From UPSC perspective, the following things are important :
Prelims level : Price Support operations under MSP Operations
Mains level : MSP mechanism
The Centre will spend ₹1,061 crore to reimburse the Cotton Corporation of India (CCI) and its sub-agent in Maharashtra for procuring cotton at the minimum support price in that State since 2014.
Why Centre reimburses to states?
In the event of fall in market prices, the Centre intervenes through following schemes-
Market Intervention Scheme
- Similar to MSP, there is a Market Intervention Scheme (MIS), which is implemented on the request of State Governments for procurement of perishable and horticultural commodities in the event of fall in market prices.
- The Scheme is implemented when there is at least 10% increase in production or 10% decrease in the ruling rates over the previous normal year.
- Proposal of MIS is approved on the specific request of State/UT Government, if the State/UT Government is ready to bear 50% loss (25% in case of North-Eastern States), if any, incurred on its implementation.
- Under MIS, funds are not allocated to the States.
- Instead, central share of losses as per the guidelines of MIS is released to the State Governments/UTs, for which MIS has been approved based on specific proposals received from them.
Price Supports Scheme (PSS)
- The Department of Agriculture & Cooperation implements the PSS for procurement of oil seeds, pulses and cotton, through NAFED which is the Central nodal agency, at the MSP declared by the government.
- NAFED undertakes procurement as and when prices fall below the MSP. Procurement under PSS is continued till prices stabilize at or above the MSP.
- Losses, if any incurred by NAFED in undertaking MSP operations are reimbursed by the central Government.
- Profit, if any, earned in undertaking MSP operations is credited to the central government.
Minimum Support Price (MSP)
- MSP is a form of market intervention by the GoI to insure agricultural producers against any sharp fall in farm prices.
- The MSP are announced at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
- MSP is price fixed to protect the producer – farmers – against excessive fall in price during bumper production years.
- In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, govt. agencies purchase the entire quantity offered by the farmers at the announced minimum price.
- The minimum support prices are a guarantee price for their produce from the Government.
- The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.
Methods of calculation
- In formulating the level of MSP and other non-price measures, the CACP takes into account a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities.
- The CACP makes use of both micro-level data and aggregates at the level of district, state and the country.
- Other factors include cost of production, changes in input prices, input-output price parity, trends in market prices, demand and supply, inter-crop price parity, effect on industrial cost structure, effect on cost of living, effect on general price level, international price situation, parity between prices paid and prices received by the farmers and effect on issue prices and implications for subsidy.
- Food Corporation of India (FCI) is the designated central nodal agency for price support operations for cereals, pulses and oilseeds.
- Cotton Corporation of India (CCI) is the central nodal agency for undertaking price support operations for Cotton.