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19th October 2023 (9 Topics)

Centre raises minimum support prices for Rabi crops

Context:

The Cabinet Committee on Economic Affairs has approved the increase in the Minimum Support Prices (MSP) for all mandated Rabi Crops for Marketing Season 2024-25.

About the update:

  • The increase in MSP for mandated Rabi Crops is in line with the Union Budget 2018-19 announcement of fixing the MSP at a level of at least 1.5 times of the All-India weighted average Cost of Production.
  • MSP for major crops;
    • The highest increase in MSP has been approved for;
      • Lentil (masur) at Rs.425 per quintal
      • Rapeseed & mustard at Rs.200 per quintal.
    • For wheat and safflower, an increase of Rs.150 per quintal each has been approved.
    • For barley and gram an increase of Rs.115 per quintal and Rs.105 per quintal respectively, has been approved.
  • Significance: This increased MSP of Rabi crops will ensure remunerative prices to the farmers and incentivize crop diversification.

What is Minimum Support price (MSP)?

  • The MSP is the rate at which the government purchases crops from farmers, and is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers.
  • MSP is a “minimum price” for any crop that the government considers as remunerative for farmers and hence deserving of “support”.

Objectives of MSP:

  • Agricultural Price Stabilization: MSP acts as a floor price, preventing extreme price fluctuations and providing stability to farmers' income.
  • Crop Diversity: It encourages farmers to cultivate a diverse range of crops by assuring fair prices for various produce.

Crops under MSP:

  • The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 22 mandated crops and fair and remunerative price (FRP) for sugarcane.
  • CACP is an attached office of the Ministry of Agriculture and Farmers Welfare.
  • The mandated crops include 14 crops of the kharif season, 6 Rabi crops and 2 other commercial crops.
  • In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively.

MSP and effects on Economy:

  • Farmers' Income and Livelihood: MSP provides a safety net for farmers, ensuring a reasonable income even during market downturns.
  • Income Redistribution: Increased income for farmers can lead to improved rural purchasing power and reduced income inequality.
  • Food Security: MSP ensures a steady supply of essential commodities, contributing to food security and stability in prices for consumers.
  • Inflationary Pressure: Higher MSP can contribute to inflation, as increased procurement costs may lead to higher consumer prices.
  • Fiscal Burden: Government procurement at MSP requires substantial financial resources, affecting fiscal deficit targets.
  • Trade Balance and Exports: Higher MSP might increase domestic prices, affecting export competitiveness and trade balances.
  • Distorted Crop Choice: Farmers might prioritize crops with MSP, leading to overproduction of certain crops and neglecting others.
  • Supply Chain Efficiency: MSP-led procurement can strain storage and distribution systems, leading to wastage and inefficiencies.
  • Market Distortions: High reliance on MSP could discourage private investment in agriculture due to market uncertainties.
  • Policies and Regulations: MSP necessitates government intervention, potentially impacting free market dynamics.
  • Rural-Urban Linkages: MSP's impact on rural income affects rural-urban migration patterns and urban development.

Role of Commission for Agricultural Cost & Prices (CACP):

  • It is a statutory panel under the Ministry of Agriculture & Farmers’ Welfare, Government of India.
  • The CACP is an expert body that recommends the MSPs of the notified Kharif and Rabi crops to the Cabinet Committee on Economic Affairs (CCEA).
  • The objective of the Commission: The Commission was established to recommend Minimum Support Prices (MSPs), to motivate cultivators and farmers to adopt the latest technology in order to optimize the use of resources and increase productivity.
  • However, its suggestions are not binding on the Government

     

     

     

     

     

     

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