Break The Status Quo On MSP : Daily Current Affairs

Date : 11/02/2023

Relevance: GS-3: Agricultural produce and issues and related constraints

Key Phrases: Minimum Support Price (MSP) policy, Index of Representativeness, Regional Divide, Inter State Disparities of Procurement, National Food Security Act 2013, Market Intervention Scheme, Price Support Scheme (MIS-PSS), Portfolio Diversification

Why in News?

Public procurement of rice and wheat through the Minimum Support Price (MSP) policy has been the mainstay of direct support to farmers since the 1960s.
However, since the beginning, the regional concentration of the scheme has been a contentious policy issue.

Key Highlights:

The fundamental goal of MSP policy is to provide a cushion to farmers’ incomes in case the market prices fall below the support prices announced at the beginning of the marketing season.
In 2021-22, 88 million tonnes of paddy and 43 million tonnes of wheat were procured under the scheme; accounting for roughly 40 per cent of total production of the two crops (Food Corporation of India (FCI), 2020).

Regional Divide and Inter-State Disparities of Procurement:

A few States including Haryana, Punjab, Uttar Pradesh, and Andhra Pradesh contribute more than 60 per cent to the total procurement pool (FCI, 2021).
There are disparities across these States as well.
In States like Punjab and Haryana, nearly 90 per cent of all the rice and wheat produced is procured whereas in eastern States procurement rates are often less than 5 per cent of production
Moreover, poorer districts with smaller farms tend to have lower government procurement rates than districts with larger farms.

Assessing Procurement Variation Across States:

To show how procurement varies across States, procurement data from the FCI, which conducts much of the procurement, and annual production data from the Ministry of Agriculture and Farmers Welfare are used.
An index of representativeness is constructed defined as follows:

Index of Representativeness = Procurement share of the state to total national procurement ÷ production share of the state to total national production

This measure exceeds one if a State’s procurement share in national procurement exceeds the State’s production share in national production.
Punjab and Haryana account for 15 per cent of total rice production but contribute to 34 per cent of national procurement whereas States like Uttar Pradesh, Bihar, Jharkhand and West Bengal and Assam which account for 40 per cent of rice production account for only 14 per cent of procurement (FCI, 2022).

Decentralised Procurement Framework:

To address this regional concentration, a key reform agenda has been to shift to a decentralised procurement framework wherein State agencies procure, store, and distribute within the State and are later reimbursed by the Centre.
Under centralised procurement, the budgetary demands are met directly by the Centre and coordinated by FCI, the nodal agency for conducting and coordinating procurement operations.
The main thrust of the policy was to ensure consonance between the State’s regional needs under the National Food Security Act 2013 and procurement demand from farmers to ensure support prices.

Challenges with the decentralised procurement framework:

Many States like Uttar Pradesh have discarded the decentralised method due to the fear of pending subsidy bills.
Furthermore, the budgetary allocation towards decentralised procurement of foodgrains witnessed a decrease of 17 per cent from ₹72,282 crores in 2022-23 (RE) to ₹59,793 crore (BE) in 2023-24.

Situation Assessment Survey (SAS) by NSSO:

A careful analysis of district-level procurement data and survey data from two rounds of the National Sample Survey Office’s (NSSO) Situation Assessment Survey (SAS) of Agricultural Households shows that regional and demographic concentration of procurement, which favours large farmers and western States, continue to persist.
Small and marginal farmers are vastly under-represented when it comes to access to support prices, even after adjusting for the share of produce sold.
Punjab has a similar share of quantity sold to share in procurement across farm sizes.
However, in Bihar marginal farmers contribute to 50 per cent of the quantity sold, but only 21 per cent are selling at support prices.
It is also quite well known that support prices are at least 20 per cent higher than market prices, so there is a regressive distribution of subsidy through procurement where the richer states, and larger farmers benefit much more than the poorer States.

Reforming the MSP policy:

Addressing Regional divides:
- All of this presents a strong case for shifting some of the procurement to the eastern States.
- Government policy should act as a counter cyclical force to ensure stable prices in regions and to people who need it the most.
Portfolio diversification:
- Such a thrust should also encourage portfolio diversification in favour of other commodities such as pulses and millets.
Subsidising insurance:
- Increasing support through subsidising insurance is more incentive-compatible since it allows farmers to adapt to a more diverse and locally suited commodity basket compared with the rice and wheat entrenched procurement structure.

Policy Support in Budget 2033-24:

In the light of the recently announced Budget, it is concerning to see the allocation of the Market Intervention Scheme and Price Support Scheme (MIS-PSS) decrease from ₹1,500 crore in 2022-23 (RE) to a meagre ₹1 lakh in 2023-24 (BE).
Moreover, even the outlay for PM Fasal Bima Yojna has been reduced from ₹15,500 crore in 2022-23(BE) to ₹13,625 crore in 2023-24 (BE).

Institutionalising Procurement Mandates Through FPCs:

A vast network of farmer producer companies (FPCs) now exists across the country with the Centre envisioning to form 10,000 more FPCs with a budgetary support of nearly ₹955 crore, which has remained unchanged since last year.
Institutionalising procurement mandates through these FPCs can ensure that they transition from merely being formed on paper to being vibrant SMEs.
Most FPCs have internal mandates to ensure that at least 33 per cent of its farmers belong to the small, marginal, or are women and tribal farmers.
Given the decentralised distribution of FPCs across the country, a procurement mandate can ensure the necessary business support in their initial phases to improve their centrality to serve farmer interests.
More crucially, farmers through these FPCs get integrated to downstream segments of the value chain where more value is unlocked.

Conclusion:

The importance of provision of public goods through investments in village, block and district level storage, marketing to ensure price discovery through reforms like e-NAMs and futures and forward markets cannot be overstated.
In the long run, if there is indeed one, these reforms along with provision of social safety nets are likely to be more beneficial as against an entrenched procurement system skewed against poorer States and smaller or marginal farmers.

Source: The Hindu BL

Mains Question:

Q. Public procurement of rice and wheat through the Minimum Support Price (MSP) policy has been the mainstay of direct support to farmers since the 1960s. However, since the beginning, the regional concentration of the scheme has been a contentious policy issue. Examine. (150 words).