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[op-ed snap] Retrench India’s farm economy to sustain it

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Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: National Agriculture Market (eNAM), Pradhan Mantri Krishi Sinchayee Yojana

Mains level: Long pending agricultural reforms in India


  1. In 2007-08, Madhya Pradesh government announced a bonus of Rs 150 above the minimum support price (MSP) per quintal of wheat
  2. Predictably, a large segment of farmers in the state shifted to the crop
  3. The bonus was stopped in 2014
  4. Farmers who had shifted production were not pleased
  5. It fed into the resentment that would eventually erupt in widespread farmer agitations in the state this year

Artificial incentives for agriculture

  1. The Indian state has often played the same role in the agricultural sector
  2. Its policies have created artificial incentives that are unsustainable, an inefficient drain on public funds, or both

Another such scheme by MP government

  1. The Bhavantar Bhugtan Yojana will replace government procurement with compensatory payments
  2. This will be when market prices are below the MSP
  3. It is being implemented as a pilot scheme for eight crops

Hope from the scheme

  1. The hope is that this will sidestep the implementation shortcomings of the procurement system
  2. These extend from the lack of government storage facilities and supply chain logistics
  3. Also, the fact that despite the government declaring MSPs for 25 crops, it largely procures only rice and wheat
  4. It will be less distortionary, freeing up space for the market to set rates

Reality check

  1. The knowledge that the government will make up the shortfall will incentivize traders to set rates well below the MSP
  2. The scheme has a two-month window, which means that the rush to sell in that period will also push prices down

Need for government intervention

  1. The agricultural sector is one of the handful where inelastic demand for the products, the deleterious public effects of supply shocks and inherent risks for suppliers mandate a government role

Agricultural reforms: What is needed?

Truly transformative agricultural reforms will require work on three levels

  1. The first level is mandi system
  • With the 2003 and 2017 versions of the model Agricultural Produce Market Committee (APMC) Act, governments have attempted to liberalize this system, providing for private markets and integrated state markets
  • This was a step towards a national market facilitated by the National Agriculture Market (eNAM)
  • The problem with this is that it still operates within the mandi system
  • Solution: Government needs to get out of the business altogether—and that is only possible with a switch from the public distribution system to direct benefit transfers

2. The second level of reforms should be aimed at inputs

  • The Pradhan Mantri Krishi Sinchayee Yojana aims to extend irrigation cover to all forms and maximize water-use efficiency over a period of five years
  • In a water-stressed yet groundwater-dependent country like India, this is only possible with comprehensive rural electrification, allowing for techniques such as drip irrigation
  • The other major reform needed here is access to formal credit
  • The current dependence on informal credit leaves farmers beholden to middlemen and traders who are often the credit suppliers, thus undercutting the former’s bargaining power

3.  The third level of reforms should be reduction in number of people participating in Agriculture

  • As per the last Agriculture Census, the average farm holding in India is a minuscule 1.15 hectares
  • Their number has been on the rise since the 1970s and is expected to touch 91% by 2030
  • There is no feasible way to make such a fragmented agricultural economy workable
  • For a sustainably healthy agricultural economy, the number of people participating in it must be drastically reduced
  • Measures such as enabling large-scale contract farming and corporate farming will help here—but the only genuine solution is job creation in non-agricultural sectors

[op-ed snap] Fixing the MSP policy


Key Points:

  1. The hikes in minimum support prices (MSP) have been the highest for pulses.
  2. While it is the combination of higher MSPs and procurement that makes farmers grow more of a crop,
  3. getting FCI or other state agencies to step up procurement may not always be possible.
  4. And these are the 2 main reasons which incentivise the farmer. But how do you fix the math behind the MSP policy?

    Above all, most important thing – India needs to produce more pulses since pulse inflation is very high.

[op-ed snap] For rich farmers

It is hard to understand the logic of raising the minimum support price for rice when the government is sitting on a mountain of foodgrain.

  1. In April, the Food Corporation of India & states held close to 52 million tonnes of wheat and rice, which is more than sufficient for all subsidized consumption needs during the year.
  2. Still, the government’s desire to show that it was doing something for farmers has outweighed economic rationale.

For example, it is understandable that support price for pulses has been raised. Most farmers growing lentils are poor and live in rain-fed areas. Wheat and rice farmers, in contrast, have access to irrigation.

[op-ed snap] When a higher MSP is not the solution

  1. The govt. decided to go in for large-scale imports instead of raising the minimum support price (MSP) for pulses.
  2. On paper, the government could have boosted pulses output by increasing the MSP.
  3. In reality, pulses are one crop that has proved relatively impervious to price signals.
  4. A higher MSP will only translate into higher prices, hurting the poor in both rural and urban areas.

[cd explains] How does MSP work?

  1. Government fixes MSPs of various kharif & rabi crops every year. Commission for Agricultural Costs & Prices (CACP) takes care of this.
  2. Procurement under MSP is undertaken by the designated Central and State Government agencies and Cooperatives.
  3. Producers have the option to sell their produce to Government agencies or in the open market as is advantageous to them.
  4.  States/UTs have been advised to amend their respective State APMC Acts on the lines of Model Act, 2003.

The Model Act provides for direct marketing, contract farming, farmers/consumer markets, setting up of markets in private and cooperative sectors, e-trading etc.


:( We are working on most probable questions. Do check back this section.

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