Centre hikes MSP for Rabi Crops

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    • The Centre has increased the minimum support price (MSP) for wheat for the upcoming rabi season to ?2,015 per quintal, a 2% hike from last year.
      • Oilseeds and pulses such as mustard, safflower and masoor dal saw higher MSP increases of up to 8% in a bid to encourage crop diversification.

    About Minimum Support Price (MSP)

    • The MSP is the rate at which the government purchases crops from farmers. 
    • It is a “minimum price” for any crop that the government considers as remunerative for farmers and hence deserving of “support”.
    • It is a mechanism to protect farmers from fall in market prices and hence is announced before the start of sowing season.
    • Crops Under the MSP
      • Currently, rates are fixed for 22 crops excluding Sugarcane (Total 23).
        • Please note that for Sugarcane, fair and remunerative price (FRP) are declared not MSP.
      • The mandated crops include 
        • 14 crops of the kharif season, 
        • 6 rabi crops and 
        • 2 other commercial crops.
      • In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively.

    • It is based on the calculation of at least 1.5 times the cost of production incurred by the farmers.
      • The government is currently using A2+FL price whereas the Swaminathan Committee suggested C2 price as production cost.

    Declaration of MSP:

    • The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for all crops based on different factors.
      • These factors include crop-related factors, supply-related factors and other factors as listed below in the table.

    Crop Related Factors 

    Supply Factors

    Other Factors

    Cost of Production 

    Area under crop 

    Parity between the price paid and price received by farmers

    Input Prices

    Yield 

    Issue prices 

    Input-Output price parity

    Productivity 

    Subsidies impact 

    Past Market prices

    Import and Export Scenarios

     

    Cost of living

    Processing Cost 

     

    Demand and Supply 

    Transportation and Distribution cost 

     

    Price Level/ Inflation 

    Taxes and Fees

     

    International Prices

    Domestic stock availability 

     

     

    • CACP considers both A2+FL and C2 costs while recommending MSP.
      • It reckons only A2+FL cost for return.
      • However, C2 costs are used primarily as benchmark reference costs (opportunity costs) to see if the MSPs are at least in some of the major producing States.
    • The Cabinet Committee on Economic Affairs (CCEA) takes a final decision on the level of MSPs and other recommendations made by the CACP.

    What are A2, A2+FL and C2 costs?

    • ‘A2’ Cost
      • It 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’ Cost
      • It Includes A2 plus an imputed value of unpaid family labour.
    • ‘C2’ Cost 
      • It is a more comprehensive cost that factors in rentals and interest for owned land and fixed capital assets, on top of A2+FL.

    About Commission for Agricultural Costs & Prices (CACP)

    • It is an advisory body attached to the Ministry of Agriculture and Farmers Welfare.
    • It was established in 1965 as the Agricultural Prices Commission, and was given its present name in 1985.

     

    Benefits of Increasing MSP

    • Attempt to diversify:
      • The Government has increased the prices of Oilseeds and Pulses more than wheat.
      • It will promote farmers to diversify the farm produce and encourage pulses and oilseeds like masoor and sarson (mustard) rather than mere wheat and rice.
    • Confidence to Farmers about fair prices:
      • The increased MSPs would ensure remunerative prices to farmers and also encourage them for sowing operations.
    • Reduced Farm Distress and Rural Indebtedness:
      • The assured prices guarantee farmers a fair price for their crops.
      • This augmented and assured income can be used to reduce the debt and increase the investment.
      • It will also reduce Farmer’s Suicide.
    • Food Security for India:
      • As the growing Food Crop remains profitable due to MSP, farmers tend to grow them.
      • It ensures food safety in India.
    • Employment and Poverty alleviation:
      • To some extent, agriculture is a fall back option for many Indians as evident from COVID pandemic.
      • During strict lockdown due to the pandemic, agriculture showed a positive growth unlike the manufacturing and service sector.

    Demerits of MSP

    • Not available to all Farmers:
      • Most farmers would not get the benefits as they were still unable to sell their crops at that rate.
      • Procurement by Food Corporation of India (FCI) is highly skewed in favour of big farmers and states of Punjab, Haryana and Western Uttar Pradesh.
    • Inflation higher than increase in MSP:
      • As pointed out by various farmer associations, the inflation is around 4% whereas the MSP hike on wheat is merely 2%.
    • Swaminathan Committee recommended C2 Price but not accepted:
      • The government provides 1.5 times A2+FL price which is relatively less remunerative.
    • Against the International Norms e.g. Amber Box Subsidy:
      • The MSP is considered to be a practice that distorts the market.
      • It has been included in the Amber Box Subsidy at WTO framework.

    Relation of MSP with Farm Laws

    • Recently, 3 farm laws were passed by Parliament and they were tagged as anti-MSP and anti-farmers.
    • The names of 3 farm laws are 
      • The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act.
      • The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act
      • The Essential Commodities (Amendment) Act.
    • As per the farmer associations, allowing private sector in procurement business will slowly sideline the state-sponsored mandis- APMCs.
      • The government also intends to slowly remove the MSP as per these protesting organizations.
    • The arguments put forth by the Government are
      • It will widen the options in front of farmers to sell their produce and may even help them get prices better than MSP.
      • More efficient and even procurement unlike the present skewed nature.
      • It will not hamper the MSP regime in any way.
        • The FCI will continue to function in the same way as earlier.
      • It will promote competition and boost agricultural infrastructure like cold storage chains, etc.

    Conclusion and Way Ahead

    • Inclusion of MSP guarantee in Fam laws:
      • Both parties, Government and Farmers need to come to a middle ground by sitting and negotiating
    • Implementation of Swaminathan Report:
      • The C2 Price can help farmers to reduce their indebtedness.
    • Promotion of OilSeeds, Pulses and Coarse Cereals:
      • For this, the processed food related to the millets and pulses can be given rebate in GST.
      • Training farmers to run cooperatives related to Food Processing can be a game changer.
    • Direct Benefit transfer Schemes like KISAN:
      • The schemes like KISAN augment the farmers income without violating the international norms.

     

    Source: TH