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

Key phrases : farmer's movement, doubling the farmers’ income, minimum support price (MSP) scheme, Essential Commodities Act in 1955, Green Revolution, Food Corporation of India, price band mechanism

Why in News?

• The current farmer's movement is a struggle to transform Indian agriculture and the livelihoods of the farming majority which are in ruins in most parts of the country. It is not for political power.
• The need of the hour is to give a new direction to this peaceful peoples’ movement to generate momentum in small peasant agriculture, which in turn could give real content to our democracy.
• Setting an impractical goal of doubling the farmers’ income by the Government or pretending that market-friendly reforms will do the trick are absurd, thus the need is to design in a new way the existing Minimum Support Price (MSP) Scheme.

Need of MSP

• The massive solidarity (despite deeply divisive social fault lines) seen in the recent farmers’ movement has awakened the nation about prevailing distress in the Agriculture sector.
• MSP must look as an existential requirement of small farmers and the landless, acting as a shield against volatile market forces.
• MSP could serve, in principle, three purposes
  1. Price stabilisation in the food grains market
  2. Income support to farmers
  3. A mechanism for coping with the indebtedness of farmers.

Evolution of Price Stabilisation Policy in India:

• In India this policy evolved over time, first with the Essential Commodities Act in 1955 to counter price rise due to speculative private trading and then MSP in the 1960s.
• A buffer stock policy with the public storage of food grains for market intervention was also developed over time and involved different kinds of mechanisms such as:
  1. Setting cost-based minimum procurement prices.
  2. Paying the difference between procurement price and market price.
  3. Storing the procured surplus for sale through the Public Distribution. System (PDS) at issue price.
  4. Market intervention to stabilise price when deemed necessary.
  5. These induced farmers to shift to a high-yielding varieties cropping pattern during the Green Revolution, while ensuring food security for citizens.
  6. This task required interlinking procurement, storage and distribution with more centralised investment and control of each of these tasks.

Analysis of existing MSP regime : Cropping pattern distortion, High Economic cost

• Skewed coverage of crops causes cropping pattern distortion and cereal centric consumption
  1. The procurement from the Green Revolution period provided assured price incentives for rice, wheat and sugar (the flagships of the Green Revolution), but left out some 20 crops now under discussion for MSP including millets, coarse cereals, pulses and oilseeds.
  2. As a result, this partial MSP coverage skewed the cropping pattern against several coarse grains and millets particularly in rain-fed areas. The details given below in the table:

     Rain fed Areas-cropping pattern	Before Green Revolution	After Green Revolution
     Wheat	9 million hectares	31 million hectares
     Rice	30 million hectares	44 million hectares
     Coarse cereals	37 million hectares	25 million hectares

  3. Cereal centric Diet : This reduced coverage in coarse cereals disturbed the balanced diet of many people across the country ,causing severe issues of malnutrition.
  4. Almost 68% of Indian agriculture is rain fed and the crops grown in these regions are usually more drought resistant, nutritious and staple in the diet of the poorer subsistence farmers.
  5. This has been a particularly vulnerable point of our food security system; greater coverage of all 23 crops under MSP is a way of improving both food security and income support to the poorest farmers in rain-fed regions.
• High Economic cost
  1. The centralised mechanism for ensuring distribution of the procured stock of rice and wheat at MSP is done by Food Corporation of India.
  2. Here they are milled, made ready for consumption and sent back to each district/province, and from there to villages/slums/wards for distribution through fair price (ration) shops at an issue price fixed by the government which is below the market price to make it affordable for poor households.
  3. The total economic cost involving subsidy for selling below market price along with procurement costs, distribution costs of freight, handling, storage, interest and administrative charges along with costs borne due to transit and storage losses would be around ₹3 lakh-crore.

Solutions suggested : Price Band, Rationalizing government expenditure

• Price band- If price is charged in a range according to harvest conditions, the total economic cost will vary within a price “band”.
  1. MSP has to be conceived as a list of some 23 crops with a more flexible arrangement. Each crop within a band of maximum and a minimum price depending on harvest conditions (i.e. higher price in a bad and lower price in a good harvest year in general) will have its price set in the band.
  2. The price of some selected coarse grains can be fixed at the upper end of its band to encourage their production in rain fed areas.
  3. In this way, the objectives of income support to farmers, price stabilisation and food security and inducing more climate-friendly cropping patterns can be combined to an extent.
• Rationalizing government expenditure
  1. The procurement cost of a wider MSP of the total grains produced, leaving 45%-50% is for farmers’ self-consumption and the rest being marketed surplus, is currently very high.
  2. In the price band mechanism, marketed surplus sets the upper bound of total procurement cost from which must be deducted the net revenue recovered through the PDS (if all these crops are sold through ration shops).
  3. The preliminary estimate puts it in the range of ₹5 lakh-crore, far less than the ₹17 lakh-crore estimated by the government.

Conclusion

• There is need to emphasise better implementation of the MSP scheme. It would depend largely on decentralizing the implementing agencies under the constitutionally mandated supervision of panchayats.
• The near miracle we have witnessed in organising and unifying the farmers’ movement across caste, class and gender through the panchayat and maha-panchayat system in Punjab, Haryana and West Uttar Pradesh raises hope that farmers will turn government attention to decentralizing the MSP implementation mechanism in future.

Source: The Hindu BL

Mains Question

Q. In recent years, there is rising demand for reforms in the Minimum Support Price(MSP) scheme. How far do you think that a decentralised MSP can be helpful in improving the conditions of Indian farmers? Give reasons in support of your answers.(10 marks)