Minimum Support Prices for Agricultural Produce

The MSPs are announced by the GoI at the beginning of the sowing season for around 24 commodities so as to induce the farmers to make capital investment, adopt new technologies for crop improvement and so on. One could say that there is a remarkable oddity about India’s agricultural yields & the MSPs decided by Commission of Agricultural Costs & Prices but that’s always a part of the game, right?

In this story, we will track the development under the NDA govt. and try to understand the rationale behind the changing trends or prices & policies.

Minimum Support Prices for Agricultural Produce

Issues related to MSP

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MSP system, Crop Seasons in India

Mains level : MSP Mechanism

The Centre has increased the Minimum Support Price (MSP) for various crops ahead of the upcoming rabi season harvest.

Answer this PYQ from CSP 2018

Q.Consider the following:

  1. Areca nut
  2. Barley
  3. Coffee
  4. Finger millet
  5. Groundnut
  6. Sesamum
  7. Turmeric

The Cabinet Committee on Economic Affairs has announced the Minimum Support Price for which of the above?

(a) 1, 2, 3 and 7 only

(b) 2, 4, 5 and 6 only

(c) 1, 3, 4, 5 and 6 only

(d) 1, 2, 3, 4, 5 and 7

 

Post your answers here.
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What is the Minimum Support Price (MSP) system?

  • MSP is a form of market intervention by the Govt. of India to insure agricultural producers against any sharp fall in farm prices.
  • MSP is price fixed by GoI to protect the producer – farmers – against excessive falls in price during bumper production years.

Who announces it?

  • MSP is announced at the beginning of the sowing season for certain crops on recommendations by Commission for Agricultural Costs and Prices(CACP) and announced by Cabinet Committee on Economic Affairs (CCEA) chaired by the PM of India.

Why MSP?

  • The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.
  • They are a guaranteed price for their produce from the Government.
  • In case the market price for the commodity falls below the announced MSP due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced MSP.

Historical perspective

  • Till the mid-1970s, Government announced two types of administered prices:
  1. Minimum Support Prices (MSP)
  2. Procurement Prices
  • The MSPs served as the floor prices and were fixed by the Govt. in the nature of a long-term guarantee for investment decisions of producers, with the assurance that prices of their commodities would not be allowed to fall below the level fixed by the Government, even in the case of a bumper crop.
  • Procurement prices were the prices of Kharif and rabi cereals at which the grain was to be domestically procured by public agencies (like the FCI) for release through PDS.
  • It was announced soon after harvest began.
  • Normally procurement price was lower than the open market price and higher than the MSP.

Crops Covered

  1. Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative prices (FRP) for sugarcane.
  2. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops.
  3. The list of crops is as follows:
  • Cereals (7) – paddy, wheat, barley, jowar, bajra, maize and ragi
  • Pulses (5) – gram, arhar/tur, moong, urad and lentil
  • Oilseeds (8) – groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed, and nigerseed
  • Raw cotton
  • Raw jute
  • Copra
  • De-husked coconut
  • Sugarcane (Fair and remunerative price)
  • Virginia flu cured (VFC) tobacco

Exception for Sugar

  • The pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act (ECA), 1955.
  • Prior to the 2009-10 sugar season, the Central Government was fixing the Statutory Minimum Price (SMP) of sugarcane, and farmers were entitled to share profits of a sugar mill on a 50:50 basis.
  • As this sharing of profits remained virtually unimplemented, the Sugarcane (Control) Order, 1966 was amended in October 2009 and the concept of SMP was replaced by the Fair and Remunerative Price (FRP) of sugarcane.

Back2Basics: Rabi and Kharif Crops

Rabi Crops Kharif Crops
·         Rabi crops are sown at the end of monsoon or the beginning of winter. They are also known as winter crops. ·         Kharif crops are sown at the beginning of the rainy season and are also known as monsoon crops.
·         Flowering requires a long day length. ·         Flowering requires a short day length.
·         These crops need a warm climate for seed germination and cold climate for growth. ·         These crops require a lot of water and hot weather to grow. They depend on rainfall.
·         Unseasonal rainfall can damage Rabi crops. ·         Kharif crops depend on rainfall patterns.
·         The harvesting months are March and April. ·         These crops are harvested in September and October
·         Examples: Mustard, wheat, cumin, coriander etc. ·         Examples: Rice, bajra, groundnut.

Zaid Crops

  • The wide range of crops that grow in the short season between Kharif and Rabi crop seasons are known as Zaid crops. These are the months of March till July.
  • Examples: Pumpkin, cucumber, bitter gourd etc.

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Minimum Support Prices for Agricultural Produce

How green are India’s agri-exports?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Agri-exports from India

Mains level : Paper 3- Issues with India's agri-exports

The article highlights the unsustainability of agri-exports owing to their water-intensive nature and subsidies provided in their production.

India’s agri-exports

  • Agri-exports touched $41.8 billion in FY 2020-21, registering a growth of 18 per cent over the previous year.
  • Amongst the various agri-commodity exports, rice ranks first with 17.7 million tonnes valued at $8.8 billion, roughly 21 per cent of the total value of agri-exports.
  • It is followed by marine products ($6 billion), spices ($4 billion), bovine (buffalo) meat ($3.2 billion) and sugar ($2.8 billion).

Trend analysis of agri-exports

  • During the last seven years, agri-exports have remained lower than the level reached in FY2013-14 ($43.3 billion).
  • That was when the highest agri-trade surplus (exports minus imports) was generated ($27.8 billion).
  • That was also when Indian agriculture was most globally integrated, with agri-trade (exports plus imports) touching 20 per cent of the agri-GDP.
  • It has slid to 13.5 per cent by FY2020-21, indicating India is becoming less globally competitive in exports and more protectionist in imports, presumably in the name of Atmanirbhar Bharat.
  • It is high time to review current agri-trade policies and accompanying tariff structures.

Why sustainability of agri-exports is a concern?

  • From a strategic point of view, however, one must ask whether this growth rate can be sustained over a longer period, and the implications it has for Indian agriculture.
  • Water consumption: India is a water-stressed country with per capita water availability of 1,544 cubic metres in 2011, down from 5,178 cubic metres in 1951.
  • It is well known that a kg of sugar has a virtual water intake of about 2,000 litres.
  • In 2020-21, India exported 7.5 million tonnes of sugar, implying that at least 15 billion cubic metres of water was exported through sugar alone.
  • Rice, needs around 3,000 to 5,000 litres of water for irrigating a kg, depending upon topography.
  • Also, rice cultivation contributes to more than 18 per cent of the GHG emission generated from agriculture.
  • Subsidies: Power and fertiliser subsidies account for about 15 per cent of its value in states like Punjab and Haryana.
  • If these subsidies are withdrawn, rice will not be as preferred a crop with farmers as it is today.

Way forward

  •  Farming practices such as alternate wetting drying (AWD), direct-seeded rice (DSR) and micro-irrigation will have to be taken up on a war footing.
  • Farmers may be incentivised and rewarded to save water, switch from paddy and sugar to other less water guzzler crops, and reduce the carbon footprint.
  • It is high time that policymakers revisit the entire gamut of rice and sugar systems from their MSP/FRP to their production in an environmentally sustainable manner.
  • At least in the case of rice, procurement will have to be limited to the needs of PDS, and within PDS, it is high time to introduce the option of direct cash transfers.

Consider the question “Rice and sugar forms the part of India’s agri-basket. However, there are concerns over their sustainability. What are the reasons for concerns and suggest the measure to deal with these concerns” 

Conclusion

To maintain the sustainability of the agri-exports, crops must be produced efficiently and with minimal subsidies. The government needs to take steps to ensure that with rice and sugar.

Minimum Support Prices for Agricultural Produce

Centre announces hike in MSP

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MSP system

Mains level : Issues over MSP

The Central government has hiked the minimum support price (MSP) for the coming Kharif season. The decision was taken by the Cabinet Committee on Economic Affairs.

Answer this PYQ from CSP 2018 in the comment box:

Q.Consider the following:

  1. Areca nut
  2. Barley
  3. Coffee
  4. Finger millet
  5. Groundnut
  6. Sesamum
  7. Turmeric

The Cabinet Committee on Economic Affairs has announced the Minimum Support Price for which of the above?

(a) 1, 2, 3 and 7 only

(b) 2, 4, 5 and 6 only

(c) 1, 3, 4, 5 and 6 only

(d) 1, 2, 3, 4, 5 and 7

What is the Minimum Support Price (MSP) system?

  • MSP is a form of market intervention by the Govt. of India to insure agricultural producers against any sharp fall in farm prices.
  • MSP is price fixed by GoI to protect the producer – farmers – against excessive fall in price during bumper production years.

Who announces it?

  • MSP is announced at the beginning of the sowing season for certain crops on recommendations by Commission for Agricultural Costs and Prices(CACP) and announced by Cabinet Committee on Economic Affairs (CCEA) chaired by the PM of India.

Why MSP?

  • The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.
  • They are a guaranteed price for their produce from the Government.
  • In case the market price for the commodity falls below the announced MSP due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced MSP.

Historical perspective

  • Till the mid-1970s, Government announced two types of administered prices:
  1. Minimum Support Prices (MSP)
  2. Procurement Prices
  • The MSPs served as the floor prices and were fixed by the Govt. in the nature of a long-term guarantee for investment decisions of producers, with the assurance that prices of their commodities would not be allowed to fall below the level fixed by the Government, even in the case of a bumper crop.
  • Procurement prices were the prices of Kharif and rabi cereals at which the grain was to be domestically procured by public agencies (like the FCI) for release through PDS.
  • It was announced soon after harvest began.
  • Normally procurement price was lower than the open market price and higher than the MSP.

Crops Covered

  1. Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative price (FRP) for sugarcane.
  2. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops.
  3. The list of crops is as follows:
  • Cereals (7) – paddy, wheat, barley, jowar, bajra, maize and ragi
  • Pulses (5) – gram, arhar/tur, moong, urad and lentil
  • Oilseeds (8) – groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed
  • Raw cotton
  • Raw jute
  • Copra
  • De-husked coconut
  • Sugarcane (Fair and remunerative price)
  • Virginia flu cured (VFC) tobacco

Exception for Sugar

  • The pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act (ECA), 1955.
  • Prior to 2009-10 sugar season, the Central Government was fixing the Statutory Minimum Price (SMP) of sugarcane and farmers were entitled to share profits of a sugar mill on 50:50 basis.
  • As this sharing of profits remained virtually unimplemented, the Sugarcane (Control) Order, 1966 was amended in October 2009 and the concept of SMP was replaced by the Fair and Remunerative Price (FRP) of sugarcane.

Minimum Support Prices for Agricultural Produce

Agriculture policy should target India’s actual farming population

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Agriculture households in India

Mains level : Paper 3- Need to focus on India's actual farming population

The article highlights the ambiguity about the number of farmers in India and related issues.

How many farmers does India really have

  • The Agriculture Ministry’s last Input Survey for 2016-17 pegged the total operational holdings at 146.19 million.
  • The NABARD All India Rural Financial Inclusion Survey of the same year estimated the country’s “agricultural households” at 100.7 million.
  • The Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) has around 111.5 million enrolled beneficiaries.
  • Agricultural households, as per NABARD’s definition, cover any household whose value of produce from farming activities is more than Rs 5,000 during a year.
  • That obviously is too little to qualify as living income.

Who is real farmer

  • Agricultural households, as per NABARD’s definition, cover any household whose value of produce from farming activities is more than Rs 5,000 during a year.
  • That obviously is too little to qualify as living income.
  • A “real” farmer is someone who would derive a significant part of his/her income from agriculture.
  • This, one can reasonably assume, requires growing at least two crops in a year.
  • The 2016-17 Input Survey report shows that out of the total 157.21 million hectares (mh) of farmland with 146.19 million holdings, only 140 mh was cultivated.
  • And even out of this net sown area, a mere 50.48 mh was cropped two times or more, which includes 40.76 mh of irrigated and 9.72 mh of un-irrigated land.
  • Taking the average holding size of 1.08 hectares for 2016-17, the number of “serious full-time farmers” cultivating a minimum of two crops a year  would be hardly 47 million.
  • The above figure is also consistent with other data from the Input Survey.
  • These pertain to the number of cultivators planting certified/high yielding seeds (59.01 million), using own or hired tractors (72.29 million) and electric/diesel engine pumpsets (45.96 million), and availing institutional credit (57.08 million).
  • Whichever metric one considers, the farmer population significantly engaged and dependent on agriculture as a primary source of income is well within 50-75 million.
  • The current agriculture crisis is largely about these 50-75 million farm households.

Lack of price parity

  • At the heart of farmers’ crisis is the absence of price parity.
  • In 1970-71, when the minimum support price (MSP) of wheat was Rs 76 per quintal, 10 grams of 24-carat gold cost about Rs 185.
  •  Today, the wheat MSP is at Rs 1,975/quintal, gold prices are Rs 45,000/10g.
  • The absence of farm price parity didn’t hurt much initially when crop productivity was rising.
  • Since the 1990s, yields have further gone up to 5.1-5.2 tonnes/hectare in wheat and 6.4-6.5 tonnes for paddy. But so have production costs. 
  • The demand for making MSP a legal right is basically a demand for price parity that gives agricultural commodities sufficient purchasing power with respect to things bought by farmers.

Way forward

  • Most government welfare schemes are aimed at poverty alleviation and uplifting those at the bottom of the pyramid.
  • But there’s no policy for those in the “middle” and in danger of slipping to the bottom.
  •  When crop prices fail to keep pace with escalating costs — of not only inputs, but everything the farmer buys — the impact is on the 50-75 million surplus producers.
  • Any “agriculture policy” has to first and foremost address the problem of price parity.
  • Farmers’ interest be even better served by the government guaranteeing a minimum “income” rather than “price” support.
  • Subsistence or part-time agriculturalists, on the other hand, would benefit more from welfare schemes and other interventions to boost non-farm employment.

Conclusion

Whether it is crop, livestock or poultry, agriculture policy has to focus on “serious full-time farmers”, most of them neither rich nor poor. This rural middle class that was once very confident of its future in agriculture today risks going out of business. That shouldn’t be allowed to happen.

Minimum Support Prices for Agricultural Produce

Farm laws must reflect regional and crop diversities

Note4Students

From UPSC perspective, the following things are important :

Mains level : Paper 3-

The article argues for consideration of the regional variation in the conditions of farmers and their concerns in the context of recently introduced farm laws.

Argument against diversification

  • In Punjab, Haryana and western UP, minimum support price (MSP)-based agriculture has a logic.
  • Not all regions must diversify.
  • The region has great alluvial soil, good irrigation and almost a century-long tradition of the application of science to agriculture.
  • In south Punjab, with less irrigation, and parts of Haryana not covered by the Indira Gandhi Canal, some diversification to pulses, cotton etc. could work but the solid specialisation in this region remains.

Issue of middlemen

  • Arhtiyas (middlemen) are important in Indian agricultural markets.
  • They are a part of the supply chain in north-west India.
  • Here they are not like the middlemen elsewhere.
  • They function simply as agents of the procurement agencies.
  • This was done by the past government to reduce overhead costs of procurement.

Steps need to be taken

  • The e-markets, forwards and farmer-managed companies are not the dominant mode of rural organisations.
  • Agriculture is the one good sector in otherwise dismal year.
  • So, we need to strengthen it, not feed off on its glory, even outside north-west India.
  • We have the largest spread of agricultural markets in the world according to spatial maps.
  • But they are not APMCs.
  • With weak markets (outside of grains) and without first-stage processing and other infrastructure, the farmer knows he is at the mercy of the trader and comes out on the streets when that is not understood.

Evolution of MSP

  • The MSP played a crucial role in the days of compulsory procurement and zonal restrictions.
  • Each crop had its own report then.
  • Later separate reports were replaced by two reports, one for kharif and another one for rabi, apart from one for sugarcane (an annual crop).
  • The 1982 rabi report stated that relative prices and, in that context, MSP had the role of an intervention mechanism when markets failed, outside the compulsory procurement area.
  • Later, the concept of transport costs and managerial costs became important.

Way forward

  • The Essential Commodities Act should be ditched.
  • Good laws are good because progress starts with them, but not all laws are good everywhere.
  • A modified version of the laws with a roadmap can be on the agenda — not everywhere, but most places outside the lands of the five rivers.

Conclusion

The amended laws should be considered in the context of regional variation in the country and necessary changes should be made to address the concerns of the farmers.

Minimum Support Prices for Agricultural Produce

[pib] 14 new Minor Forest Produce (MFP) included Minimum Support Price (MSP) scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Forest produces, MSP

Mains level : MSP for MFPs

14 new Minor Forest produce items have been included under the Mechanism for Marketing of Minor Forest Produce through Minimum Support Price scheme.

Which are the 14 new MFP?

Tasar Cocoon, Cashew Kernel (Anacardiumoccidentale), Elephant Apple Dry, Bamboo Shoot (Phyllostachys edulis), Malkangani Seed, Mahul Leaves, Nagod (Vitex negundo), Gokhru (Tribulus terrestris), Pipla/ Uchithi, Gamhar/ Gamari (dry bark), Oroxylumindicum, Wild Mushroom dry, Shringraj (Eclipta Alba), Tree Moss (Bryophytes).

Now try this PYQ from CSP 2018:

Q. Consider the following:

  1. Areca nut
  2. Barley
  3. Coffee
  4. Finger millet
  5. Groundnut
  6. Sesamum
  7. Turmeric

The Cabinet Committee on Economic Affairs has announced the Minimum Support Price for which of the above?

(a) 1, 2, 3 and 7 only

(b) 2, 4, 5 and 6 only

(c) 1, 3, 4, 5 and 6 only

(d) 1, 2, 3, 4, 5 and 7

About MSP for MFP Scheme

  • Under the scheme, Minimum Support Price for Minor Forest Produce (MFP) has been fixed for select MFP.
  • The scheme is designed as a social safety net for improvement of livelihood of MFP gatherers by providing them fair price for the MFPs they collect.
  • The Scheme has been implemented in eight States having Schedule areas as listed in the Fifth Schedule of the Constitution of India.
  • From November 2016, the scheme is applicable in all States.

Back2Basics: Forest Produce in India

  • Forest produce is defined under section 2(4) of the Indian Forest Act, 1927.
  • Its legal definition includes timber, charcoal, catechu, wood-oil, resin, natural varnish, bark, lac, mahua flowers, trees and leaves, flowers and fruit, plants (including grass, creepers, reeds and moss), wild animals, skins, tusks, horns, bones, cocoons, silk, honey, wax, etc.
  • Forest produce can be divided into several categories.
  • From the point of view of usage, forest produce can be categorized into three types: Timber, Non-Timber and Minor Minerals.
  • Non-timber forest products [NTFPs] are known also as minor forest produce (MFP) or non-wood forest produces (NWFP).
  • The NTFP can be further categorized into medicinal and aromatic plants (MAP), oilseeds, fibre & floss, resins, edible plants, bamboo, reeds and grasses.

Minimum Support Prices for Agricultural Produce

The Cost of Guaranteed MSP

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MSP system

Mains level : Economics of MSP

The row over legally guaranteed MSP doesn’t seem to be settled down in near terms.

Farmers’ demand

  • Farmer unions protesting are raising two fundamental demands.
  1. The first is for repealing the three agricultural reform laws enacted by the Centre.
  2. The second is to provide a legal guarantee for the minimum support prices (MSPs) that the Centre declares for various crops every year.
  • Currently, there is no statutory backing for these prices or any law mandating their implementation.

Note: The MSP is now applicable on 23 farm commodities: 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley), 5 pulses (chana, arhar, moong, urad and masur), 7 oilseeds (groundnut, soyabean, rapeseed-mustard, sesamum, sunflower, nigerseed and safflower) and 4 commercial crops (sugarcane, cotton, copra and raw jute).

Can MSP be made legally binding?

Yes. There are two ways it can be done.

(1) To force private buyers to pay it

  • In this case, no crop can be purchased below the MSP, which would also act as the floor price for bidding in mandi auctions.
  • There’s already a precedent: In sugarcane, mills are required by law to pay growers the Centre’s “fair and remunerative price” – UP and Haryana fix even higher “state advised prices” – within 14 days of supply.
  • In no other crop is the compulsion to pay the government-announced MSP thrust on the private trade/industry.

(2) The government itself buying the entire crop that farmers offer at the MSP

Various govt agencies such as the Food Corporation of India, the National Agricultural Cooperative Marketing Federation of India, and the Cotton Corporation of India (CCI) do procure a large chunk of commodities on MSP.

But how much produce can the government procure at MSP?

  • The MSP value of the total production of the 23 crops worked out to around Rs 10.78 lakh crore in 2019-20.
  • Not all this produce, however, is marketed. Farmers retain part of it for self-consumption, the seed for the next season’s sowing, and also for feeding their animals.
  • The marketed surplus ratio for different crops is estimated to range differently for various crops.
  • It ranges from below 50% for ragi and 65-70% for bajra (pearl millet) and jawar (sorghum) to 75% for wheat, 80% for paddy, 85% for sugarcane, 90% for most pulses, and 95%-plus for cotton, soyabean etc.
  • Taking an average of 75% would yield a number of just over Rs 8 lakh crore.
  • This is the MSP value of production that is the marketable surplus — which farmers actually sell.

So, is this MSP money paid out of the government’s pocket?

Not really!

  • To start with, one must exclude sugarcane from the calculations. The onus for paying cane MSP, as earlier pointed out, lies on sugar mills and not the government.
  • Secondly, the government is already procuring many crops – especially paddy, wheat, cotton, and also pulses and oilseeds.
  • Thirdly, government agencies don’t have to buy every single grain that comes to the market. Mopping up even a quarter or third of the market arrivals is usually enough to lift prices.
  • Fourth, the crop bought on government account also gets sold. While such sales in wheat and paddy – which are distributed at super-subsidized rates under the National Food Security Act.
  • This entails heavy losses, but those are far less in the remaining MSP crops. The revenues realized from sales would partly offset the expenditures from MSP procurement.

All in all, the additional fiscal outgo, from the government undertaking the maximum required procurement for guaranteeing MSP to farmers, may not be more than Rs 1-1.5 lakh crore per year.

So, is the MSP system all okay?

Nope!

  • The government undertaking to buy at MSP is definitely better than forcing private players. Their going out of business would ultimately hurt farmers most.
  • However, even assured government MSP-based procurement is fraught with problems.
  • The coverage of MSPs today does not extend to fruits, vegetables, and livestock products that together have a 45% share in the gross value of the output of India’s agriculture, forestry, and fishing sector.
  • The value of milk and milk products alone is more than that of all cereals and pulses combined.

Limitations for govt.

  • Extending MSP to all farm produce and guaranteeing it through law is hugely challenging, fiscally and otherwise.
  • It also explains why economists increasingly are in favor of guaranteeing minimum “incomes” rather than “prices” to farmers.
  • One way to achieve that is via direct cash transfers either on a flat per-acre (as in the Telangana government’s Rythu Bandhu scheme) or per-farm household (the Centre’s PM Kisan Samman Nidhi) basis.

Back2Basics:

(1) Rythu Bandhu Scheme

  • Under Rythu Bandhu, the Telangana government gives every beneficiary farmer Rs 4,000 per acre as “investment support” before every crop season.
  • The objective is to help the farmer meet a major part of his expenses on seed, fertilizer, pesticide, and field preparation.
  • The scheme covers 1.42 crore acres in the 31 districts of the state, and every farmer owning land is eligible.

(2) Pradhan Mantri Kisan Samman Nidhi

  • Under this program, vulnerable landholding farmer families, having cultivable land up to 2 hectares, will be provided direct income support at the rate of Rs. 6,000 per year.
  • This income support will be transferred directly into the bank accounts of beneficiary farmers, in three equal installments of Rs. 2,000 each.
  • Around 12 crore small and marginal farmer families are expected to benefit from this.

Minimum Support Prices for Agricultural Produce

Getting it wrong on India’s level of agricultural support

Note4Students

From UPSC perspective, the following things are important :

Prelims level : OECD

Mains level : Paper 3- Issue of negative support given to farmers as per OECD methodoloy

As per the OECD methodology, Indian farmers received negative support of Rs. 1.62-lakh crore in 2019, which implies that the government is taxing the farmers. But there are pitfalls in the methodology. The article explaines them.

The issue of support given to the farmers

  • Many media reports, based on data by the Organisation for Economic Co-operation and Development (OECD), have stated that the support provided to Indian agriculture is extremely low or negative, and, therefore, net taxed.
  • The OECD has estimated that Indian farmers received negative support to the extent of minus ₹2.36-lakh crore and minus ₹1.62-lakh crore in 2010 and 2019, respectively.
  • Surprisingly, the negative support of minus ₹1.62-lakh crore as estimated by the OECD was higher than the total budgetary allocation of the Ministry of Agriculture at ₹1.09-lakh crore in 2019.

Issues with the OECD estimates

  • Expenditure on the PM-KISAN, the National Food Security Mission, crop insurance, input subsidies such as fertilizer and electricity, are some of the measures covered under the 2019 OECD estimates.
  • However, the expenditure related to the operation of minimum support price and general services is not covered by it.
  • Despite the overall negative support, the expenditure of the Central and State governments on agriculture has increased substantially since 2000.
  • This support increased from ₹1.61-lakh crore to ₹3-lakh crore, between 2015 to 2019, registering 85% growth.
  • The massive negative market price support to the producers of different products has resulted in the total negative producer support, overshadowing the increase in the budgetary support over the years.

Market Price Support as per OECD methodology

  • The market price support of a commodity is calculated by multiplying its total production with the gap between the domestic price and international prices in a relevant year.
  • This methodology assumes that in case there is no government intervention in the agriculture market, then the domestic and international price of a product will converge, resulting in no gap in prices.

Why there is a focus on the price gap in OECD methodology

  • The OECD assumes government interventions lead to a gap between the international and domestic prices.
  • However, even if the government does not implement any program, the gap can still arise due to domestic and international factors.
  • Changes in supply and demand conditions in the domestic and international market due to shocks, depressed international prices due to subsidies given by other countries, among other factors, can generate a gap.

3 Consequence of OECD’s Market Price Support methodology

  • 1) If the domestic price for a product is less than its international price, then support for that product would be negative.
  • 2) A negative market price support for a product in one year can turn into huge positive support in another year on account of the relative movement of domestic and international prices.
  • 3) Even if in a particular year, the government does not provide any additional support compared to a previous year, the level of support calculated by the OECD can change.
  • This will arise if there is a change in either the gap between the domestic price and international price for a commodity, or its production, in the two years.
  • Given the unpredictability in the inherent data, the total support can move from huge negative to huge positive.

Concerns for India

  • For India, the negative support as a percentage of the total value of agriculture production has substantially reduced in recent years.
  • It is possible that support to Indian farmers in the near future becomes one of the highest in the world due to pitfalls in the OECD methodology.
  • This might set alarm bells ringing, particularly in the developed countries, which may aggressively question India’s support measures.

Consider the question “As per the OECD methodology, net support provided by Indian government to its farmers is negative for the year 2019. However, India’s expenditure on agriculture is consistently rising. What explains this conundrum? What are the concerns for India in the price support method of OECD?”

Conclusion

Rather than being swayed by the OECD numbers suggesting negative support, farmers, policymakers, and other stakeholders need to understand the pitfalls and limitations in the underlying methodology. This will help in providing a more correct perception of the level of support to agriculture in India.

Minimum Support Prices for Agricultural Produce

Agricultural policy monitoring and evaluation by OECD

Note4Students

From UPSC perspective, the following things are important :

Prelims level : OECD , various parameters mentioned

Mains level : Concerns of farmers other than MSP

The OECD (Organisation for Economic Co-operation and Development) has provided five sets of data on the issue of agriculture support and India trails on most counts:

The ongoing debate about farmers protest has brought to light some of the key support mechanisms for agriculture in India. And it is being argued that the government has preferred the welfare of Indian consumers over the Indian farmers.

Lets’ have a look at various OECD’s parameters:

(1) Producer Support Estimates (PSE)

  • These are transfers to agricultural producers and are measured at the farm gate level.
  • They comprise market price support, budgetary payments and the cost of revenue foregone.

(2) Consumer Support Estimates (CSE)

  • These refer to transfers from consumers of agricultural commodities. They are measured at the farm gate level.
  • If negative, the CSE measures the burden (implicit tax) on consumers through market price support (higher prices), that more than offsets consumer subsidies that lower prices to consumers.

 (3) General Services Support Estimates (GSSE)

  • GSSE transfers are linked to measures creating enabling conditions for the primary agricultural sector through the development of private or public services, institutions and infrastructure.
  • GSSE includes policies where primary agriculture is the main beneficiary but does not include any payments to individual producers.
  • GSSE transfers do not directly alter producer receipts or costs or consumption expenditure.

(4) Total Support Estimate (TSE)

  • The TSE transfers represent the total support granted to the agricultural sector, and consist of producer support (PSE), consumer support (CSE) and general services support (GSSE).

(5) Producer protection

  • Lastly, the OECD also provides data on “producer protection”.
  • The PP is the ratio between the average price received by producers (measured at the farm gate), including net payments per unit of current output, and the border price (measured at the farm gate).
  • For instance, a coefficient of 1.10, which China has, suggests that farmers, overall, received prices that were 10% above international market levels.

Minimum Support Prices for Agricultural Produce

1.5x Formula for crops MSP calculation

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MSP calculation

Mains level : Fixation of MSP and its legal backing

Talks between farmer unions and the government failed to reach a resolution. The main bone of contention in these talks is the Minimum Support Price (MSP) for crops, which farmers fear the new laws will do away.

Try this:

Q.There is also a point of view that agriculture produce market committees (APMCs) set up under the state acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine. (CSM 2014)

What is MSP?

  • The MSP assures the farmers of a fixed price for their crops, well above their production costs.
  • MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidised grains through the PDS, isn’t an entitlement for farmers.
  • They cannot demand it as a matter of right. It is only a government policy that is part of administrative decision-making.
  • The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations.

Why in news yet again?

  • The Union Budget for 2018-19 had announced that MSP would be kept at levels of one and half times of the cost of production.
  • This year the govt. has increased the MSP for all mandated Kharif, Rabi and other commercial crops with a return of at least 50 per cent of the cost of production for the agricultural year 2018-19 and 2019-20.
  • This is the ambiguity from where this 1.5 times formula arrived at.

How did the government fix the MSPs of crops before every planting season?

  • The CACP considered various factors while recommending the MSP for a commodity, including the cost of cultivation.
  • It also takes into account the supply and demand situation for the commodity; market price trends (domestic and global) and parity vis-à-vis other crops; and implications for consumers (inflation), environment (soil and water use) and terms of trade between agriculture and non-agriculture sectors.

What changed with the 2018 budget?

  • The Budget for 2018-19 announced that MSPs would henceforth be fixed at 1.5 times of the production costs for crops as a “pre-determined principle”.
  • Simply put, the CACP’s job now was only to estimate production costs for a season and recommend the MSPs by applying the 1.5-times formula.

How was this production cost arrived at?

  • The CACP projects three kinds of production cost for every crop, both at the state and all-India average levels.
  • ‘A2’ covers all paid-out costs directly incurred by the farmer — in cash and kind — on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.
  • ‘A2+FL’ includes A2 plus an imputed value of unpaid family labour.
  • ‘C2’ is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.

Now try this PYQ:

Q.The economic cost of food grains to the Food Corporation of India is Minimum Support Price and bonus (if any) paid to the farmers plus:

(a) Transportation cost only

(b) Interest cost only

(c) Procurement incidentals and distribution cost

(d) Procurement incidentals and charges for godowns

Which production costs were taken in fixing the MSPs?

  • In 2018, then FM Arun Jaitley’s did not specify the cost on which the 1.5-times formula was to be computed.
  • But the CACP’s ‘Price Policy for Kharif Crops: The Marketing Season 2018-19’ report stated that its MSP recommendation was based on 1.5 times the A2+FL costs.

What are the farmer’s demands?

  • Farm activists, however, had said that the 1.5-times MSP formula should have been applied on the C2 costs.
  • CACP considers A2+FL and C2 costs, both while recommending MSP. It reckons only A2+FL cost for return.
  • However, C2 costs are used by CACP primarily as benchmark reference costs (opportunity costs) to see if the MSPs recommended by them at least cover these costs in some of the major producing States.

Minimum Support Prices for Agricultural Produce

[pib] Market Intervention Scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MSP, MIP

Mains level : Fixation of MSP and its legal backing

The Union Cabinet has approved the extension of Market Intervention Scheme (MIS) for apple procurement in Jammu and Kashmir (J&K) for the current season.

UPSC can ask a question on the difference between MSP and MIP. All the agricultural and horticultural commodities for which Minimum Support Price (MSP) are not fixed and are generally perishable in nature are covered under Market Intervention Scheme (MIS).

Market Intervention Scheme

  • MIS is a price support mechanism implemented on the request of State Governments for the procurement of perishable and horticultural commodities in the event of a fall in market prices.
  • It is implemented when there is at least a 10% increase in production or a 10% decrease in the ruling rates over the previous normal year.
  • MIS works in a similar fashion to Minimum Support Price based procurement mechanism for food grains but is an ad-hoc mechanism.
  • Its objective is to protect the growers of these horticultural/agricultural commodities from making distress sale in the event of the bumper crop.
  • Under MIS, support can be provided in some years, for a limited but defined period, in specified critical markets and by purchasing specified quantities. The initiative has to emerge from the concerned state.

Commodities covered

  • The MIS has been implemented in case of commodities like apples, garlic, oranges, grapes, mushrooms, clove, black pepper, pineapple, ginger, red chillies, coriander seed, chicory, onions, potatoes, cabbage, mustard seed, castor seed, copra, palm oil etc.

Remuneration under MIS

  • MIS provides remunerative prices to the farmers in case of the glut in production and fall in prices.
  • Proposal of MIS is approved on the specific request of State/UT Government, if they are ready to bear 50% loss (25% in case of North-Eastern States), if any, incurred on its implementation.
  • Further, the extent of total amount of loss shared is restricted to 25% of the total procurement value which includes the cost of the commodity procured plus permitted overhead expenses.

Implementation of MIS

1) Market Intervention Price (MIP)

  • The Department of Agriculture & Cooperation is implementing the scheme.
  • Under the MIS, a pre-determined quantity at a fixed MIP is procured by NAFED as the Central agency.
  • There are other agencies designated by the state government for a fixed period or till the prices are stabilized above the MIP whichever is earlier.
  • The area of operation is restricted to the concerned state only.

2) Funds transfer

  • 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.

Minimum Support Prices for Agricultural Produce

Explained: Farm Acts and federalism

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Doctrine of colorable legislation

Mains level : Federalism issue raised by the Agricultural Bills

The President has finally given assent to the controversial farm Bills passed by Parliament last week. Amid protests by farmers’ organisations across the country, questions are being raised about the anti-federal nature of these ‘Acts’.

Here we shall only discuss its constitutionality and federal nature. Tap to read more about the theme at:

What is the question over the constitutionality of these laws?

  • These are some of the questions that will be raised in the petitions challenging the constitutionality of the Acts.
  • As per Union of India v H.S.Dhillon (1972), the constitutionality of parliamentary laws can be challenged only on two grounds — that the subject is in the State List, or that it violates fundamental rights.
  • As per Ram Krishna Dalmia v Justice S R Tendolkar (1958) and other judgments, the Supreme Court will begin hearings after presuming the constitutionality of these laws.
  • The bills (now Acts as they have got the President’s assent) do not mention, in the Statement of Objects & Reasons, the constitutional provisions under which Parliament has the power to legislate on the subjects covered.

Where does the question of federalism come in?

What is federalism, first?

  • Federalism is the system of government in which sovereignty is constitutionally divided between a central governing authority and constituent political units.
  • It is based upon democratic rules and institutions in which the power to govern is shared between national and state governments, creating a federation.
  • It essentially means both the Centre and states have the freedom to operate in their allotted spheres of power, in coordination with each other.

Try this PYQ:

Q.Which of the following federal principles are not found in Indian federation?

  1. Bifurcation of the judiciary between the Federal and State Governments
  2. Equality of representation of the states in the upper house of the Federal Legislature
  3. The Union cannot be destroyed by any state seceding from the Union at its will
  4. Federal Government can redraw the map of the Indian Union by forming new States

Select the correct answer using the codes given below:

a) 1, 2 and 3

b) 2, 3 and 4

c) 1 and 2

d) 3 and 4

Federalism in India

  • The Seventh Schedule of the Constitution contains three lists that distribute power between the Centre and states.
  • There are 97 subjects in the Union List, on which Parliament has exclusive power to legislate (Article 246); the State List has 66 items on which states alone can legislate.
  • The Concurrent List has 47 subjects on which both the Centre and states can legislate, but in case of a conflict, the law made by Parliament prevails (Article 254).
  • Parliament can legislate on an item in the State List under certain specific circumstances laid down in the Constitution.

Concretization of the idea

  • Federalism, like constitutionalism and separation of powers, is not mentioned in the Constitution. But it is the very essence of our constitutional scheme.
  • In the State of West Bengal v Union of India (1962), the Supreme Court held that the Indian Constitution is not federal.
  • But in SR Bommai v Union of India (1994), a nine-judge Bench held federalism as part of the basic structure of the Constitution.
  • Neither the relative importance of the legislative entries in Schedule VII, Lists I and II of the Constitution, nor the fiscal control by the Union per se is decisive to conclude the Constitution is unitary.
  • The respective legislative powers are traceable to Articles 245 to 254… The State qua the Constitution is federal in structure and independent in its exercise of legislative and executive power,” it said.

Where is agriculture in the scheme of legislative powers?

Terms relating to agriculture occur at 15 places in the Seventh Schedule.

  1. Entries 82, 86, 87, and 88 in the Union List mention taxes and duties on income and assets, specifically excluding those in respect of agriculture.
  2. In the State List, eight entries contain terms relating to agriculture: Entry 14 (agricultural education and research, pests, plant diseases); 18 (rights in or over land, land tenures, rents, transfer agricultural land, agricultural loans, etc.); 28 (markets and fairs); 30 (agricultural indebtedness); 45 (land revenue, land records, etc.); 46 (taxes on agricultural income); 47 (succession of agricultural land); and 48 (estate duty in respect of agricultural land).
  3. In the Concurrent List, Entry 6 mentions the transfer of property other than agricultural land; 7 is about various contracts not relating to agricultural land; and 41 deals with evacuee property, including agricultural land.
  • It is clear that the Union List and Concurrent List put matters relating to agriculture outside Parliament’s jurisdiction, and give state legislatures exclusive power.
  • No entry in respect of agriculture in the State List is subject to any entry in the Union or Concurrent Lists.

What about Entry 27 of the State List that is subject to Entry 33 of List III (Concurrent)?

  • Entry 33 of the Concurrent List mentions trade and commerce, production, supply and distribution of domestic and imported products of an industry over which Parliament has control in the public interest.
  • This includes foodstuffs, including oilseeds and oils; cattle fodder; raw cotton and jute.
  • The Centre could, therefore, argue that it is within its powers to pass laws on contract farming and intra- and inter-state trade, and prohibit states from imposing fees/cesses outside APMC areas.
  • However, like education, farming is an occupation, not trade or commerce.
  • If foodstuffs are considered synonymous with agriculture, then all the powers of states in respect of agriculture, listed so elaborately in the Constitution, shall become redundant.

So what happens in case of legislation that covers entries in two Lists?

  • In cases such as State of Rajasthan v G Chawla (1959), courts have used the doctrine of “pith and substance” to determine the character of legislation that overlaps between entries.
  • The constitutionality of legislation is upheld if it is largely covered by one list and touches upon the other list only incidentally.
  • But the two new farm Acts go beyond that — they impinge on entries in the State List.
  • In interpreting the lists, the Supreme Court in State of Bihar v Kameshwar Singh (1952) invoked the doctrine of colourable legislation, which means you cannot do indirectly what you cannot do directly.

What is the Doctrine of Colorable Legislation?

  • This doctrine refers to the question of competency of the legislature while enacting a provision of law.
  • If a legislature is prohibited from doing something, it may not be permitted to do this under the guise or pretence of doing something while acting within its lawful jurisdiction and this prohibition is an implied result of the maxim “what cannot be done directly, cannot be done indirectly”
  • This doctrine is a tool used to determine the legislative competence of laws enacted by various legislatures.
  • Therefore, it is a means to implement the separation of powers and impose judicial accountability.

Minimum Support Prices for Agricultural Produce

Explained: How is MSP fixed?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MSP

Mains level : Fixation of MSP and its legal backing

The recently enacted Farmers bill seeks to dismantle the monopoly of APMC mandis, thereby allowing sale and purchase of crops outside these state government-regulated market yards. This has prompted many fears regarding the continuance of the existing minimum support price (MSP)-based procurement regime.

Try this PYQ:

Q.There is also a point of view that agriculture produce market committees (APMCs) set up under the state acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine. (UPSC 2014)

What does the law say about MSP?

  • The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill does not give any statutory backing to MSP.
  • There is not even a single mention of either “MSP” or “procurement” in the Bill passed by both Houses of Parliament last week.

Is there any legal backing for MSP?

  • MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidised grains through the PDS, isn’t an entitlement for farmers.
  • They cannot demand it as a matter of right.

What is the basis of MSP then?

  • It is only a government policy that is part of administrative decision-making.
  • The government declares MSPs for crops, but there’s no law mandating their implementation.
  • The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations:
  1. 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley)
  2. 5 pulses (chana, arhar/tur, urad, moong and masur)
  3. 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and nigerseed) and
  4. 4 commercial crops (cotton, sugarcane, copra and raw jute) —

What about CACP?

  • The CACP come to existence in 1965 and MSPs are being announced since the time of the Green Revolution, starting with wheat in 1966-67.
  • The CACP is simply an attached office of the Ministry of Agriculture and Farmers Welfare.
  • It can recommend MSPs, but the decision on fixing (or even not fixing) and enforcement rest finally with the government.
  • The government can procure at the MSPs if it wants to. There is no legal compulsion. Nor can it force others (private traders, organised retailers, processors or exporters) to pay.

Exceptions to MSP: Fair and remunerative price (FRP)

  • The only crop where MSP payment has some statutory element is sugarcane.
  • This is due to its pricing being governed by the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act.
  • That order, in turn, provides for the fixation of an FRP for cane during every sugar year (October-September).
  • But even the FRP — which, incidentally, was until 2008-09 called the ‘statutory minimum price’ or SMP — is payable not by the government.
  • The responsibility to make FRP payment to farmers within 14 days of cane purchase lies solely with the sugar mills.

Has there been any move to give MSP legislative backing?

  • The CACP, in its price policy report for the 2018-19 Kharif marketing season, had suggested enactment of legislation conferring on farmers ‘The Right to Sell at MSP’.
  • This, it felt, was necessary “to instil confidence among farmers for procurement of their produce”. That advice, predictably, wasn’t accepted.

A cause for farmers fury

  • The ongoing farmer protests essentially reflect a loss of that very confidence.
  • Is the dismantling of the monopoly of APMC mandis in wholesale trading of farm produce the first step at ending even the present MSP-based procurement programme, largely limited to wheat and paddy?
  • If APMCs were to turn unviable due to the trades moving outside, how will government agencies undertake procurement that now takes place in mandis?
  • These questions are playing in the minds of farmers, particularly in states such as Punjab, Haryana and MP that have well-established systems of governmental MSP purchases.
  • For them, freedom to sell to anyone, anywhere and anytime has little value compared to the comfort of assured procurement at MSP.

Govt’s response

  • PM has tweeted that the “system of MSP will remain” and “government procurement will continue”.
  • The Agriculture Minister, too, has pointed out that past governments never thought it necessary to introduce a law for MSP.

Minimum Support Prices for Agricultural Produce

Analysing the impact of reservation

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Article 16 (4A)

Mains level : Paper 2- Reservations and issues with it

Provision of reservation has helped in correcting the historical injustice in some way. However, the recent decline in government jobs and policy changes could undermine the provision of reservation.

How reservation helped SCs and OBCs: Some figures

  • In the Central Administrative Services, SCs reached 14 per cent of the Class C in 1984.
  • They reached 14.3 per cent of Class B in 2003.
  • In Class C,13.3 per cent in 2015.
  • In the Central Public Sector Enterprises (CPSEs), their proportion rose from 14.6 per cent in 2004 to 18.1 per cent in 2014.
  • In parallel, the SCs’ literacy rate jumped from 21.38 per cent in 1981 to 66.1 per cent in 2011.
  •  After the Mandal Commission report was implemented, OBCs started to benefit from it.
  • In 2013, OBCs – 52 per cent of India’s population according to the Mandal report – represented 8.37 per cent of Class A in the Central Government Services, 10.01 per cent of Class B and 17.98 per cent of Class C.
  • Their percentage in the CPSEs jumped from 16.6 per cent in 2004 to 28.5 per cent in 2014.

Number of jobs declining

  • First, the number of vacancies has surged, from 5.5 lakh in 2006 to 7.5 lakh in 2014 so far as central government employment is concerned.
  • Second, the total number of employees has dropped between 2003 and 2012, from 32.69 lakh to 26.30 lakh in the Central Government Services.
  • The number of Dalits benefiting from reservations has been reduced by 16 per cent from 5.40 lakh to 4.55 lakh.
  • While the number of OBCs benefiting from reservations had jumped from 14.89 lakh in 2008 to 23.55 lakh in 2012, it has dropped to 23.38 lakh the year after.
  • Reservations have also been undermined by lateral entry into the bureaucracy.
  • This new procedure undermined the reservations system because the quotas did not apply.

Judgements that affect the idea of reservation

  • In one judgment the UGC was allowed to shift the unit of provision of reservations from a university as a whole to the departmental level.
  • Such a shift has reduced the quantum of reserved seats and restricted the entry of lower castes.
  • Small departments, where vacancies are few, would be indivisible — thereby no seats would be reserved.
  • As a result, only 2.5 per cent posts were reserved for SCs, none for STs and 8 per cent for OBCs.
  • However, the impact of the ordinance and the subsequent Bill passed by the Parliament in March and July 2019, reversing the Supreme Court’s judgment, is yet to be seen.
  • In another judgement, Supreme Court ruled that reservation in job promotions was not a fundamental right.
  • This ruling undermined the effect of an amendment to the Constitution that had been introduced by the Narasimha Rao government in 1995 and that had resulted in article 16(4A).
  • Article 16(4A) had circumvented a facet of the 1992 decision of the Supreme Court to allow reservation for SCs and STs in promotions.
  • In 2001 the 85th amendment extended the benefit of reservations in favour of the SCs/STs in matters of promotion with consequential seniority.
  • This time, in 2020, the Government of India has decided not to contest the decision of the Supreme Court.

Policy changes that affect the reservation

  • The National Commission for Backward Classes has issued a notice to the health ministry complaining that the post-Mandal 27 per cent quota was not implemented systematically.
  • The funds earmarked for Dalit education in the Indian budget were reduced by the previous government.
  • While this budget item, within the Special Component Plan is supposed to be proportional to the demographic weight of the Dalits, 16.6 per cent, it fluctuated between 9 and 6.5 per cent.

Conclusion

Reservations have been one of the most effective techniques of positive discrimination in India and helped in the goal of delivering social justice. So, any policy that affects it must be reconsidered.

Original link

https://indianexpress.com/article/opinion/columns/reservation-in-india-privatisation-push-nirmals-sitharaman-backward-castes-6494931/

Minimum Support Prices for Agricultural Produce

Time to evaluate and merge income support schemes

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MSP and income support schemes of various state governments

Mains level : Paper 3-Issues with the income support schemes for farmers.

Both States and Center have income support schemes for the farmers. Coincidentally, they both suffer from common problems such as the exclusion of tiller from the benefit and identifying the landless labourers. This article floats the idea of merging all the support schemes in favour of an umbrella scheme. So, what are the solutions and how will an umbrella scheme be more beneficial? Read to know…

Not much ‘new cash’ in the relief package

  • On May 12, the PM announced that his government’s relief-cum-stimulus package would be Rs 20 lakh crore, almost 10 per cent of India’s GDP.
  • But when Finance Minister unveiled the package, sector by sector, many wondered where the “new cash” was?
  • So, it became clear that additional relief and stimulus in the system is just about 1 per cent of the GDPnot 10 per cent.
  • Much of the rest is directed towards increasing liquidity and deferring some loan payments, but not much additional cash.

Cash-transfer schemes by the state governments: Chhatisgarh and other states

  • In this context, the Chhattisgarh government deserves compliments for launching the Rajiv Gandhi Kisan Nyay Yojana (RGKNY).
  • RGKNY is an income transfer scheme at Rs 10,000/acre for paddy farmers and Rs 13,000/acre for sugarcane farmers.
  • The state’s chief minister has said that the scheme will be extended to farmers of other crops — in fact, to landless labourers as well.
  • On the face of it, RGKNY will help put money directly into the hands of farmers and poor agricultural labourers.
  • In kharif 2018-19, Telangana announced a cash transfer scheme of Rs 4,000/acre, per season — this was raised to Rs 5,000/acre per season in kharif 2019-20.
  • There is a live portal that gives the details of the scheme and its progress.
  • In the rabi season of 2018-19, the Odisha government launched the KALIA scheme-Krushak Assistance for Livelihood and Income Augmentation- on a somewhat similar pattern.
  • West Bengal’s Krishak Bandhu and Jharkhand’s Mukhya Mantri Krishi Aashirwad Yojana are the other income support schemes worth mentioning.

2 Issues with income support policies and solutions

1. The beneficiary is not always tiller of the land

  • Ideally, the money of the policies should go to the real tiller.
  • But in large parts of the country, there is no record of tenancy.
  • The government data shows only 10 per cent tenancy in the country.
  • While several micro-level studies indicate that it could be anywhere between 25-30 per cent.
  • In fact, in many regions like the Godavari belt, it could be even more than 50 per cent.
  • It does not make much sense to put money into the accounts of absentee landlords.

So, what is the solution to this problem?

  • 1) The best way would be to change the tenancy laws.
  • Open up land lease markets, ensuring that the owner of the land has full rights to take his land back after the expiry of the lease period.
  • The current law, favouring “land to the tiller”, is loaded against the owner.
  • As a result, much of tenancy in the country remains oral.
  • 2) In the absence of such legal changes in land lease laws, the only way forward is to fully inform the tiller that the owner has got income support.
  • And then appeal to the owner to pass on this benefit to the tiller — or adjust the land rent accordingly.
  • Information and persuasion campaigns in radio and newspapers would increase the chances of the benefits being passed on to the real tillers.

2. Identifying the landless labourers working on the farms

  • The other issue is identifying the landless labourers working on farms.
  • Majority of them are temporary and seasonal workers.
  • And leaving the task of identification to panchayats and patwaris can open doors for large leakages and corruption.

What is the solution to this problem?

  • There have been talks in the past for synchronising MGNREGA with farm operations.
  • The synchronising will have two benefits-
  • 1)It will contain the cost of farming.
  • 2) It will ensure that those engaged in this employment guarantee scheme do useful and productive work.
  • The legal framework of the MGNREGA scheme does allow this on farms owned by people of SC/ST communities, and on the lands of marginal farmers.

 Merging Income Support Schemes: The way forward

  • The time has come to think seriously about merging income support schemes.
  • The merger will include the PM KISAN and state-level schemes, with the MGNREGA and price-subsidy schemes — food and fertiliser subsidies given by Centre and power subsidies given by state government.
  • These schemes amount to Rs 5 lakh crore — that’s a good sum of money to start a basic income cover for poor households.
  • Markets could then be left to operate freely.
  • This approach can cover landless labourers, farmers, and poor consumers — these categories overlap.
  • Let there be an expert group to look closely into the functioning of each one of these schemes and create an umbrella scheme to take care of the poor and the needy.

Consider the question-“Examine the issues with the income support schemes for farmers by the States as well as the Central government. Do you think that an umbrella scheme after merging all the support schemes will be helpful in overcoming such issues?”

Conclusion

Though income support schemes by the state government and the Centre are a welcome move, however, when one looks at the issues with these schemes an umbrella scheme after merging all the present schemes will go a long way in solving the problems which almost all these schemes face today.


Back2Basics: PM- KISAN

  • Pradhan Mantri Kisan Samman Nidhi (PM-KISAN)is a Central Sector Scheme with 100% funding from the Government of India.
  • It is being implemented by the Ministry of Agriculture and Farmer’s Welfare.
  • Under the scheme, the Centre transfers an amount of Rs 6,000 per year, in three equal instalments, directly into the bank accounts of the all landholding farmers irrespective of the size of their land holdings.
  • It intends to supplement the financial needs of the Small and Marginal Farmers (SMFs) in procuring various inputs to ensure proper crop health and appropriate yields, commensurate with the anticipated farm income at the end of each crop cycle.
  • The entire responsibility of identification of beneficiary farmer families rests with the State / UT Governments.

Minimum Support Prices for Agricultural Produce

What is Market Intervention Scheme (MIS)? How does it compare with MSP

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Market Intervention Scheme

Mains level : Various price support mechanisms for farmers and issues in their implementation

Fruit and vegetable farmers are facing major losses due to obstacles in harvesting and marketing their perishable produce. The Centre has now directed all the States and UTs to implement the Market Intervention Scheme to ensure remunerative prices for perishable crops.

Market Intervention Scheme

  • MIS is a price support mechanism implemented on the request of State Governments for the procurement of perishable and horticultural commodities in the event of a fall in market prices.
  • It is implemented when there is at least a 10% increase in production or a 10% decrease in the ruling rates over the previous normal year.
  • MIS works in a similar fashion to Minimum Support Price based procurement mechanism for food grains but is an ad-hoc mechanism.
  • Its objective is to protect the growers of these horticultural/agricultural commodities from making distress sale in the event of the bumper crop.
  • Under MIS, support can be provided in some years, for a limited but defined period, in specified critical markets and by purchasing specified quantities. The initiative has to emerge from the concerned state.

UPSC Prelims can ask a question on the difference between MSP and MIP. All the agricultural and horticultural commodities for which Minimum Support Price (MSP) are not fixed and are generally perishable in nature are covered under Market Intervention Scheme (MIS).

Commodities covered

  • The MIS has been implemented in case of commodities like apples, garlic, oranges, grapes, mushrooms, clove, black pepper, pineapple, ginger, red-chillies, coriander seed, chicory, onions, potatoes, cabbage, mustard seed, castor seed, copra, palm oil etc.

Remuneration under MIS

  • MIS provides remunerative prices to the farmers in case of glut in production and fall in prices.
  • Proposal of MIS is approved on the specific request of State/UT Government, if they are ready to bear 50% loss (25% in case of North-Eastern States), if any, incurred on its implementation.
  • Further, the extent of total amount of loss shared is restricted to 25% of the total procurement value which includes cost of the commodity procured plus permitted overhead expenses.

Implementation of MIS

1) Market Intervention Price (MIP)

  • The Department of Agriculture & Cooperation is implementing the scheme.
  • Under the MIS, a pre-determined quantity at a fixed MIP is procured by NAFED as the Central agency.
  • There are other agencies designated by the state government for a fixed period or till the prices are stabilized above the MIP whichever is earlier.
  • The area of operation is restricted to the concerned state only.

2) Funds transfer

  • 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.

The last 2 heads that you just read, Renumeration & Implementation, they have a lot of information on which you can be quizzed by UPSC Prelims. Make a note of the agency, %age share, state vs. center responsibility


Back2Basics: Minimum Support Price

  • Minimum support price (MSP) is one of the instruments of Agricultural Price Policy (APP).
  • The basic intent of announcing MSP before the sowing season is to help farmers take a sowing decision keeping in mind that if they are not able to get a reasonable price by selling in the market, at least they will be able to get the MSP.
  • In that sense, MSP is an assured or guaranteed price (insured price).

For additional reading on MSP, navigate to:

Price Support Mechanism under MSP Operations

Minimum Support Prices for Agricultural Produce

MSP for Minor Forest Produce Scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MSP for MFP Scheme

Mains level : MSP for MFP Scheme

The Union government’s ‘mechanism for the marketing of minor forest produce (MFP) through minimum support price (MSP) and development of value chain for MFP’ scheme can offer respite to forest-dependent labourers in the wake of novel coronavirus (COVID-19) outbreak, according to experts.

About MSP for MFP Scheme

  • The scheme, launched by the Centre in August 2013, provides fair price for MFP collected by tribals through MSP.
  • It is designed as a social safety net for improvement of livelihood of MFP gatherers by providing them fair price for the MFPs they collect.
  • MFP comprises all non-timber forest produce of plant origin such as bamboo, brush wood, stumps, cane, tussar, cocoons, honey, wax, lac, tendu or kendu leaves, medicinal plants and herbs, roots, tubers, etc, according to the Forest Rights Act, 2006.
  • The Scheme was been implemented in eight States having Schedule areas as listed in the Fifth Schedule of the constitution of India.
  • From November 2016, the scheme is applicable in all States.

Issues in implementation

  • Almost 60-70 per cent income of forest dwellers depends on collection and sale of MFP, according to the tribal affairs ministry.
  • However, the scheme has not been activated because in most cases, states have not given their 25 per cent share.

Minimum Support Prices for Agricultural Produce

Price Support Mechanism under MSP Operations

Note4Students

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.

Back2Basics

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.

Procurement agencies

  • 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.

Minimum Support Prices for Agricultural Produce

Minimum Support Price (MSP)

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MSP

Mains level : various initiatives for doubling farmers income

  • Even as the slow movement of the monsoon has drastically affected the Kharif crops across the country the Union Cabinet has announced a Minimum Support Price (MSP) of 14 Kharif crops.

Minimum Support Price (MSP)

  • MSP is a form of market intervention by the Govt. of India to insure agricultural producers against any sharp fall in farm prices.
  • MSP is price fixed by GoI to protect the producer – farmers – against excessive fall in price during bumper production years.

Who announces it?

  • MSP are announced at the beginning of the sowing season for certain crops on recommendations by Commission for Agricultural Costs and Prices(CACP) and announced by Cabinet Committee on Economic Affairs (CCEA) chaired by the PM of India.

Why MSP?

  • The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.
  • They are a guarantee price for their produce from the Government.
  • In case the market price for the commodity falls below the announced MSP due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced MSP.

Historical perspective

  • Till the mid 1970s, Government announced two types of administered prices:
  1. Minimum Support Prices (MSP)
  2. Procurement Prices
  • The MSPs served as the floor prices and were fixed by the Govt. in the nature of a long-term guarantee for investment decisions of producers, with the assurance that prices of their commodities would not be allowed to fall below the level fixed by the Government, even in the case of a bumper crop.
  • Procurement prices were the prices of kharif and rabi cereals at which the grain was to be domestically procured by public agencies (like the FCI) for release through PDS.
  • It was announced soon after harvest began.
  • Normally procurement price was lower than the open market price and higher than the MSP.

Crops Covered

  1. Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative price (FRP) for sugarcane.
  2. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops.
  3. The list of crops is as follows:
  • Cereals (7) – paddy, wheat, barley, jowar, bajra, maize and ragi
  • Pulses (5) – gram, arhar/tur, moong, urad and lentil
  • Oilseeds (8) – groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed
  • Raw cotton
  • Raw jute
  • Copra
  • De-husked coconut
  • Sugarcane (Fair and remunerative price)
  • Virginia flu cured (VFC) tobacco

Exception for Sugar

  • The pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act (ECA), 1955.
  • Prior to 2009-10 sugar season, the Central Government was fixing the Statutory Minimum Price (SMP) of sugarcane and farmers were entitled to share profits of a sugar mill on 50:50 basis.
  • As this sharing of profits remained virtually unimplemented, the Sugarcane (Control) Order, 1966 was amended in October, 2009 and the concept of SMP was replaced by the Fair and Remunerative Price (FRP) of sugarcane.
  • A new clause ‘reasonable margins for growers of sugarcane on account of risk and profits’ was inserted as an additional factor for working out FRP and this was made effective from the 2009-10 sugar season.

With inputs from: http://vikaspedia.in/agriculture/market-information/minimum-support-price

Minimum Support Prices for Agricultural Produce

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

Note4students

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.


Context

  • 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.

Implications

  • 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.

 Conclusion

  • 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.

Minimum Support Prices for Agricultural Produce

[op-ed snap] Policy must tackle not just dissatisfaction of large farmers, but distress of most vulnerable

Note4students

Mains Paper 3: Economy | Transport and marketing of agricultural produce and issues and related constraints

From UPSC perspective, the following things are important:

Prelims level: Basics knowledge of Farmer’s distress.

Mains level: The news-card analyses the prevailing issue of farmer distress, in a brief manner.


Context

  • Recently, the two main policy interventions repeatedly discussed to tackle farmer distress — loan waivers and minimum support prices (MSP) — treat all farmers (large/small, male/female) alike.
  • But farmers are heterogeneous. They differ especially by income, land owned and gender.

Farmer dissatisfaction is not the same as farmer distress.

  • Better-off farmers are dissatisfied but politically vocal.
  • Poor farmers are distressed and many kill themselves in silence.
  • It is the truly distressed the government need to reach, but their policies only address the dissatisfied.

How Government’s policy measures fails to address distress of small & marginal farmers

  1. Loan waivers
  • Today, most economists agree that waivers are a bad idea. They deplete state finances, undermine bank culture, and barely reach 20-25 per cent farmers who have access to institutional credit, but not the marginal farmers or labourers who depend on moneylenders, or get no credit at all.
  • Having a bank debt is not, in itself, a sign of distress.
  • Farming, like other businesses, needs loans, and access to formal credit signifies credit worthiness.
  • It is the marginal and small farmers who depend mainly on private lenders, and whose loans don’t get waived, who are in distress.
  1. Raising MSPs
  • Raising MSPs will help surplus producing farmers, but not net buyers of farm produce — marginal farmers, farm labourers and urban consumers.
  • A 2015 IIM-A report on Marketed and Marketable Surplus found that marginal farmers (up to one hectare land) contributed only 5 per cent of marketed surplus rice and 4 per cent of wheat, even in the major rice and wheat surplus states.
  • And they sold only 39 per cent and 25 per cent of their marketed rice and wheat to government agencies, compared with the 70 per cent and 90 per cent sold by large farmers.
  • Further, the Shanta Kumar Committee reports that only 6 per cent of farmers gained from selling these crops to any procurement agency.
  1. Policy of direct transfers to farmers
  • The policy of direct transfers to farmers also ignores the inequality between farmers.
  • Telangana gave Rs 9,900/ha/season to all landowning farmers. Hence, the very large landowners gained — not only from owning large tracts, but in both seasons, since with irrigation they can cultivate in both kharif and rabi seasons; while pure-tenants and labourers got nothing.
  • Nor did women farmers get anything, few of whom own land.
  • Odisha recently announced that it will pay both farmers and labourers, but like Telangana, it will pay per household and not per person.
  • Both states thus ignore women’s claims, and also the substantial evidence that it is income in a mother’s hands that greatly improves child nutrition and education, rather than income only in the father’s hands.
  • Neither state has recognised intra-household inequalities, or paid heed to the large proportion of women farmers who are either principal cultivators or de-facto responsible for farms with male out-migration.

 

How to address small & marginal  Farmers distress ?

A multi-pronged strategy of income support, government investment, and institutional innovations, and not a one-size-fits-all approach is need of the hour.

  • Direct transfer for small farmers: To overcome immediate distress, direct transfers are preferable to loan waivers, but transfers should be limited to smallholders (those owning 2 ha or less), pure-tenants and agricultural labourers. The funds should go to women in the family for best results.
  • Investment in Agriculture: To reduce the long-term distress of poor farmers, agricultural investment in priority areas is imperative such as irrigation, water conservation, and storage for surplus produce.
  • Even 70 years after Independence, only 44 per cent of our irrigable area is irrigated. This must increase, but not via groundwater mining, which is unsustainable.
  • Water use efficiency by farmers is also essential: Low-cost techniques of drip irrigation could be one method.
  • Land and labour pooling: Some 70 per cent of farmers cultivate one hectare or less, in scattered plots which is non-viable. In a recent study, it was found that as farm size in India increases from very small to eight ha, profits/ha rise substantially. Therefore, we must encourage land and labour pooling.
  • Institutional reform has long been a blind spot in India’s farm policy. Groups help increase farm size, brought scale economies, saved on hired labour, improved credit access and enhanced bargaining power in input and output markets. Groups can also reduce farmer isolation and the likelihood of suicides.
  • Dietary changes require more focus on non-food-grains for food security, including vegetables which are more profitable and inland fisheries, a key source of protein.

Way Forward

  • Both to overcome farmer distress and farmer dissatisfaction, creating jobs for farmers’ children in their vicinity, not in cities, is essential, through ancillary industries, food processing, SMEs, and so on.
  • This would provide much needed supplementary income for farmers in distress. Doubling farmers’ incomes does not need doubling farm incomes.
  • It needs increasing their incomes from both farm and non-farm sources.

Minimum Support Prices for Agricultural Produce

[op-ed snap] An Answer To Rural Distress

Note4students

Mains Paper 3: Agriculture | Transport & marketing of agricultural produce & issues & related constraints

From UPSC perspective, the following things are important:

Prelims level: APMC Act, Basics of MSP, Agriculture Schemes.

Mains level: The newscard discusses issues, related to the Rural distress and ways to resolve it, in a brief manner.


Context

  • There’s nothing new about rural distress. Nor is it surprising. The issue is as much political as it is economic.
  • A systemic crisis in farming goes back to probably the entire post-reform period.
  • Rural India’s deepening distress unfolds against the canvas of policy-driven inequality over the past two decades.

What’s the problem?

  1. The monsoon behaviour has been very erratic and farmers have been facing the problems of severe drought for the past few years.
  2. Fortunately, there is a bumper crop [unusually large crop growth and harvest] this year, but farmers are not satisfied with the procurement price.
  3. They are, therefore, unable to repay loans they have taken, both from institutional sources and private moneylenders.
  4. And without doing so, they will not be eligible for fresh credit for the Rabi [winter] crop. This is one of the reasons why they have been demanding a loan waiver. 

Why the crisis?

  • The main reason for farm crises is the rising pressure of population on farming and land assets.
  • Government data show the average farm size in India is small, at 15 hectare, and since 1970-71, there has been a steady declining trend in land holdings.
  • The small and marginal land holdings (less than 2 hectares) account for 72% of land holdings, and this predominance of small operational holdings is a major limitation to reaping the benefits of economies of scale.
  • Since small and marginal farmers have little marketable surplus, they are left with low bargaining power and no say over prices.
  • Risk because of pests, diseases, shortage of inputs like seeds and irrigation, which could result in low productivity and declining yield; the lower remunerative price; the absence of marketing infrastructure and profiteering by middlemen adds to the financial distress of farmers.
  • Also, the predominance of informal sources of credit, mainly through moneylenders, and lack of capital for short term and long term loans have resulted in the absence of stable incomes and profits.
  • Farmers face price uncertainties due to fluctuations in demand and supplyowing to bumper or poor crop production and speculation and hoarding by traders.
  • The costs of farm inputshave increased faster than farm produce prices
  • The absence of a robust market for buying and selling forward-looking contracts
  • Uncertain policies and regulations such as those of the Agricultural Produce Market Committee, besides low irrigation coverage, drought, flooding and unseasonal rains, are some other factors that hit farmers hard.

ANALYSIS OF GOVT. INTERVENTIONS

Three significant solutions have been doing the rounds:

  1. Higher minimum support prices (MSPs)-
  • The irony of a MSP policy is that it pertains to a limited number of farmers.
  • As per NSSO 2012-13, less than 10 per cent of the country’s farmers sold their produce at MSPs — the percentage though is a little higher for sugarcane, wheat and rice farmers.
  • If one accounted for the increased procurement of pulses and oilseeds during 2016-17 and 2017-18, this percentage is still not likely to exceed 20 percent.
  • Moreover, MSP operations mostly benefit large farmers who have marketable surplus; these operations exclude much of country’s marginal farmers who produce little surplus.
  • Besides, the large inefficiencies and market distortions caused by a MSP-regime make it an unfavourable choice.
  1. Loan waivers-
  • As per NABARD’s Financial Inclusion Survey (NAFIS), between July 2015-June 2016, 43.5 per cent of all agri-households took loans. Of these, 69.7 per cent took institutional loans — 60.5 per cent took only institutional loans and 9.2 per cent took both institutional and non-institutional loans.
  • This means that about 30.3 per cent (69.7 per cent multiplied with 43.5 per cent) of Indian agri-households took loans from institutions.
  • A loan-waiver is thus likely to benefit only this 30 per cent — even a subset of it, if conditions are imposed on loan waiver schemes.
  • The remaining 70 per cent of Indian farmers, who do not access institutional credit, will not benefit from this scheme.
  • Such high rates of exclusion must be the single-most important failure of our banking system with regard to financial inclusion.
  1. Direct income/investment support-
  • The third option, pioneered by the Telangana government is income/investment support through the Rythu Bandhu Scheme (RBS). Telangana started RBS in May 2018, whereby it gave Rs 4,000 per acre to every farmer.
  • This transfer is made twice a year, coinciding with the two cropping seasons. By directly giving cash, the government aims to support the input purchases of farmers.
  • An RBS-style income transfer is likely to cost about Rs 2 trillion (with some improvisation to include tenants, and restrictions to the actual cropped area).
  • A price-deficiency based payment or actual procurement under MSP operations, if done at a large-scale, is going to cost about Rs 1 to 1.5 trillion (depending on whether market prices are 20 per cent or 30 per cent below MSP).
  • Such operations, of course, are likely to be prone to large-scale corruption.

Policy solutions ahead

  • A government panel aiming to double farmers’ income by 2022 has come up with a 13-volume report, but its final set of policy recommendations is still pending with the Agriculture Ministry.
  • It is expected to focus on ways to ensure sustainability of production, monetisation of farmers’ produce, re-strengthening of extension services and recognising agriculture as an enterprise and enabling it to operate as such by addressing structural weaknesses.
  • This week, the Cabinet approved an agriculture export policy, lifting restrictions on organic and processed food, which it hopes will double farm exports by 2022 and widen the market for domestic produce.
  • Farmers groups are urging political parties to support two private member Bills introduced in the last session of Parliament for guaranteed implementation of MSP and a comprehensive loan waiver and debt reduction scheme.
  • However, they have also come out with a wider charter of demands, which deals with input costs, social security, farm workers employment, land rights, irrigation, agro-ecology, crop insurance and contract farming.

Way Forward

  • The time is ripe for action; one hopes the government acknowledges the reality of farm distress and tries to resolve it on priority.
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