GS-3: Issues related to Direct and Indirect Farm Subsidies and Minimum Support Prices

In News: Centre increases MSP for wheat, five other rabi crops

1.What do you mean by Minimum Support Price (MSP)? Critically examine the limitations of the current MSP policy framework in India.

Minimum Support Price (MSP) is a government-set minimum price at which farmers can sell their crops, providing a safety net against market fluctuations.

MSP:

1. The MSP is determined by the Commission for Agricultural Costs and Prices (CACP) based on various factors, including production costs, market trends, and inter-crop price parity.
2. Currently, MSP is announced for 23 crops, including cereals, pulses, oilseeds, and commercial crops.

Limitations of the current MSP policy framework in India:

1. Limited coverage and accessibility:
   ● Only about 6% of farmers benefit from the MSP
   ● Thus it disproportionately accrues to larger farmers, exacerbating inequality in rural areas.
2. Financial burden on government:
   ● The government bears a significant financial burden due to the procurement and storage of surplus grains at MS which strains government finances and leads to increased fiscal deficits.
3. Market distortion:
   ● High MSP levels discourage private sector participation, leading to government reliance as the primary buyer and potential overproduction.
4. Inflationary pressures:
   ● Can contribute to overall inflation in the economy, affecting not only food prices but also the cost of production for various industries.
5. Implementation challenges:
   ● The complexity of implementing MSP across diverse crops and regions leads to logistical difficulties and inefficiencies.
6. Environmental concerns:
   ● Encourages unsustainable agricultural practices (monoculture,excessive use of fertilizers and pesticides) leading to environmental degradation, such as soil erosion, water pollution, and loss of biodiversity.
7. Dependency on government:
   ● Over-reliance on MSP can create a dependency on government support, reducing farmers’ resilience to market fluctuations.

The MSP policy aims to stabilise farmer incomes but faces significant challenges that limit its effectiveness, necessitating reforms for long-term viability.A balanced approach is necessary, combining MSP with other market-based interventions, while addressing its limitations to ensure sustainable and equitable agricultural development.

PYQ

1. What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the low income trap? 2018
2. What are the different types of agriculture subsidies given to farmers at the national and state levels? Critically analyze the agriculture subsidy regime with the reference to the distortions created by it. 2013
3. How do subsidies affect the cropping pattern, crop diversity and economy of farmers? What is the significance of crop insurance, minimum support price and food processing for small and marginal farmers? 2017

Source:

https://www.thehindu.com/business/agri-business/union-cabinet-approves-hike-in-msp-for-rabi-crops/article68760313.ece#:~:text=150%20per%20quintal.-,The%20new%20MSP%20for%20a%20quintal%20of%20wheat%20is%20%E2%82%B9,105%25%20than%20the%20production%20cost.