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