The Cabinet Committee on Economic Affairs (CCEA), chaired by PM Narendra Modi, has approved hike in Minimum Support Prices (MSP) for rabi crops for 2020-21 crop year (July-June) and 2021-22 marketing season. 

The move came a day after Parliament approved two agriculture sector-reform bills which have been opposed by many parties like Congress and TMC, as well as from within the ruling NDA alliance over apprehension that the new legislations might virtually end MSP-based procurement by the government.

Farmer groups in Punjab, Haryana and some other states are also protesting the two Bills — The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020  and The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020.

Hike in MSPs

Agriculture Minister Narendra Singh Tomar said the hike in MSPs is aimed at encouraging farmers ahead of the sowing operations of winter crops.

The MSP of wheat, the biggest crop of rabi season, has been hiked by Rs 50 to Rs 1,975 per quintal. MSP of gram has been increased by Rs 225 to Rs 5,100 per quintal. The MSP of barley has been hiked by Rs 75 to Rs 1,600 per quintal. Lentil MSP has been hiked by Rs 300 to Rs 5,100 per quintal. The MSP of mustard/rapeseed have been raised by Rs 225 to Rs 4,650 per quintal, while that of safflower has been hiked by Rs 112 to Rs 5,327 per quintal.

The expected returns to farmers over their cost of production are estimated to be highest in case of wheat (106 per cent) followed by rapeseed & mustard (93 per cent), gram and lentil (78 per cent). For barley, return to farmers over their cost of production is estimated at 65 per cent and for safflower, it is 50 per cent. 

Support is in the form of MSP as well as procurement. In the case of cereals, Food Corporation of India (FCI) and other designated state agencies would continue to provide price support to the farmers, the government said.

What is MSP?

The Minimum Support Price (MSP) mechanism provides a price guarantee to farmers for their produce. This is implemented across the country as nearly 86 per cent farmers fall under the small and marginal category. It also helps in stabilising prices in the market and thus services the consumers as well.

Genesis of MSP

India inherited an agrarian economy from the British with the agriculture and allied sector contributing to around three-fourths of the Gross Domestic Product (GDP) and providing employment to more than four-fifth of the population. 

The food shortages faced during the mid-1960s pushed India to reform its agricultural policy and accordingly India adopted significant policy reforms focused on the goal of achieving food grain self-sufficiency.

Series of institutional reforms were undertaken to boost agricultural production and to modernise farming practices. These included land reforms, structural changes in the agricultural administrative arrangements, agricultural extension schemes, initiation of price support policies including the introduction of the minimum support price (MSP) for major agricultural produces, introduction of new technologies (popularly known as the green revolution), strengthening of agricultural research, etc. 

What is the significance of MSP?

The prices of agricultural commodities are inherently unstable, primarily due to the variation in their supply, lack of market integration and information asymmetry. A very good harvest may result in a sharp fall in the price of that commodity during that year which in turn will have an adverse impact on the future supply as farmers withdraw from sowing that crop in the following years. This then causes paucity of supply next year and hence, major price increase for consumers.

To counter this, MSP for major agricultural products is fixed by the government, each year. 

MSP is a tool which gives guarantee to the farmers, prior to the sowing season, that a fair amount of price is fixed to their upcoming crop to encourage higher investment and production of agricultural commodities. 

The MSP is in the nature of an assured market at a minimum guaranteed price offered by the government.

What is the process to fix MSP?

The Commission for Agricultural Costs & Prices (CACP) is an attached office of the ministry of agriculture and farmers welfare. It was established in January 1965. 

It is mandated to recommend MSPs to incentivise the cultivators to adopt modern technology, and raise productivity and overall grain production in line with the emerging demand patterns in the country. 

MSP for major agricultural products are fixed by the government, each year, after taking into account the recommendations of the commission.

CACP recommends MSPs of 23 commodities, which comprise 7 cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), 5 pulses (gram, tur, moong, urad, lentil), 7 oilseeds (groundnut, rapeseed-mustard, soyabean, sesamum, sunflower, safflower, niger seed), and 4 commercial crops (copra, sugarcane, cotton and raw jute).

CACP submits its recommendations to the government in the form of price policy reports every year, separately for five groups of commodities namely kharif crops, rabi crops, sugarcane, raw jute and copra. 

Before preparing aforesaid five pricing policy reports, the commission draws a comprehensive questionnaire, and sends it to all the state governments and concerned national organisations and ministries to seek their views.

Subsequently, separate meetings are also held with farmers from different states, state governments, national organisations like Food Corporation of India (FCI), NAFED, Cotton Corporation of India (CCI), Jute Corporation of India (JCI), trader’s organisations, processing organisations, and key central ministries. 

The commission also makes visits to states for on-the-spot assessment of the various constraints that farmers face in marketing their produce, or even raising the productivity levels of their crops. Based on all these inputs, the commission then finalises its recommendations/reports, which are then submitted to the government.

The Cabinet Committee on Economic Affairs (CCEA) takes a final decision on the level of MSPs and other recommendations made by the CACP.

Recommendation by National Commission on Farmers

National Commission on Farmers (NCF) headed by M.S. Swaminathan had recommended that the MSP should be at least 50 percent more than the weighted average cost of production. 

The Swaminathan Commission was set up in November 2004. It had submitted five reports between December 2004 and October 2006. 

The Union Budget for 2018-19 had announced the pre-determined principle to keep MSP at levels of one and half times of the all-India weighted average cost of production.

Pradhan Mantri Annadata Aay Sanrakshan Abhiyan

The umbrella scheme of ‘Pradhan Mantri Annadata Aay Sanrakshan Abhiyan’ (PM-AASHA), was approved in 2018 to aid in procurement of pulses and oilseeds.

It comprises Price Support Scheme (PSS), Price Deficiency Payment Scheme (PDPS) and pilot of Private Procurement & Stockist Scheme (PPSS). These schemes are implemented at the request of the state governments/Union Territories. 

Under PM-AASHA, states/UTs are offered to choose either PSS and PDPS in a given procurement season with respect to particular oilseeds crop for the entire state. 

Pulses and Copra are procured under PSS. Only one scheme — PSS or PDPS may be made operational in one state with respect to one commodity. Further, states have the option to roll out PPSS on pilot basis in district/selected Agricultural Produce Market Committee (APMCs) of district involving the participation of private stockist for oilseeds.

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