11 Apr

MSP, Subsidy & Related Issues

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Contents

1. Minimum Support Price (MSP)
2. Farmer’s Protest: A law Guaranteeing Procurement at MSP: Is it viable
3. Food Subsidy Burden of Government
4. MSP announced for various RABI crops (Oct 2023)
5. Commission for Agriculture Cost and Prices (CACP)
6. Fair and Remunerative Prices (FRP)
7. PM KISAN (Pradhan Mantri Kisan Samman Nidhi)
8. Income Support to Farmers: State Level Schemes

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1) MINIMUM SUPPORT PRICE (MSP)

• Introduction
  • What is MSP: It is the minimum price set by the Government at which farmers can expect to sell their produce for the season. When market prices fall below the announced MSPs, procurement agencies step in to procure the crop and ‘support’ the prices.
  • Beginning: The Minimum Support Prices (MSP) were announced by the Government of India for the first time in 1966-67 for Wheat in the wake of the Green Revolution and extended harvest, to save the farmers from depleting profits.
• How is MSP decided and Who takes final decision.
  • The Cabinet Committee of Economic Affairs (CCEA) announces MSP for various crops at the beginning of each sowing season based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
  • The CACP takes into account demand and supply, the cost of production (A2 + FL method) and price trends in the market, inter-crop parity, implication for MSP on consumers, a minimum of 50% as the margin over cost of production; etc.
  • The CACP calculates three types of costs — A2, A2+FL and C2 — for each mandated crop for different states. The lowest of these costs is A2, which is the actual paid-out cost incurred by a farmer. Next is A2+FL, the actual paid-out cost plus imputed value of family labour. The highest of the three costs is C2, defined as ‘Comprehensive Cost including Rental Value of Own Land
    (net of land revenue and interest on value of own fixed capital assets (excluding land))
• MSP is announced for 22 mandated crops and FRP is announced for sugarcane (total 23 crops)
  • Crops Covered under MSP:
    • MSP is announced for 22 mandated crops and FRP for Sugarcane. (Total 23 crops)
      • Mandated Crops are: 14 crops for Kharif season, 6 Rabi crops (except Toria) and 2 crash crops (Copra and Raw Jute).
      • In addition MSP for Toria and De husked coconut are fixed on the basis of MSP for rapeseed/mustard and Copra.
      • Note: Coffee, tea etc are not covered under MSP.
      • 7 Cereals, 8 oilseeds, 5 pulses, 5 cash crops – Copra, Raw cotton, Raw Jute, Virginia Flu cured (VFC) tobacco, Sugarcane.
      • Note: For Sugarcane Fair and Remunerative Prices (FRP) is announced that has to be paid by sugar mill owners.

Kharif Crops	Rabi Crops
1. Paddy	15. Wheat
2. Jowar	16. Barley
3. Bajra	17. Gram
4. Maize	18. Masur / Lentil
5. Ragi	19. Rapeseed / Mustard
6. Arhar (Tur)	20. Safflower
7. Moong	21. Toria (an oilseed similar to rapessed)
8. Urad	Other Crops
9. Cotton	22. Copra / Dehusked Cotton
10. Groundnut	23. VFC Tobacco
11. Sunflower seed	24. Raw Jute
12. Soyabean black	25. Sugarcane (FRP)
13. Sesamum
14. Nigerseed

• Need of MSP/ Rationale Behind MSP
  • Protecting farmers from price volatility
  • Incentivizing farmers to grow crops in short supply
  • MSP also ensures easy procurement for food security schemes
• From FY19 the MSP has been pegged at more than 50% of cost of production for most of the Kharif and Rabi crops. This is another step towards ensuring income inclusiveness.
  • Accordingly, the Government has been increasing the MSP for all 22 Kharif, Rabi and Commercial crops with a margin of at least 50% over the all-India weighted average cost of production since the agricultural year 2018-19.
  • Swaminathan Commission had recommended this way back in 2006.
• Various Mechanisms under MSP to procure crops and ensure remunerative prices for farmers (Before PM-AASHA)
  1. For wheat and paddy -> Open Ended Procurement by FCI
  2. Coarse Grains -> Purchased by state government with permission of central government, upto the extent it is required in their Target Public Distribution System (TPDS).
  3. Price Support Scheme (PSS) – for oil seeds, pulses and cotton – at the request of concerned states
  4. Market Intervention Scheme (MIS) for perishable horticulture commodities – at the request of states – when there is excess supply or low prices.
• Some shortcomings in MSP Procurement Program
  • Procurement is limited to few crops, few geographies and few farmers -> only wheat and rice under open procurement -> Punjab, Haryana, Coastal Andhra benefitted a lot -> mostly big farmer benefitted
  • There has been delays in establishment of procurement centre.
  • Lack of awareness about MSP among large section of farmers. This leads to they getting exploited at the hands of commisison agent.
  • Inadequate MSP (MSP calculation is not based on A2 + FL + C2 which was recommended by MS Swaminathan committee). It uses A2 + FL method.
• Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA):
  • The scheme is aimed at increasing the MSP procurement of pulses, oilseeds, COPRA etc. This is expected to ensure remunerative price to farmers.
  • Three components of PM AASHA – Price Support Scheme; Price Deficiency and Payment Scheme; and Private Procurement & Stockist Scheme
    • Note: For Oilseeds, the states will be allowed to choose between the PSS or two other schemes.
• Note: AASHA is complementing (not replacing) complementing other schemes
  • Other existing schemes of Department of Food and Public Distribution (DFPD) for procurement of paddy, wheat and nutri-cereals/coarse grains and of Ministry of Textile for Cotton and Jute will be continued for providing MSP to farmers to these crops.
• What was expected out of PM-AASHA:
  • Better remuneration for farmers; reduced storage and procurement requirement for government; increased private participation -> more investment in storage etc; improved food security
• But, PM-AASHA has also not been able to increase MSP procurement a lot due to following reasons:
  • Budgetary support for PM-AASHA has been too minimal (around Rs 15,000 crore in the first year)
  • A number of factors preventing PM-AASHA to be inclusive:
    • Agri-Marketing reforms are incomplete
    • Poor infrastructure: This has led to farmers remaining out of MSP regime, remaining out of MSP regime.
    • Further, ineffective supply chain management, has rendered the whole scheme trivial.
      • For e.g. NAFED has a stock of 4 million tonnes of pulse and oilseeds, but their distribution policy is non-existent.
    • State Financial condition may not be strong enough for the program.
• Other Criticism of MSP mechanism in general
  • MSPs causes market distortion
  • Cropping pattern is affected and farmers tend to grow high MSP crops rather than the most suitable crop for the region.
    • Excess fertilizer and water guzzling crops makes agriculture unsustainable.
  • Higher inflation
  • Cost Plus Pricing is risky as it ignores the demand side, i.e. demand-supply, domestic and international price trends, terms of trade, inter-crop price parity etc.
  • Leads to less focus on non-price factors like technology, inputs, services, institutions and infrastructure
    • High fiscal burden on government
  • Bigger stock exceeds the stock holding norms of FCI
  • WTO’ AOA issues (discussed with WTO issues separately)

2) FARMER’S PROTEST: A LAW GUARANTEEING PROCUREMENT AT MSP: IS IT VIABLE

• Background:
  • According to Shanta Kumar Committee report, only 6% of the farm households sell wheat and rice to the government at MSP rates.
• What are the different ways in which MSP guarantee can be ensured?
  • Force traders to buy at MSP: Any buying of agri-produce (be it by private traders), would be on MSP (something similar happens in case of sugarcane).
    • Something like this happens in case of sugarcane farmers.
    • But there are implementation hurdles – delay and arrear in price payment; distortion of market;
  • Government can make MSP procurement itself.
    • Criticism: If government buys all produce this will be unsustainable – both physically and fiscally.
  • Government can go for price deficiency payment mechanism.
    • Something similar was implemented in Madhya Pradesh (Bhavantar Bhugtan Yojna) during the 2017-18 Kharif season for eight crops: urad (black gram), soyabean, maize, Arhar (pigeon pea), Moong (green gram), groundnut, sesame, and nigerseed. But scheme couldn’t be continued due to lack of support from central government.
    • Haryana is implementing Bhavantar Bharpai Yojna (BBY) mainly for Bajra (pearl millet), mustard, and sunflower seeds. Technically it also covers groundnut, chana, moong, and 16 vegetables and 3 fruit crop.
      • The scheme operates on the Haryana Government’s ‘Meri Fasal, Mera Byaura portal’ in which farmers have to register themselves along with details of their land (village name, khasra plot no, holding size tc) and area sown under different crop.
    • and Haryana (Bhavantar Bharpai Yojna).
• Need of guaranteeing MSP:
  • It would improve opportunities of fair prices by farmers. It would encourage farmers to invest more in agriculture and increase productivity.
    • Note: As per census and National accounts data, the percentage of farmers benefitting from MSP is 5.6% and the value of agri-produce benefitting from the MSP regime is a paltry 2.2%.
  • Promote crop diversity as under guaranteed MSP, other crops would also fetch the MSP.
  • Other advantages of MSP
• Is it feasible?
  » Various estimates show that government will have to bear an additional 5 lakh crore rupee of fiscal burden. This will be a logistical nightmare at best, and fiscal disaster at worst.
  » FCI stocking operations is full of flaws and losses -> Wastage, corruption,
  » Discourage market forces
  » Other problems associated with MSP (discussed in the above topics)

A) DEMANDS FOR WHICH FARMERS ARE PROTESTING

1. Full debt waiver for farmers and labourers;
2. Implementation of the Land Acquisition Act of 2013, with provisions for written consent from farmers before acquisition, and compensation at four times the collector rate;
3. Punishment for the perpetrators of the October 2021 Lakhimpur Kheri killings;
4. India should withdraw from the World Trade Organization (WTO) and freeze all free trade agreements;
5. Pensions for farmers and farm labourers;
6. Compensation for farmers who died during the Delhi protest, including a job for one family member;
7. Electricity Amendment Bill 2020 should be scrapped;
8. 200 (instead of 100) days’ employment under MGNREGA per year, daily wage of Rs 700, and scheme should be linked with farming;
9. Strict penalties and fines on companies producing fake seeds, pesticides, fertilisers; improvements in seed quality;
10. National commission for spices such as chili and turmeric;
11. Ensure rights of indigenous peoples over water, forests, and land

3) FOOD SUBSIDY BURDEN OF GOVERNMENT

• FY25 (BE) Food subsidy bill 2.05 lakh crore (less than Rs 2.12 lakh crore in FY24)
• For FY23, government had spent Rs 5,32,446 crore on subsidy.
  • This includes Food Subsidy (Rs 2.8 lakh crores), Fertilizer Subsidy (Rs 2.1 lakh crores), and Petroleum subsidy (Rs 30,756 crore).
  • It was the 2nd highest ever after the 7.06 lakh crores of FY 2021.

4) MSP ANNOUNCED FOR VARIOUS RABI CROPS (OCT 2023)

• Crop (MSP per quintal, Increase from last year): Wheat (2275, 150), Barley (1850, 115), Mustard & Rapeseed (5440, 105), Safflower (5,800; 150); Gram (5,440; 105) and Lentil (masur) (6,425; 425)

Wheat Production, 2022-23 (Final Estimate): UP> MP> Punjab> Haryana>Rajasthan	Barley Production, Final Estimate, 2022-23:Final Estimate 2022-23: Raj> UP> Haryana> Madhya Pradesh> Uttarakhand
Mustard & Rapeseed Production Final Estimate (2022-23): RAJ> UP > MP> Haryana > WB	Safflower Production 2022-23 (Final Estimate): Karnataka> MHA> Telangana> Andhra Pradesh
Gram Production Final Estimate (2022-23): MHA> MP > Rajasthan> Gujarat > Uttar Pradesh	Lentil Production 2022-23 (Final Estimate): MP> UP> WB > Bihar> Jharkhand

5) COMMISSION FOR AGRICULTURE COST AND PRICES (CACP)

• The commission for Agricultural Cost & Prices (CACP since 1985, earlier named as Agricultural Prices Commission) was formed in 1965 and is an attached office to Ministry of Agriculture and Farmers Welfare, GoI. It is also a statutory body.
• Structure:
  » Chairperson
  » Member Secretary
  » One Member (official)
  » Two Members (non-official) – representatives of farming community
• It is mandated to recommend minimum support prices (MSPs) to incentivize the cultivators to adopt modern technology, and raise productivity and overall grain production in line with the emerging demand patterns in the country.
• As of now CACP recommends MSP for 22 crops and FRP for Sugarcane:
• Note: the final decision for MSP of a crop is taken by Cabinet Committee on Economic Affairs (CCEA).

6) FAIR AND REMUNERATIVE PRICES (FRP)

• FRP is the minimum price sugar mills have to pay to farmers for sugarcane.
  • In 2009, Sugarcane (Control) Order, 1966 was amended to replace statutory minimum price (SMP) of sugarcane with FRP.
  • FRP is decided by Cabinet Committee on Economic Affairs on the recommendations of Commission for Agriculture Costs and Prices (CACP) and in consultation with state governments and industry.
  • There is also a threat of action by cane commissioners, in case of failure to clear FRP dues within 14 days of the cane being sold to farmers. Non-clearance can also lead to attachment of mill properties as arrears of land revenue.
• State Advised Price (SAP): Some states like Haryana, Uttar Pradesh, and Punjab offer higher prices for sugarcane under state advised price (SAP), which mills in those states must abide by.
• Why FRP for sugars (and MSP for other 22 crops)
  • Sugarcane has very small shelf life and thus farmers are forced to sell immediately, which may bring prices very low.
  • Further, other crops can be sold at prices higher than MSP, but this is very less likely for sugar as all the sugarcane is sold right after harvesting and thus market prices would be very low.
• Cabinet approves ‘Fair and Remunerative Price’ (FRP) of sugarcane payable by sugar factories for sugar season 2024-25 (Oct-Sep) [Feb 2024: Source PIB]
  • FRP = Rs 340/ Quintal at sugar recovery rate of 10.25%.
  • This is about 8% higher than FRP of sugarcane in current season (2023-24). The revised FRP will be applicable w.e.f. 1st Oct 2024.
  • It is also 107% higher than A2 + FL cost.
  • Note: India is already paying highest price to sugarcane farmers in the world and at the same time ensuring cheapest sugar for Indians.
  • Note: The new FRP will kick in from 1st Oct 2024.
• Minimum Selling Price (MSP) for Sugar:
  • The central government had introduced Minimum Selling Price (MSP) for sugar in 2018.
    • It was fixed at Rs 2,850 per quintal which was subsequently raised to Rs 3,100 per quintal. This was part of the measures announced to arrest the constant slide of sugar and to keep the demand and supply ratio to a safe limit.
    • The Centre had also fixed mill-wise sales quota. Mills which breached either of the conditions were liable for action under the Essential Commodities Act, 1955 which would include a fine as well as a jail term (ranging from 3 months to 7 years) or both.

7) PM KISAN (PRADHAN MANTRI KISAN SAMMAN NIDHI)

• Why in news?
  » Interim Budget 2024-24 Speech: 11.8 crore farmers receive financial assistance
• PM KISAN is a central sector scheme to supplement the financial needs of landholding farmers. It was announced in the Budget 2019-20.
• Purpose
  » Income Support to help declining income of farmers, supplement financial needs for input procurement etc;
• Provisions of the Scheme
  » Under the scheme financial benefit of Rs 6,000 per year is transferred into the bank accounts of farmer families through DBT in three equal instalments of Rs 2,000 each.
  » The scheme covers all 14.5 crore landholder farmer families in the country.
  » Exclusions
  • All institutional landholders
  • Farmer families where one or more of its members belong to following categories
    • Constitutional post holders, ministers, Member of Parliament, MLAs, MLCs, Mayor of Municipal Corporation, Chairpersons of District Panchayats (in past or presently)
    • Serving or retired officers of Central/State governments (excluding Multi-Tasking staff/ Class IV/ Group D employees)
    • All superannuated retired personnel whose monthly pension is Rs 10,000 or more (excluding Multi-Tasking staff/ Class IV/ Group D employees)
    • Professionals like Doctors, Engineers, Lawyers, CAs, and Architects registered with professional bodies and carrying out profession by undertaking practices.
• State/UT government will be responsible for identifying the eligible families. List is published at village level to ensure transparency.
• Progress So far: Around 11.8 crore farmers were covered under the scheme in Jan 2024.
• Analysis: Positives
  1. Reduce Agri-Distress
  2. Boost Productivity
• Key Concerns/ Limitations
  1. Funds – Fiscal burden.
  2. Small impact on farmer’s income
  3. Withdrawing the scheme will be challenging considering the political economy that comes into play

A) PM KISAN MOBILE APP WITH FACE AUTHENTICATION FEATURE (JUNE 2023: SOURCE – PIB)

• The PM-KISAN mobile app was launched in Feb 2020. The provision for e-KYC through face authentication introduced in June 2023.
• It will enable farmers to complete their e-KYCs effortlessly from their mobile devices. Farmer can also assist upto 100 other farmers in their vicinity with their e-KYCs. Additionally, state government officials, including district, block, and village level-nodal officers, can perform e-KYC for 500 farmers using their registered mobile number.
  • It will also resolve difficulties related to Aadhar verification and updating bank account details on PM KISAN portal through effective use of digital public goods.
• Note: The PM KISAN Scheme’s services are also accessible through more than 4.0 lakh CSCs across the country.

8) INCOME SUPPORT TO FARMERS: STATE LEVEL SCHEMES

1. Rajiv Gandhi Kisan Nyaya Yojna
   • It is a income support scheme for farmers, Launched by Chhattisgarh government in May 2020.
2. YSR Rythu Bharosa Scheme: Rs 13,500 for Farmers (launched in 2019)
   • Details about Rythu Bharosa
     • The program is available for five years.
       • Every year, before the start of the Kharif season, an input assistance of Rs 7,500 will be provided to each farmer. Another Rs 4,000 will be provided at the time of harvesting, just before the start of Rabi season. And the last instalment of Rs 2,000 would be provided at the time of farmers’ festival of Sankranti.
     • 54 lakh farmers have been identified for the scheme (including tenant farmers).
     • Note: Rs 6,000 per head in the scheme comes from PM-Kisaan Samman yojna
3. Ryuthu Bandhu scheme of the neighbouring Telangana.
   • In Telangana the support was based on the size of land ownership (Rs 4,000 per acre). However, in AP every beneficiary will be given same amount, whereas in
4. KALIA (Krushak Assistance for Livelihood and Income Augmentation) of Odisha government
   • Covers 75 lakh farmers, including 25 lakh landless agricultural households.
     • It entitles each one of them Rs 10,000 per year payment for two crops (Kharif and Rabi)
5. Krishak Bandhu Yojana of West Bengal
   • Provides Rs 5,000 in two instalments to the state’s estimated 72 lakh farmers and sharecroppers cultivating one acre or less.
6. Mukhyamantri Krishi Ashirwad Yojna of Jharkhand provides Rs 5,000 per acre (maximum Rs 25,000) annually to estimated 22.76 farmers owning up to five acres in land.
7. Mukhyamantri Parivara Samman Nidhi Yojna of Haryana limits the annual financial assistance at flat Rs 5,000 for agricultural families (including landless labourers) with less than five acres and also monthly income below Rs 15,000.