From UPSC perspective, the following things are important :
Prelims level : Not much
Mains level : Paper 3- Changes in MSP mechanism
The MSP must look especially into the requirements of farmers and the landless.
Background of price stabilisation for food grain
- The Essential Commodities Act in 1955 sought to counter price rise due to speculative private trading and then MSP in the 1960s.
- A buffer stock policy was developed over time to involve different kinds of mechanisms such as:
a) setting cost-based minimum procurement price, paying the difference between procurement price and market price.
b) storing the procured surplus for sale through the Public Distribution System (PDS) at issue price, and market intervention to stabilise price when deemed necessary.
- This task required interlinking procurement, storage and distribution with more centralised investment and control of each of these tasks.
3 Purposes MSP could serve
MSP could serve, in principle, three purposes:
- Price stabilisation in the food grains market.
- Income support to farmers, and
- As a mechanism for coping with the indebtedness of farmers.
Advantages of wide coverage
- Fulfilling three objectives: In this way, the objectives of income support to farmers, price stabilization, food security, and inducing more climate-friendly cropping patterns can be combined to an extent.
- Solution to debt problem: A real breakthrough in the recurring problem of agricultural debt can be made by the linking of selling of grains under MSP to the provision of bank credit particularly for small farmers.
- The farmer can get a certificate selling grains at MSP which would be credit points proportional to the amount sold; this will entitle them to a bank loan as their right, and calibrate the fluctuations between good and bad harvest years by storing the certificates for later use.
Issues with MSP in current form
- Low accessibility and awareness of the MSP regime: A survey highlighted that 81% of the cultivators were aware of MSP fixed by the Government for different crops and out of them only 10% knew about MSP before the sowing season.
- Arrears in payments: More than 50% of the farmers receive their payments of MSP after one week.
- Poor marketing arrangements: Almost 67% of the farmers sell their produce at MSP rate through their own arrangement and 21% through brokers.
- Partial coverage resulting in skewed cropping pattern: This partial MSP coverage skewed the cropping pattern against several coarse grains and millets particularly in rain-fed areas.
- Flexible arrangement of MSP: 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.
- High MSP for coarse grains: 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.
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.