MSP: Issues and Challenges

To protect the interests of the farmers/producers against any sharp decline in agricultural prices, the Government has been following the agricultural price support system since 1965.

• The price support system is expected to help the farmers after the harvesting period which is associated with high probability of the agricultural prices crashing due to surplus stock in the market.
• A Government guaranteed MSP to farmers is expected to cover the cost of production together with certain profit margin to them.

Challenges to MSP

• Calculation of the Minimum Support Price, the CACP considers both C2 cost and A2+FL cost. C2 cost includes notional value of imputed rental value of owned land and interest on owned capital in addition to the A2+FL cost.
• Lack of awareness regarding various aspects of the scheme like prevailing MSP, time of their announcement, the process of procurement, etc.
• Public procurement at MSP is disproportionately focussed on wheat and rice and sometimes even at the expense of other crops such as pulses and oilseeds.
• States with higher wheat and rice production such as Punjab and Haryana get the most benefit by MSP regime.

Niti Aayog has discussed the following three concepts as that will address the shortcomings of the existing schemes of procurement under MSP:

• Market Assurance Scheme (MAS): A scheme for procurement of pulses, oilseeds and coarse grains produced in the respective States. Under this scheme, it is proposed that the States/Union Territories (UTs) will make procurement for notified crops, except rice and wheat at MSP through State Level Agencies directly from the farmers.
• Price Deficiency Procurement Scheme (PDPS): Under this scheme, if the sale price is below the average wholesale price for the selected commodities at the end of every month in the States/UTs, the farmers may be compensated to the difference between MSP and the actual price that is subject to a ceiling which may not exceed 25 per cent of the MSP.
• Private Procurement and Stockist Scheme: Under this scheme, private entities will be invited to participate in the procurement of crops through a transparent process. The Government will provide some tax incentives and a commission to the private entities involved in the procurement process.