Subsidies and MSP (DAMP)
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Contents
- The existing MSP procurement system is unsustainable economically and environmentally. Elaborate. Also assess alternative methods to enhance the MSP regime’s effectiveness.
- What is Agri-Credit, and how does it support the agriculture sector in India? Discuss the key steps taken over the years to improve the Agri-credit situation in the country.
11-08-2023
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Answer :
Minimum Support Price (MSP) is a government intervention that shields farmers from unpredictable price fluctuations, encourages specific crop cultivation, and safeguards consumers against abrupt price surges. Nevertheless, the current MSP system has drawbacks:
- Limited Scope: The benefits of MSP are unevenly distributed among a few crops and regions. Mainly, sugarcane, paddy/rice, wheat, and cotton receive MSP support, creating disparities.
- Water-Intensive Crops: The prominent crops supported by MSP, including sugarcane, wheat, and certain paddy/rice varieties, are water-intensive. These crops heavily rely on irrigation, straining water resources.
- Procurement Challenges: A significant portion of cereal production is channeled through MSP, causing an overdependence on this system and distorting the open market.
- Excess Production: MSP’s relevance is diminished as India has a surplus of cereals and sugar. Households’ consumption of these items has either decreased or stagnated over time.
- Risk Aversion: Farmers’ overproduction of MSP crops coincides with periods of low prices due to economic factors like market fluctuations, policy changes, and inflation-targeting strategies, indicating risk aversion.
Potential alternatives to the current MSP model are:
- Comprehensive MSP Model: Expanding the legal enforcement of MSP to cover all officially recognized crops could address existing distortions. This could also prioritize setting MSPs for water-efficient crops. However, this might strain the government’s resources if open-ended procurement is pursued.
- Price Deficiency Payments (PDP): Instead of physically buying grains, the government can pay the difference between MSP and market prices when the latter is lower. Ensuring timely payments and maintaining grain quality is crucial.
- Direct Income Support: Providing direct financial assistance to farmers during agricultural hardships without market distortions. This approach is inclusive and equitable across different farm sizes.
- Area Planning: Government-led area planning would align production goals with demand, social considerations, and current conditions. Although time-consuming, this could mitigate issues of oversupply and falling prices.
Given the inherent risks in agriculture related to production and prices, a thoughtful discussion on how to effectively utilize MSP for the benefit of farmers is essential.
14-06-2023
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Answer :
Agri-Credit is a credit designed to meet the financing needs of agricultural farmers and businesses. It enables farmers and agricultural enterprises to access funds for Agri- production, equipment purchase, expanding operations, warehousing etc.
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How does Agri Credit support Agriculture Sector: |
- Spectacular growth in Agri credit sector (from 2% of Agri-GDP in 1970s to around 40% in 2019-20).
- Enhanced Agri productivity leads to food security.
- Increased investment in agriculture infrastructure such as irrigation systems, storage facilities etc.
- Diversification and Modernization: Easy credit can give farmers scope to new crops, adopt organic farming, or invest in livestock sector.
- Income Stability for farmers: Easy farm credit can reduce dependency on unauthorized money lenders and allow them to meet their expenses through institutional credit.
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Steps Taken to Promote Agri-Credit over the years: |
- Nationalization of Commercial Banks in 1969, Establishment of Regional Rural Banks in 1976 and setting up of NABARD in 1982 led to increasing farm credit.
- Priority Sector Lending (PSL) norms initiated in 1974, mandates all domestic commercial banks (and foreign banks with 20 or more branches) to earmark 18% of loans for farm credit.
- The Kisan Credit Card (KCC) introduced in 1998, is aimed at providing adequate and timely short-term credit needs for farmers and has now been extended to fishery and animal husbandry sector also.
- Modified Interest Subvention Scheme, operational since 2006-07, provides short term Agri credit of up to Rs 3 lakh at a subsidized interest rate of 7% per annum to farmers engaged in agriculture and allied activities.
- The Agriculture Infrastructure Fund announced as a part of AtmaNirbhar Bharat Abhiyan will further boost the credit flow to Agri-sector.
The steps taken over the years to improve Agri-Credit in India have played a pivotal role in supporting the agriculture sector and empowering farmers. The positive strides made in Agri-Credit have not only empowered farmers but have also laid a strong foundation for a prosperous and resilient agricultural sector, driving India’s journey towards food security, rural prosperity, and economic well-being.