India’s MSP Policy

GS Paper III

News Excerpt:

Existing MSP and procurement policies favor only a few crops and also creates market distortions. The MSP policy as well as price support mechanisms need a review for better and equitable implementation.

What is the Minimum Support Price (MSP)?

  • It is the price at which the government is supposed to procure/buy a crop from farmers if the market price falls below it.
  • As such, MSPs provide a floor for market prices and ensure that farmers receive a certain “minimum” remuneration so that their costs of cultivation (and some profit) can be recovered.
  • The MSPs serve one more policy purpose. Using them, the government incentivizes the production of certain crops, thus ensuring that India does not run out of staple food grains.
  • The MSPs are announced by the Union government and it largely bases its decision on the recommendations of the Commission for Agricultural Costs and Prices (CACP).

Associated problems:

MSP has gained traction because it remains the only visible and accessible form of state support to agriculture. The article highlights how Oilseeds and pulses farmers suffer policy discrimination on two counts:

  • Their MSP is largely on paper: Unlike with rice, wheat, and sugarcane, where the government assures MSP either through large-scale direct procurement or by forcing mills to pay. 
    • Mustard is currently selling at Rs 5,000-5,100 per quintal in Rajasthan and Chana (chickpea) at Rs 4,700-4,800 in Maharashtra, as against their respective MSPs of Rs 5,650 and Rs 5,440. 
  • The second bias has to do with import duty.
    • Import duties are the most common types of customs duties. It is a tax collected on imports by a country's customs authorities. A good's value will usually dictate the amount of this levied duty.
    • Wheat attracts a 40% import duty, 70% for milled rice and 100% for sugar. As against this, crude palm, soybean, and sunflower oil are importable at zero duty. So are most pulses, barring chana and moong (green gram).

Lop-sided results:

  • The two sub-sectors of Indian agriculture that have registered the highest growth over the last two decades — livestock and horticulture — are the ones that are the most market-led. The crops sub-sector, on the other hand, has exhibited less dynamism, in which MSP-based market distortions have played a role.
  • India’s Edible oil imports have risen from 11.6 million to 16.5 million tonnes (mt) between 2013-14 and 2022-23, with the latter valued at $16.7 billion and meeting almost two-thirds of the domestic consumption requirement. 
  • In pulses the imports have fallen from a peak of 6.6 mt in 2016-17 to 2.5 mt in 2022-23, translating into a 90 percent-plus self-sufficiency ratio.
  • Denial of approval for genetically modified hybrid mustard and herbicide-resistant soybean technologies is a manifestation of this official indifference. 

Way Forward:

  • Farmers, like any rational economic actors, will respond to price signals and incentives. Thus, the MSP and procurement policy must not be discriminatory.
  • MSPs should supplement, not supplant markets. 
  • The solution lies in improving access to private markets and making them more reliable and transparent. 
  • What India needs is to enhance the storage and logistics infrastructure and regulate markets well.
  • One way to rectify this market abnormality could be by replacing all price-based supports, whether MSP or input subsidies, with per-acre income transfers.


Prelims PYQ

Q. Consider the following statements: (UPSC 2020)

1) In the case of all cereals, pulses and oil-seeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India.

2) In the case of cereals and pulses, the MSP is fixed in any State\UT at a level to which the market price will never rise.

Which of the statements given above is/are correct?

(a) 1 only

(b) 3 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Mains PYQ

Q. What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the low income trap? (UPSC 2018)


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