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Question – The MSP, which has helped to curb the effects of financial fluctuations on farmers in India over the years, has not been a complete success. Describe the definition of MSP and its utility as a tool of rescue from the low income trap for farmers. – 16 April
The minimum support price or MSP is commonly referred to a way to protect farmers in India from the uncertainties of markets as well as natural disasters.As a safety net for farmers, the MSP is the core of the agricultural revolution that transformed India from food-deficient to a food-surplus nation.
MSP is a technique of market intervention by the Government of India as insurance to agricultural producers against any sharp drop in product prices during over-production years. Its major goals are to support the farmers from distress sales and to procure food grains for public distribution (PDS).
How MSP can rescue/protect farmers from low income trap?
Covering production expenditure: The MSP mechanism is designed in such a way that it will take into account the cost of production of the farmers. Thus the prices offered by the government will cover the basic costs and some profit can be expected.
Avoiding middlemen: Farmers living in remote corners had to depend on middlemen to sell their produce. The middlemen used to buy the produce at a very low price, and sell it at a high profit. This had put the producers in poverty. Through MSP, farmers can now sell their produce directly to the government and earn profits.
Crop Protection: The MSP for a particular crop is decided before the sowing season so that farmers are made aware of the market situation. This will ensure that the farmers will know the minimum price required for a particular crop.
Diversification of crops: For wheat, the MSP, first announced in 1966-67, has been increased to about 24 crops at present. This will encourage farmers to grow these diverse crops to maximize their income.
Protection from Distress-Sale: Farmers rarely have surplus savings to buy inputs for the next crop season, as well as access to credit is difficult for small and marginal farmers. Therefore, they are forced to make emergency sales of produce throw-away prices, and they are not able to buy high quality seeds, fertilizers, pesticides and tractor-rents for the next crop season, which will further reduce their income from the next cycle.MSP prevents this event.
How does the government decide MSP?
In India, there are two major crops namely ‘Rabi’ and ‘Kharif’.The government announces MSP at the beginning of each crop season. The MSP is decided by the government after a detailed study of the key points made by The Commission for Agricultural Costs & Prices (CACP). These recommendations are based on some pre-determined formulas. This includes actual costs, vested family labor as well as real estate or rents paid by farmers. In technical terms, these variables are called A2, FL and C2. MSP is often calculated by the government by combining all of these.
However, much still remains to be done regarding MSP for various crops. Apart from increased quantity of food grains and diversification of MSP, procurement of food grains should also be streamlined to maintain investment in agriculture and ensure food security in the country.
The modified version of Minimum Support Price (MSP),(like Price difference compensation) has potential to shorten collection and storage burden of the government. Thus, MSP has a potential to improve life of farmers notably, if implemented in a proper manner. But the exact calculation of minimum support price remains a challenge which needs fast resolution.