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Big Push to Agriculture through Minimum Support Price

, March 5, 2018, 0 Comments

agriculture-msp-india-marketexpress-inThe Union Budget 2018 had a very strong theme. It has given big thrust to agriculture. The focus on agriculture was welcome, given huge periods of rural distress. Agriculture in India contributes nearly 15 percent to GDP.

It gives livelihood to nearly half of India’s work force. Yet on account of the vagaries of monsoon, it grew at a slow pace of 2.2 percent between 2014-2018, Hence giving a big push to agriculture was the need of the hour.

The past precedence has been to give a big push to agriculture, and the union budget characterised with fiscal largesse exactly did this, however with a difference. In past previous governments which just before the election year distribute freebies to agriculture in the form of subsidies, loan waivers. This union budget was a differentiator as it believed in empowering the farmers and allocating expenditure to agriculture investments.

Agriculture would be treated as an enterprise and the fortunes of the farmers would increase using a the age old policy plank “ Minimum Support Price”. The government is confident of doubling the farm incomes using minimum support price. Extending Minimum Support Price to other crops insulates the farmers against   monsoon failures, drought, and bumper harvests. It provides a hedge to the farmers and assures them minimum returns to the farmers. This in turn encourages higher investments and provides a fair degree of stability to agriculture. Since the onset of green revolution Minimum support price has offered a positive intervention by the government, especially in crops and regions where it was effectively backed by huge procurement by governments, lot of empirical research  for the state of Punjab for wheat and paddy shows that, the prices fixed by the government were remunerative and influenced huge agriculture investments.

Hence governments hope to overhaul agriculture by effectively using Minimum  Support Price, is not elusive. It needs to be backed with huge investments in agriculture. Agriculture in India is a state subject, there are spatio- temporal variations in terms of agriculture infrastructure.   For instance the numbers of   villages which are served by Mandi vary. For Kerala 10 villages are served by Mandi, In Jharkhand   800 villages have one made.   Such a stark variation in agriculture, infrastructure would pose a challenge.

In states where Minimum Support prices have not worked, because the villages do not have the wherewithal of closer procurement centres. Despite the   prevalence of minimum support price, there are distress sales that happen since the procurement centres are way too far and cost of transportation outweighs the benefits got from floor price.

Many times minimum support price is inefficacious since, the farmers are not aware of it on account of improper dissemination of prices.   In many states the announcement of minimum support prices is honored in the letter, the announcement happens way too late and farmers are   not able to avail the benefits of   Minimum support prices.

If the government is keen on doubling the farm income through price interventions, it has to do a lot of spadework and ramp up agriculture infrastructure by making heavy investments in storage and procurement centres.