COMMITTEE ON MINIMUM SUPPORT PRICE

COMMITTEE ON MINIMUM SUPPORT PRICE

TOPIC: Agriculture

Context- The committee on Minimum Support Prices, crop diversification and other issues promised to the farmers by Prime Minister Narendra Modi, will be set up after the upcoming Assembly elections.

Concept-

Minimum Support Price

• The MSP is the rate at which the government buys grains from farmers.
• Currently, it fixes MSPs for 23 crops grown in both Kharif and Rabi

Fixation of MSP:

• The MSP is fixed on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
• After receiving the feed-back from them, the Cabinet Committee on Economic Affairs (CCEA) of the Union government takes a final decision on the level of MSPs and other recommendations made by the CACP.

Factors taken into consideration for fixing MSP include:

• Demand and supply;
• Cost of production (A2 + FL method)
• Price trends in the market, both domestic and international;
• Inter-crop price parity;
• Terms of trade between agriculture and non-agriculture;
• A minimum of 50% as the margin over cost of production; and
• Likely implications of MSP on consumers of that product.

Procurement:

• The Food Corporation of India (FCI), the nodal central agency of the Government of India, along with other State Agencies undertakes procurement of crops.

Issues Associated with India’s MSP Regime

1. Limited Extent: As against the official announcement of MSP for 23 crops, only two, rice and wheat, are procured as these are distributed in NFSA. For the rest, it is mostly ad-hoc and insignificant.
2. Ineffectively Implemented: The Shanta Kumar Committee, in its report in 2015, stated that only 6% of the MSP could be received by the farmers, which directly means that 94% of the farmers in the country are deprived from the benefit of the MSP.
3. More of a Procurement Price: The current MSP regime has no relation to prices in the domestic market. Its sole raison d’être is to fulfil the requirements of NFSA making it effectively a procurement price rather than an MSP.
4. Makes Agriculture Wheat and Paddy Dominated: Skewed MSP dominated system of rice and wheat leads to overproduction of these crops and discourages farmers to grow other crops and horticulture products, which has higher demand and subsequently could lead to increase in farmers income.
5. Middlemen-Dependent: The MSP-based procurement system is also dependent on middlemen, commission agents and APMC officials, which smaller farmers find difficult to get access to.