Syllabus Section: Economy- Agriculture/ Gs Paper 3


Minimum Support Price

  • Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices —a guarantee price to save farmers from distress sale.
  • The MSPs are announced at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP, 1985).
  • The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.
  • In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price.
  • Commencing with ‘wheat’ for the 1966–67, currently the MSPs are announced for 24 commodities including seven cereals (paddy, wheat, barley, jowar, bajra, maize and ragi; five pulses (gram, arhar/tur, moong, urad and lentil); eight oilseeds (groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed); copra, raw cotton, raw jute and virginia flu cured (VFC) tobacco.

Market Intervention Scheme

  • The Market Intervention Scheme (MIS) is similar to MSP, which is implemented on the request of state governments for procurement of perishable and horticultural commodities in the event of fall in market prices.
  • The scheme is implemented when there is at least 10 per cent increase in production or 10 per cent decrease in the ruling rates over the previous normal year.
  • Proposal of MIS is approved on the specific request of the state/UT governments, if the states/UTs are ready to bear 50 per cent loss (25 per cent in case of North Eastern states) incurred on its implementation.

Procurement Prices

  • In 1966–67, the Government of India announced a ‘procurement price’ for wheat, a bit higher than its MSP (the purpose being security of food procurement for requirement of the PDS).
  • The MSP was announced before sowing, while the procurement price was announced before harvesting—the purpose was to encourage farmers to sell a bit more and get encouraged to produce more.
  • But this increased price hardly served the purpose as a suitable incentive to farmers.
  • It would have been better had it been announced before sowing and not after harvesting.
  • That is why since the fiscal 1968–69 the government announced only the MSP, which is also considered the effective procurement price.

Buffer Stock

  • India has a policy of maintaining a minimum reserve of food grains (only for wheat and rice) so that food is available throughout the country at affordable prices round the year.
  • The main supply from here goes to the PDS and at times goes for Open Market Sale to check the rising prices, if needed.
  • The Buffer stocking norms (of 2005) was revised by the government (by mid-2014) in the backdrop of increased requirement of food grains.

Open Market Sale Scheme

  • The FCI has been undertaking sale of wheat at pre-determined prices (reserve prices) in the open market from time to time, known as the Open Market Sale Scheme (OMSS).
  • This is aimed at serving the following objectives:
  1. To enhance market supply of food grains;
  2. To exercise a moderating influence on open market prices; and
  3. To offload surplus stocks.
  • Under the Open Market Sale Scheme (Domestic), the government now adopts a policy of differential prices to encourage sale of older stock first.

Price Stabilization Fund

  • The Government of India, by late March 2015, launched the Price Stabilization Fund (PSF) as a Central Sector Scheme to support market interventions for price control of perishable agri horticultural commodities.
  • The cost to be borne between the centre and the states in equal ratio (in case of the North Eastern-states, the respective share will be 75:25).
  • The scheme will commence with only two crops, viz., onion and potato.

Farm Subsidies:

  • Farm subsidies form an integral part of the government’s budget.
  • In the case of developed countries, the agricultural or farm subsidies compose nearly 40 per cent of the total budgetary outlay, while in India’s case it is much lower (around 7.8 per cent of GDP) and of different nature.
  • Direct farm subsidies: These are the kinds of subsidies in which direct cash incentives are paid to the farmers in order to make their products more competitive in the global markets
  • Indirect farm subsidies: These are the farm subsidies which are provided in the form of cheaper credit facilities, farm loan waivers, reduction in irrigation and electricity bills, fertilizers, seeds and pesticides subsidy as well as the investments in agricultural research, environmental assistance, farmer training, etc. These subsidies are also provided to make farm products more competitive in the global market.