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GS3-Economy

Backdrop

Protesting farmers from Punjab are marching towards the national capital, demanding a law guaranteeing minimum support prices (MSP).

This demand has sparked debates over the efficacy and implications of such a guarantee.

Farmer's Market Dynamics

• Farmers, primarily operating in a buyer's market, face challenges due to sudden supply increases relative to demand, leading to downward pressure on prices.
• They lack the market power to influence prices and often sell their produce at prevailing rates, affecting their income and livelihoods.

Need for MSP

• Farmers demand MSP to ensure a fair income for their produce, considering the financial constraints they face.
• The disparity between wholesale selling prices and retail purchase prices of inputs further exacerbates their financial burden, making MSP crucial for economic stability.

Debate on MSP Fixation

• Economists debate the efficacy of government-fixed MSPs based on cost-plus pricing, arguing that it may distort production decisions and create oversupply or undersupply issues.
• Critics suggest that farmers should respond to market demand rather than rely on fixed MSPs, which could lead to inefficient resource allocation.

Income Support Versus Price Support

• Economists advocate for income support schemes over price support mechanisms, arguing that direct income transfers provide more flexibility and do not distort market dynamics.
• Income support schemes, such as PM-Kisan Samman Nidhi and Rythu Bandhu, ensure financial assistance to farmers without influencing production decisions.

Justification for MSP Guarantee

• However, some argue that certain farmers, particularly those heavily invested in agriculture, may require price assurance due to the inherent risks associated with farming.
• These farmers face significant production and price risks, making MSP guarantee a reasonable demand to mitigate uncertainties and ensure financial stability.

Role in Crop Diversification

• MSP guarantee can incentivize farmers to diversify their crops, promoting the cultivation of nutrient-dense, less water-intensive crops over traditional staples like rice and wheat.
• Promoting crop diversification aligns with broader agricultural sustainability goals and can enhance resilience against climate change.

Guaranteeing MSP Exploring Innovative Approaches

Compelling Buyers to Pay MSP

• One approach involves mandating buyers, such as sugar mills, to pay farmers the MSP for their produce. 
• However, challenges in enforcement and recurrent payment delays have been observed, raising concerns about the effectiveness of this method.

Government Procurement at MSP

• Another traditional method entails government agencies purchasing the entire marketable produce from farmers at MSP. 
• However, this approach is deemed unsustainable both physically and financially, posing challenges in storage and fiscal management.

Price Deficiency Payments (PDP)

• A third option, known as Price Deficiency Payments (PDP), offers a unique solution. Instead of physically buying crops, the government pays farmers the difference between the market price and MSP if the former falls below the latter.
• PDP operates on the principle of incentivizing farmers by bridging the gap between actual market prices and MSP, thereby ensuring they receive a fair price for their produce.

Implementation - Example Bhavantar Bhugtan Yojana in Madhya Pradesh

• The Bhavantar Bhugtan Yojana, implemented in Madhya Pradesh during the 2017-18 kharif season, exemplifies the PDP model.
• Under this scheme, farmers were compensated based on the difference between the average modal price of crops in APMC mandis and the MSP.
• Farmers were required to provide sale agreements, weighment slips, and payment letters as documentation to receive payments.
• Despite initial success with millions of farmers registering and substantial payments made, the scheme faced challenges due to lack of central support, leading to its discontinuation.

Challenges and Considerations

• The PDP model faces challenges in terms of scalability, fiscal sustainability, and administrative efficiency.
• Ensuring timely payments, preventing misuse, and addressing disparities in market prices across regions are critical factors to consider.
• Coordination between central and state governments is essential for the successful implementation and continuity of such schemes.

Haryana's Price Deficiency Payments (PDP) Scheme: A Model for Agricultural Support

About the Scheme

• Haryana's PDP scheme, known as Bhavantar Bharpai Yojana (BBY), focuses on crops like bajra, mustard, and sunflower, as well as several vegetables and fruits.
• Implemented through the 'Meri Fasal, Mera Byaura' portal, farmers register their land and crop details to participate in the scheme.

Performance of BBY

• The scheme's effectiveness is reflected in the data for key crops such as bajra, mustard, and sunflower over the years.
• The area registered and verified, MSP, quantity purchased, and PDP disbursements provide insights into the scheme's impact on farmer welfare.

Procurement and PDP Approach

• Haryana employs a hybrid approach, combining physical procurement and PDP based on the disparity between MSP and market prices.
• Direct procurement by the government supplements PDP, aiming to stabilise market prices and ensure farmers receive fair remuneration.

Mechanism and Implementation

• Registration windows for kharif and rabi crops facilitate farmer participation, followed by crop area verification.
• Satellite imaging and official verification validate farmer eligibility for MSP under BBY.

PDP Parameters

• PDP rates, determined from exchange quotes, provide price support to farmers.
• Payments are calculated based on average block/sub-district yields, ensuring equitable distribution and risk mitigation.

Future Prospects

• Haryana's success with BBY highlights the potential for nationwide adoption of PDP schemes.
• With centralized funding support, states can emulate Haryana's model, leveraging existing APMC infrastructure and market systems.
• Establishment of robust market infrastructure and systematic farmer registration can enable broader MSP coverage, benefiting farmers across diverse agricultural regions.

Roadmap for Agricultural Support

• A nationwide PDP scheme, complemented by substantial central funding, can incentivize states to adopt similar initiatives.
• Building market infrastructure and implementing transparent systems for MSP delivery can empower farmers nationwide, ensuring fair prices and sustainable agriculture.

Conclusion

In conclusion, the debate over Minimum Support Prices (MSP) underscores the significance of ensuring fair compensation and stability for farmers. While economists weigh the merits of fixed MSPs versus income support schemes, the demand for MSP guarantee persists among farmers facing economic uncertainties. Innovative approaches like Price Deficiency Payments (PDP), exemplified by schemes such as Haryana's Bhavantar Bharpai Yojana (BBY), offer promising solutions to address market distortions and ensure equitable returns. Moving forward, concerted efforts between central and state governments are crucial to scale up PDP schemes, improve administrative efficiency, and foster transparency, ultimately empowering farmers and bolstering agricultural sustainability and resilience.