Minimum Support Prices for Agricultural Produce

[op-ed snap] Taxed through trade policies, farmers need stable income policy


Mains Paper 3: Economic Development| Agriculture| Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of the recent efforts by government to raise farmer’s income.

Mains level: The news-card analyses how the farmers in India are implicitly taxed through restrictive marketing and trade policies, in a brief manner.


  • Many experts have observed that the farmers in India are implicitly taxed through restrictive marketing and trade policies. They, however, need a stable income policy.

Higher minimum support prices (MSPs) not a solution

  • The attempt to woo farmers by announcing higher minimum support prices (MSPs) based on 50 per cent margin over paid out costs plus imputed value of family labour (cost A2+FL) has fallen flat as market prices of most of those commodities remain 20 to 30 per cent below MSPs.
  • Procurement by government agencies has been limited, as they already have overflowing stocks that they cannot offload without incurring massive losses.
  • The meagre budgetary provisions under the PM’s AASHA scheme to lift market prices have, therefore, failed to erase farmers’ gloom.
  • In any case, the MSP policy cannot reach more than 20 per cent of peasantry even with augmented procurement of pulses and oilseeds, and, therefore, cannot be a solution to farmers’ distress.

Loan waiver not a viable decision either

  • The loan waiver, which the Congress president is promising, will also not benefit more than 30 per cent of the peasantry, who have access to institutional credit.
  • Already, the bill from loan waivers announced by some state governments is touching about Rs 1.8 trillion (lakh crore).
  • The policy of zero-interest on loans too is riddled with loopholes, leading to massive diversion of funds out of agriculture.

State governments innovating new ways

  • Many state governments are trying to innovate with new ways of reaching the largest number of farmers.
  • Telangana’s Rythu Bandhu scheme, which gives Rs 4,000/acre to land-owning farmers for two seasons in a year, is costing the state exchequer roughly Rs 12,000 crore per annum.
  • It appears to have reached more than 90 per cent farmers, and yielded political dividends.
  • However, many experts have criticised it saying that it is pro-big farmers and neglects tenants.
  • The KALIA (Krushak Assistance for Livelihood and Income Augmentation) scheme of Odisha attempts to respond to this criticism and accordingly promises to include not only land-owning farmers (up to 5 acres) but also tenants and agri-labourers.
  • While land-owning small and marginal farmers, 30.17 lakh in number, accounting for 92 per cent of farming households in Odisha, will get Rs 5,000/family for five seasons, the tenants and agri-labourers (estimated to be 10 lakh in number) who have no land records will get one-time payment of Rs 12,500/family, and vulnerable families (another 10 lakh) will get one-time payment of Rs 10,000/family.
  • With some support for life insurance and interest-free loans up to Rs 50,000, the scheme is likely to cost about Rs 10,180 crore over three years.
  • There is the major challenge of identifying who is a tenant and who is an agri-labourer, as tenancy is not legally allowed in Odisha. So, no legal records exist.


  • It is important to track and evaluate the performance of these two schemes (Rythu Bandhu and KALIA) as they have not only important budgetary implications but are also a pointer towards a new policy innovation.
  • West Bengal and Jharkhand are also moving in this direction, and media reports suggest that Centre too is contemplating a variant of a similar scheme.
  • If it does so, it would indicate a tectonic shift in policy from promising higher MSPs or loan waivers to direct income/investment support to farmers.
  • This shift will be better for the country as it is more predictable and less market distorting.

Concerns raised over such schemes

  • Macroeconomists and investors are worried about how much such schemes will cost.
  • Will it be fiscally sustainable and what impact will it have on investments in due course.
  • Is India not becoming a welfare state even before generating enough wealth?
  • The experts however view that these efforts are not “doles” but atonement for not reforming agriculture sector, especially its marketing and trade policies, which remain highly distorted, restrictive and pro-consumer, often at the cost of farmers.

Indian farmers have been “implicitly taxed” through restrictive marketing and trade policies

  • One of the key findings of a mega ICRIER-OECD study on agricultural policies in India (2018) is that the producer support estimate (PSE) for India was minus (-) 14 per cent of gross farm receipts, on an average for the years 2000-01 to 2016-17.
  • This implies that Indian farmers have been “implicitly taxed” through restrictive marketing and trade policies that have an in-built consumer bias of controlling agri-prices.
  • If one calculates the sum involved in this “implicit taxation”, it amounts to Rs 2.65 trillion (lakh crore) per annum, at 2017-18 prices, for 2000-01 to 2016-17.
  • Cumulatively for 17 years, this comes to roughly Rs 45 trillion at 2017-18 prices.
  • No country in the world has taxed its farmers so heavily during this period.
  • This is nothing short of plundering of farmers’ incomes.


  • Until India reforms its agri-marketing laws and frees agri-markets, it is time to atone through a structured and stable income policy for farmers for at least the next five years.
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