Minimum support price

Basics

CACP recommends MSP for 23 crops.
14 Kharif+6 Rabi+Sugarcane+Jute+Copra

CACP

Changes made

Earlier: Various factors, implications and considerations

Now: "Predetermined principle" in which MSP= 1.5 (Production costs)

Production cost: Arrived>how?

does not do any field-based cost
estimates.

It makes projections using crop specifiic production cost estimates provided by 'Directorate of Economics and Statistics in the Agriculture Ministry'

Available with 3 year time lag

Revised by taking changes in input costs based on latest price data from 'Labour bureau of wages' and 'Office of Economic Advisor' for whole sale prices

A2+FL

It includes paid/imputed costs of purchased/own input like seeds, fertiliser etc

A2

includes interest on working
capitaL

In news

MSP increased by 50% higher than cost of production

Major hike is in cereals

Highest ever increase in absolute terms

Implications of present decision

MSP acts like benchmark rate. Increase in MSP has potential to fan inflation

Higher price of Internatioanl crude oil prices spurts more inflation

Food subsidy is burdensome-->Fiscal stress

will benefit only few states in India(strong procurement regions).NE region has poor procurement mechanism>no benefit

Will encourage mono-cropping-->no crop rotation

Sustainability of agriculture compromised

Recommendations

Consider C2

Difference between C2 and A2+FL is inclusion of rentals or interest foregone
on owned land and fixed capital.

Why Govt is not?

Rent for own land is not a cost but income to farmer

Present MSP has 10-50% margin over C2

It would entails around 50-100 per cent
increase in the existing farm-level prices.

Demand-side factors do not support such a
sharp increase in prices

Pvt players wont get any incentive in procuring if govt does it entirely

keeps prices artificially high and cannot
be sustained fiscally.

It makes Domestic prices>global prices-->exports hit and imports surge

little incentive for efficiency and
diversification in the crop sector

requires regulatory reforms,Institutional changes, development of appropriate infrastructure to promote evolution of agricultural market system ==> Not feasible

Way forward

Strengthen the input delivery
system.

Infuse multiple technologies in
agriculture

Invest in rural infrastructure

Exploit the Country's strengths in
ICT.

Exploit the Country's strengths in
ICT.

click to edit

Policy-makers require strong political will to ensure sustained and sustainable growth, while balancing the interests of growers and consumers alike

Rich farmers benefit more from increase in MSP

Facts

NSSO data: Farmers owning upto 1 acre-->1/3rd of agri households--> earn less than 1/6th from agriculture

Marginal farmers(<1 Ha): problems

NSSO: holdings between 1-2.5 acre-->1/3rd of agri households--> earn 2/5th from agriculture

Holdings upto 2.5 acre--> 70% of agri households-->Consumption is more then income. Hence in debt

Rely on Landlords, Money lenders to advance money
And arre forced to sell money to the same at below market prices

Rich farmers

4.1% of the farming population pwn more than 4 ha of land

3/ 4th of their net income
from cultivation.

Shanta Kumar Committee report,only 5.8% of agricultural households in India sold paddy or wheat to any procurementagency.

Will cause inflation: no>why?

Commodities in MSP have weightage 4% in WPI & 7% in CPI. Hence not much effect

Suport price have only partial commitment--> All produce needn't be purchased

When MSP<market prices, farmers sell to traders

Rice has highest weightage in CPI. But increase in support price for paddy is less than that for other crops

If inflation: who is affected?

Agricultural labourers

Urban poor

Marginal farmers,who dont produce enough and have to buy from market

Inflation increase the interest rates-->industries affected