Mains Paper 3: Economy
Prelims level: Minimum Support Price
Mains level: Agriculture
• Minimum of notified Support crops Price as declared (MSP) by is the guaranteed Government price of India for public procurement purpose. It acts as a safety net to farmers by protecting their business interest from the uncertainties of market due to various natural and market forces. Government of India notifies MSP for 23 ‘Khiarif’ and ‘Rabi’ crops at the start of each cropping season that include selected commercial crops as well. The group comprises seven cereals (paddy, wheal, maize, sorghum, pearl millet, barley and ragi), seven oilseeds (groundnut, rapeseed, mustard, soybean, sesamum, sunflower, safflower and nigar seed), and four commercial crops (copra, sugarcanes, cotton and raw’ jute).
• Under Indian conditions, crop production often fluctuates affecting market prices vis-a-vis prospect of the particular crop in next sowing season. For example, in case of crash of prices due to over production (glut), fanners become reluctant for sowing the crop in the next year. It may affect the supply with many consequences. To counter such situations, MSP is fixed by the Government which infuses confidence in farmers despite turnarounds in prices.
Commission for Agricultural Costs and Prices:
• MSP is fixed by the Government of India on the recommendations of the Commission for Agricultural Costs and Prices (CACP) which is a statutory body. CACP submits its recommendations to the Government in the form of price policy reports twice a year separately for Kharif and Rabi seasons. The Union Government considers the report, takes view of the states Governments and also deliberates on the overall demand and supply situation in the country to take the final call on fixing MSPs. Post-harvesting, the Government procure crops from farmers at the MSP across APMC mandis and procurement centres.
• The National Commission on Farmers, headed by Prof. M. S. Swaminathan, had recommended in 2006 that MSPs must be at least 50 percent more than the cost of production. To calculate cost of production, the Commission suggested three criteria:
• A2 – It includes cost of various inputs, such as seeds fertilizers, labour, fuel, irrigation etc.
• A2 + FL – It includes cost of unpaid family labour in A2 parameters.
• C2 – It includes the implied rent on land and interest on capital assets over and above A2+FL.
• Government implemented the recommendation during the marketing season of 2018-19 by fixing MSPs over and above the at least 50 percent of the cost of production.
• Currently, the CACP reckons only A2+FL cost for calculation of MSP. However. C2 costs are used as a benchmark reference costs to see if the recommended MSPs cover these costs in some of the major producing states.
• MSP regime was introduced in India in 1966-67 under which MSP for wheat was fixed for the first time at Rs. 54 per quintal. As the country was celebrating the Green Revolution during 1960s. the Indian Government realised that the farmers needed incentives to grow food grains. Otherwise, they would not opt cultivation for wheat and paddy which were labour-intensive and didn’t fetch lucrative prices. Introduction of MSP was a successful move that made India self-reliant in food grain production.