The recent hike in Minimum Support Prices (MSP) has garnered significant attention and debate in the agricultural sector. While it is aimed at benefitting farmers and ensuring their income security, it also raises important concerns. Critics argue that an indiscriminate increase in MSP could lead to inflationary pressures and fiscal strain on the government. It is crucial for policymakers to strike a delicate balance between supporting farmers and maintaining macroeconomic stability. Additionally, addressing structural issues in agriculture, such as market access, crop diversification, and post-harvest infrastructure, is essential to ensure that MSP hikes genuinely empower farmers and transform the agricultural landscape. Therefore, a nuanced approach to MSP adjustments, coupled with broader agricultural reforms, is necessary to achieve a sustainable and equitable agricultural sector.
Tag: GS Paper – 3: Agricultural Pricing.
GS Paper – 2: Government Policies & Interventions.
Exam View:
NITI Aayog’s stand; Stand of various departments; Agriculture Ministry’s rationale.
Context:
The Cabinet approved the increase in MSP ranging from 6 percent to 10 percent by stating that the increase was in line with the Union Budget 2018-19 announcement of fixing MSP at a level of at least 1.5 times the cost of production.
Decoding the editorial:
NITI Aayog’s stand
- Niti Aayog stated that if this much increase is given to MSP, it will be very difficult to keep food inflation in the stipulated range of 4-6 percent, which is very important for macro-economic stability.
- The cabinet note, in most cases, keeps prices at 1.5 times the projected cost for kharif season 2023-24.
- It implies that a 6 to 10 percent increase in MSP is based on the same percent increase in cost of production.
- According to Niti Aayog, actual data on some of the cost items shows that
- The real wages in agriculture are not rising.
- The increase in price of urea has been absorbed by the Government of India by increasing subsidies.
- The increase in price of diesel is also expected to be small between 2022-23 and 2023-24.
- Therefore, there is a need for close examination of projected cost which has necessitated 6 to 10 percent increase in MSP.
- It also said that the Ministry and CACP should collaborate to verify the on-ground situation at the state level regarding the effects of both price and non-price recommendations.
Stand of various departments
- The Department of Expenditure supported the CACP recommendations, but said the price increase in crops should be accompanied by implementation of key non-price recommendations.
- The Department of Food and Public Distribution supported the proposal.
- However, it also said that the additional financial burden as a result of increase in MSP of paddy for kharif marketing season (KMS) 2023-24 will be Rs 13,819.80 crore and total implication will be Rs 2,12,907.60 crore.
- The Investment and Price Support division of the Ministry of Agriculture stated that there will be a financial implication of Rs 126.99 crore due to higher MSP.
- The Department of Commerce highlighted the need to adhere to the World Trade Organisation’s clause that subsidies should not go beyond the prescribed limit.
- As per WTO’s AoA (Agreement on Agriculture), Market Price Support (MSP, in case of India) is required to be notified to the WTO.
- Further, it needs to be ensured that product and non-product specific support is within the de-minimis limit, that is, 10% of the value of the production.
- Procurement under MSP should not be open-ended and predetermined targets should be specified simultaneously.
- According to CACP, labour shortage and rising wages are key concerns in Indian agriculture. Key strategy:
- Farm mechanisation could overcome labour shortages.
- Collective ownership of machinery through self-help groups, cooperative societies, custom hiring centres, etc could make high-cost farm machinery and implements affordable.
- Supply side bottlenecks such as storage, warehouse infrastructure and transportation should be addressed in a mission mode.
Agriculture Ministry’s rationale
Response to Niti Aayog:
- Increase in MSP is in the range of 5.3% to 10.4%. Increase in estimated cost of production over previous year varies from 6.13% and 10.52%.
- It is essential to ensure remunerative prices for farmers, encouraging them to invest more in production and to ensure food security in the country.
- Higher MSP for crops such as oilseeds, pulses and Shree Anna aims to promote crop diversification.
- All India weighted average cost of production is one of the important factors in the determination of MSP.
- While recommending MSP, CACP considers the cost of production and overall demand-supply situations of various crops in domestic and world markets.
- The Composite Input Price Index (CIPI) is based on the latest prices of major inputs like human labour, machine labour, fertilisers and manures, seeds, pesticides and irrigation.
Response to the department of expenditure:
- For promotion of agricultural mechanisation in the country, a centrally sponsored scheme, ‘Sub-mission on Agricultural Mechanisation’, is being implemented.
- Rashtriya Krishi Vikas Yojna (RKVY) also has this component.
For WTO commitments:
- While calculating the aggregate support, ‘inflation’ since 1986 has not been factored in.
- This leads to an understated External Reference Price (ERP) making the aggregate support overstated.”
Source: Indian Express
Frequently Asked Questions (FAQs)
1. What is the Minimum Support Price (MSP) and why is it hiked?
Answer: MSP is the price at which the government commits to buying crops from farmers to provide them with income security. MSP hikes are often implemented to ensure that farmers receive fair compensation for their produce, incentivizing agricultural production.
2. How does the MSP hike affect consumers?
Answer: An MSP hike can potentially lead to higher food prices, as the increased cost of production for farmers may be passed on to consumers. However, the extent of the impact on consumers depends on factors like market dynamics and the degree of the MSP increase.
3. Can MSP hikes lead to inflation?
Answer: Yes, indiscriminate MSP hikes have the potential to contribute to inflationary pressures. When MSPs for various crops are significantly raised, it can lead to increased input costs for other industries and may result in broader inflation in the economy.
4. What challenges do MSP hikes pose for the government’s finances?
Answer: The government shoulders the cost of purchasing crops at MSP. Frequent and substantial MSP hikes can strain government finances, leading to increased fiscal deficits and reduced resources for other essential programs and services.
5. How can MSP hikes be made more effective and sustainable for farmers?
Answer: To make MSP hikes more effective, they should be accompanied by comprehensive agricultural reforms. Improving market access, promoting crop diversification, and investing in post-harvest infrastructure are essential steps to ensure long-term benefits for farmers and sustainable agricultural growth.
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