Ineffective MSP

What is the issue?

The newly released Minimum Support Price (MSP) for crops has some problems.

What is MSP?

• Minimum Support Price is the price at which government purchases crops from the farmers.
• Commission for Agricultural Costs and Prices (CACP) recommends Government of India to fix MSP before sowing season.
• The objective of the MSP is to ensure remunerative prices to the growers, by encouraging higher investment and production.
• At present, the MSP covers 24 crops, which includes cereals, pulses, oilseeds, copra, raw cotton, raw jute and tobacco.

What are the concerns with present MSP?

• Market prices of some crops have gone below the MSP which could discourage sowing.
• Except in the case of paddy and wheat, minimum support price has yet to offer remunerative prices.
• The government's pricing policy for the 2017 kharif crops might worsen the farmers demand.
• The new MSPs for major kharif crops are only marginally higher than those of the previous season.

What makes the new MSPs worse?

• For cotton, moong and sunflower seed MSP is lower than the actual expenses incurred in cultivation.
• Farmers are staring at a net loss in the coming season.
• Low increases in MSPs ease their distress.
• Overall value of farm produce has also been on a slide for several years.
• The costs incurred by farmers on inputs such as seeds, fertilisers, pesticides and labour are rising faster than the prices of their produce.

How this issue can be addressed?

• Government need to provide Procurement support to the farmers.
• Government can fix support prices at 50% above actual costs.
• Effective and successful market intervention based MSP to other crops should be considered.
• The “price deficiency payment mechanism” mooted by a task force of the NITI Aayog should be implemented.
• Trying out such a setup on a pilot basis would be a reasonable starting point.

Source: Business Line