Minimum Support Prices for Agricultural Produce

MSP is not the way to increase farmers’ income

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MSP

Mains level : Paper 3- Doubling farmers' income

Context

The recently released data for 2018-19 Situation Assessment Survey (SAS) of agricultural households paints a bleak picture for doubling farmers’ income.

Background

  • Prime Minister Narendra Modi set out an ambitious target to double farmers’ incomes by 2022-23.
  • The Ashok Dalwai Committee made it clear that the target of doubling farmers’ incomes was in real terms.
  •  Required rate: The committee clearly stated that a growth rate of 10.4 per cent per annum would be required to double farmers’ real income by 2022-23.
  • The goal was to be achieved over seven years with the base year of 2015-16.
  • According to an estimate of farmers’ income for 2015-16 by NABARD in 2016-17, the average monthly income of farmers for 2015-16 was Rs 8,931.
  • However, unless a similar survey is conducted in 2022-23, we won’t really know what happened to the target of doubling farmers’ real income.

Determining the growth rate of farmers income

  • As per Situation Assessment Survey (SAS) of agricultural households for 2018-19, an average agricultural household earned a monthly income of Rs 10,218 in 2018-19 (July-June) in nominal terms.
  • We have a similar SAS for 2012-13, when the nominal income was Rs 6,426.
  • In nominal terms, the compound annual growth rate (CAGR) turns out to be 8 per cent between 2012-13 to 2018-19.
  • Choice of deflator: If one deflates nominal incomes by using CPI-AL (consumer price index for agricultural labour), which should be the logical choice, then the CAGR turns out to be just 3 per cent.
  • If one uses WPI (wholesale price index of all commodities), the CAGR in real incomes turns out to be 6.1 per cent.
  • This vast difference is just due to the choice of deflator.
  •  However, there is another SAS that the NSO conducted for 2002-03.
  • When one compares CAGR in farmers’ real income (deflated by CPI-AL) over 2002-03 to 2018-19, it turns out to be 3.4 per cent (and 5.3 per cent if deflated by WPI).
  • A better method would have been to look at average annual growth rates (AAGR), if yearly data was available.
  • The AAGR for agri-GDP is available and at an all-India level, between 2002-03 to 2018-19, it turns out to be 3.3 per cent.

Policy message about farmers income from SASs

  • One, the share of income from rearing animals (this includes fish) has gone up dramatically from 4.3 per cent in 2002-03 to 15.7 per cent.
  • Two, the share of income from the cultivation of crops has decreased from 45.8 per cent to 37.7 per cent.
  • Three, the share of wages and salaries has gone up from 38.7 per cent to 40.3 per cent.
  • Four, the share of income coming from non-farm business has come down from 11.2 per cent to 6.4 per cent.

Way forward

  • Survey results indicates that the scope for augmenting farmers’ incomes is going to be more and from rearing animals (including fisheries).
  • There is no minimum support price (MSP) for products of animal husbandry or fisheries and no procurement by the government.
  •  It is demand-driven, and much of its marketing takes place outside APMC mandis.
  • This is the trend that will get reinforced in the years to come as incomes rise and diets diversify.
  • Those who advocate raising the MSP of grains and government procurement, irrespective of increasing grain stocks to more than double the buffer stocking norms, are living in the past — and advocating a very expensive food system.
  • That will fail sooner or later.
  • Wisdom lies in investing more in animal husbandry (including fisheries) and fruits and vegetables, which are more nutritious.
  • The best way to invest is to incentivise the private sector to build efficient value chains based on a cluster approach.

Consider the question “Why the role of MSP in increasing the farmers’ income has been repeatedly questioned? What are the alternatives to achieve the doubling of farmers’ income?”

Conclusion

Too much focus on increasing MSP to increase farmers’ income is not helping the cause. What we need is an investment in animal husbandry (including fisheries) and fruits and vegetables.

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