Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

Diversification of output to overcome the MSP trap


From UPSC perspective, the following things are important :

Prelims level: MSP

Mains level: Paper 3- Problems faced by the Punjab farmers and issue of MSP

The article analyses the state of agriculture in Punjab and the its dependace on the MSP regime and suggest the diversification as a solution to the MSP trap.

Punjab’s role in Green Revolution

  • India was desperately short of grains in 1965, and heavily dependent on PL 480 imports from the US against rupee payments, as the country did not have enough foreign exchange to buy wheat at global markets.
  • The entire foreign exchange reserves of the country at the time could not help it purchase more than 7 MMT of grains.
  • It is against this backdrop that the minimum support price (MSP) system was devised in 1965.

 India’s current grains management system: Issue of excess grains

  • Today, the Food Corporation of India (FCI) stocks grains touched 97 MMT in June this year against a buffer stock norm of 41.2 MMT.
  • The economic cost of that excess grain, beyond the buffer stock norm, was more than Rs 1,80,000 crore, a dead capital locked in without much purpose.
  • That’s the situation of the current grain management system based on MSP and open ended procurement.

Decline in Punjab’s economic level

  •  In 1966 Punjab had the highest per capita income.
  • Punjab’s position fell to 13th in 2018-19.
  • There are several reasons behind this deterioration, ranging from lack of industrialisation to not catching up even with respect to the modern services sector like IT, financial services.

What explains Punjab’s prosperity

  • Punjab’s agriculture is blessed with almost 99 per cent irrigation against an all-India average of little less than 50 per cent.
  • The average landholding in Punjab is 3.62 hectare (ha) as against an all-India average of 1.08 ha.
  • Punjab’s fertiliser consumption per ha is about 212 kg vis-à-vis an all-India level of 135 kg/ha.
  • The productivity levels of wheat and rice in Punjab stand at 5 tonnes/ha and 4 tonnes/ha respectively, against an all-India average of 3.5t/ha and 2.6t/ha.

Assesing Punjab’s real contribution to income and agriculture

  • In Punjab, the total farm families are just 1.09 million, a fraction of the all-India total of 146.45 million.
  •  The overall subsidy, from just power and fertilisers would amount to roughly Rs 13,275 crores.
  • That means each farm household in Punjab got a subsidy of about Rs 1.22 lakh in 2019-20.
  • This is the highest subsidy for a farm household in India.
  • Let’s not forget that the average income of the Punjab farm household is the highest in India.[2.5 time’s the India’s average].
  • But to assess the real contribution of farmers/states to agriculture and incomes, the metric is the agri-GDP per ha of gross cropped area of the state in question.
  • This is an important catch-all indicator, as it captures the impact of productivity, diversification, prices of outputs and inputs and subsidies.
  • On that indicator, unfortunately, Punjab has the 11th rank amongst major agri-states.

Way forward: Diversification of crops

  • States in south India like Andhra Pradesh, Tamil Nadu and Kerala have a much more diversified crop pattern tending towards high-value crops/livestock — poultry, dairy, fruits, vegetables, spices, fisheries.
  •  If Punjab farmers want to increase their incomes significantly, double or even triple, they need to gradually move away from MSP-based wheat and rice to high-value crops and livestock, the demand for which is increasing at three to five times that of cereals.
  • Punjab needs a package to diversify its agriculture — say a Rs 10,000 crore package spread over five years.


Once farmers diversify their farm output and double their incomes, they will not be stuck in the MSP trap.

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3 years ago

please review



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