Why?
One of the principal demands from the protesting farmers is for the Union government to enact legislation that guarantees MSP.
Approach:
- Introduce your answer by briefly defining Direct Income Support Schemes and Price Support Mechanisms like MSP and also highlight their goal to stabilize farmers’ incomes and welfare.
- In the main body, discuss their effectiveness by comparing their coverage, market impact, income security, flexibility, equity, administrative efficiency, etc. Next discuss the implications of a legal guarantee for MSP by highlighting its pros (income security, credit access, etc.) and cons (fiscal burden, limited coverage, uneven implementation, reduced export competitiveness, etc.).
- Conclude by suggesting a balanced approach combining both schemes with agricultural reforms for sustainable, inclusive farmer welfare.
Answer:
Direct income support schemes, like the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), provide direct cash transfers to farmers, aiming to supplement their income. Price support mechanisms, notably the Minimum Support Price (MSP), are government-set prices at which it purchases crops from farmers, ensuring them a minimum profit margin for their harvest. Both approaches aim to stabilize farmers’ incomes and safeguard their welfare.
Effectiveness of Direct Income Support Schemes Versus Price Support Mechanisms like MSP:
| Criteria | Direct Income Support Schemes | Price Support Mechanisms (MSP) |
| Coverage | Broad, covering all farmers regardless of the crops they cultivate, including those growing non-MSP crops. | Limited to crops under MSP, benefiting farmers who produce these specific crops. |
| Market Impact | Minimal direct market distortion, allowing market forces to determine crop prices and farmers to respond to market signals. | Stabilizes market prices for MSP-covered crops, but may skew farming decisions, disregarding market demand. |
| Income Security | Provides a safety net against both price and yield risks. | Primarily addresses price risk, with limited impact on yield risk. |
| Flexibility | Provides flexibility in usage of funds by beneficiaries for any agricultural or non-agricultural needs. | Tied to production of certain crops, possibly discouraging crop diversification. |
| Equity | Can be designed to target the most vulnerable farmers, including small, marginal, and tenant farmers. | May disproportionately benefit larger farmers or those in regions with better access to MSP procurement. |
| Administrative Efficiency | Administratively efficient with direct bank transfers, reducing the opportunities for leakage or corruption. | Requires significant government intervention for procurement and distribution, which can be complex, costly and susceptible to corruption. |
| Quality and Standardization | Does not directly influence production quality or standards. | Encourages quality production through defined criteria for MSP procurement. |
Implications of Implementing a Legal Guarantee for MSP:
Pros:
- Income Security: Farming is fraught with risks from unpredictable weather and pests. Legal MSP acts as insurance, offering price assurance, making agriculture a more stable and viable profession.
- Credit Access: Financial institutions are more inclined to extend credit to farmers under a guaranteed MSP regime, as it assures repayment capacity.
- Higher investment in agriculture enhances the productivity.
- Safeguard Against Exploitation: MSP protects small and marginal farmers from exploitation by middlemen, ensuring fair compensation.
- Rural Economy Stimulation: MSP channels money into rural economies, supporting local businesses and services by boosting farmers’ spending power.
Cons:
- Enormous Fiscal Burden: due to mandatory nature of procurement and also due to escalating storage and wastage costs.
- Limited Coverage: The effectiveness of MSP is curtailed by its focus on a few crops like rice and wheat, leaving producers of other crops vulnerable.
- Onion farmers suffer due to lack of MSP coverage.
- Uneven Implementation: The impact of MSP varies across states, with some having robust systems and others lacking adequate procurement mechanisms.
- While Punjab and Haryana have effective MSP procurement, states like Bihar struggle, rendering MSP ineffective.
- Inadequate Price Determination: MSP calculations often fail to fully account for farmers’ costs, making the support inadequate.
- Swaminathan Committee recommended MSP be set at least 50% more than the C2 cost of production.
- Monoculture Encouragement: MSP tends to promote the cultivation of certain crops over others, leading to environmental issues like soil degradation.
- The focus on MSP for rice and wheat has contributed to groundwater depletion in Punjab.
- Reduced Export Competitiveness: Higher MSP could make Indian agricultural produce more expensive in international markets, as seen with rice and wheat.
A balanced approach, integrating elements of both direct support and MSP, along with comprehensive agricultural reforms, may offer a more sustainable and inclusive solution to ensuring farmers’ welfare in India.Top of Form
‘+1’ Value Addition:
- Price Deficiency Payments (PDP) involves paying farmers the difference between the market price and MSP, avoiding physical government purchases or stocking of crops.
- It has been implemented in Madhya Pradesh’s Bhavantar Bhugtan Yojana and Haryana’s Bhavantar Bharpai Yojana.
- Nationwide Price Deficiency Payments, blending physical procurement with Price Deficiency Payments, could ensure MSP delivery without market distortion, promoting crop diversification.
