost of production
    6. Comprehensive view of entire structure of economy of commodity
    7. Effect on industrial cost structure; cost of living; general price level, international price situation, parity between prices paid and prices received by the farmers and effect on issue prices and implications for subsidy.
  • Types of Production Costs according to CACP: There are 3 types of costs

    1. A2 = A2 costs = Input cost basically cover all paid-out expenses, both in cash and in-kind, incurred by farmers on seeds, fertilisers, chemicals, hired labour, fuel, irrigation, etc.
    2. A2+FL= It covers actual paid-out costs plus an imputed value of unpaid family labour. In 2017-18; Govt adopted the formula A2 + FL = Agri input cost + Unpaid Farm Labour
    3. C2 = C2 costs are more comprehensive, accounting for the rentals and interest forgone on owned land and fixed capital assets respectively, on top of A2+FL.
    4. Present Scenario: Abhijit Sen Committee, National Commission on Farmers chaired by M S Swaminathan said use full C2 cost. But Govt used MSP cost as 150% of A2 + FL.

Critical Analysis of MSP in India

  • Benefits: Remunerative prices to Farmers; Control middlemen, hoarding, Motivate to grow 1 crop; Use dryland area agri (Coarse cereals, pulses and oilseeds)
  • Problems: MSP not working; It is direct subsidy (Amber box subsidy); Differential MSP in States hence inequality in procurement; Gap between MSP and what farmer receives (Hence PM AASHA).
  • For Sugar, it is Fair and Remunerative Prices (FRP). CCEA is the final authority.
  • A pilot project under the Direct Payment Deficiency System (DPDS) for paying MSP guarantee for the cotton farmers has been initiated at Hinganghat taluka of Maharashtra in 2015. Under this system, Farmers will directly get the amount of MSP - Market Price when the Market Price < MSP. DPDS is a mode of DBT to Cotton farmers.

Market Intervention Scheme (MIS)

  • MIS is similar to MSP, which is implemented on the specific request of State Governments for procurement of perishable and horti commodities (if they are ready to bear 50% loss and 25% loss in Northeast States).
  • Under MIS, funds are not allocated to the States. Instead, central share of losses is released to the State Governments/UTs, for which MIS has been approved.

Price Supports Scheme (PSS) for MSP operations

  • The Dept of Agri & Coop implements the PSS for procurement of COP: cotton, oil seeds and pulses through NAFED which is the Central nodal agency, at the MSP declared by the govt.
  • NAFED undertakes procurement as and when prices fall below the MSP.
  • Procurement under PSS is continued till prices stabilize at or above the MSP.

Decentralised procurement (DCP) Scheme, 1997-98

  • It refers to the procurement of foodgrains (like paddy and/or wheat) to Central Govt stock through State agencies, rather than through FCI.
  • States themselves procure grains for Central pool, store and distribute them for TPDS and OWS like Mid Day Meal, SC/ST/OBC Hostels etc. based on the allocation made by Center. Surplus is given to FCI and if there is deficit then FCI provides it.
  • State Govts are not mandated to participate in the Scheme but are encouraged.

Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM-AASHA), 2018 - MoAFW

  1. It is an umbrella scheme aimed at ensuring remunerative prices to the farmers for their produce.
  2. The main feature is that Central agencies would procure pulses and oilseeds directly from farmers. It allows cash payment to farmers or procurement by Private traders. It is a Centrally Sponsored Scheme.
  3. Main crops covered are moong, urad, arhar, groundnut and soyabean.
  4. The highest sanctioned procurement is in Maharashtra. It is comprised of 3 sub-schemes: Price Support Scheme, Price Deficiency Payment System and Pilot of Private Procurement & Stockist Scheme.
  5. Price Support Scheme (PSS) -

    1. Physical procurement of pulses, oilseeds and Copra will be done by Central Nodal Agencies with proactive role of State govts. (Operation Greens = TOP).
    2. Both NAFED and FCI will take up PSS operations in states /districts.
  6. Price Deficiency Payment Scheme (PDPS)

    1. It will cover all oilseeds (but it does not involve any physical procurement of crops) for which MSP is notified. It is modelled on Bhavantar Bhugtan Yojana of MP.
    2. In this direct payment of the difference between the MSP and the selling price will be made to pre-registered farmers.
  7. Pilot of Private Procurement & Stockist Scheme (PPSS)

    1. States can use it on pilot basis PPSS which is for oilseeds, in addition to PDPS.
    2. It involves physical procurement of the oilseeds, it shall substitute PSS/PDPS in the pilot districts.

Click here to read the Analysis about the Need for MSP Reforms

Source: Aspire IAS Sanjeevani Notes

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