Issues with agricultural subsidies and MSP

 Issues with agricultural subsidies and possibe solution:-

1. Heavy Fiscal Burden: The total outgo on fertilizer subsidy alone in 2017-18 was Rs. 70,000 crore.
• Possible Resolution: A better targeting of subsidies with the usage of JAM (JanDhan – AADHAAR- Mobile Number) trinity can reduce the fiscal burden.

2. Excessive use of Ground water: The power subsidy has led to overuse of ground water which has further resulted into dramatic fall in ground water levels. In several villages, wells have gone dry. Water extracted from deep inside earth has shown contamination of Arsenic and other heavy metals.          • Possible Resolution: Separate agriculture feeder network (under Deen Dayal Upadhayay Gram Jyoti Yojna). This separate agriculture feeder will supply electricity only for a few hours a day. The process has shown positive results in arresting decline of ground water levels in Gujarat.

3. Environmental Effects and decline in Soil Fertility: Indiscriminate use of fertilizers (recommended ratio of NPK fertilizer is 4:2:1 while actual usage is 8:3:1. Similarly, urea consumption has increased to 60% in 2017 from 55% in 2010-11) harm the soil fertility, biodiversity, and also leads to eutrophication (increased nutrients in water bodies, eventually leading to decreased oxygen concentration in them) and bio-accumulation/biomagnification
(increasing concentration of toxic material in tissues of living organisms at successively higher levels in a food chain).
• Possible Resolution: Creating awareness among farmers, increasing penetration of soil health card scheme, promoting organic farming and innovative products like neemcoated urea will go a long way to check the issue.

4. No benefits to the targeted groups: Fertilizer subsidies are generally cornered by the manufacturers and the rich farmers of Punjab, Haryana and Western UP.
• Possible Resolution: Nutrient based subsidy and Neem-Coated Urea has been introduced by Government. There should be Direct Benefit Transfer of fertiliser subsidy through Aadhaar authentication, organic farming should be encouraged and there should be phased increase in the price of urea.

5. Cereal Centric, Regionally Biased, and Input Intensive: Price subsidies has affected Indian agriculture negatively. This has made Indian agriculture cereal centric, and neglectful towards pulses, oil seeds and coarse cereals. This has led to import of these crops and food insecurity in lower strata which depend upon coarse cereals. Also, most of the subsidies go to the rich farmers, and the rich states which are able to grow marketable surplus and have
well developed infrastructure.
• Possible Resolution: Crop diversification by including more crops under MSP, Mission on Integrated Development of Horticulture, Organic and Cooperative farming, food processing, mixed farming, Direct Benefit Transfer.

Critical Evaluation of Minimum Support Price

a) Injects an element of certainty and confidence: The advance announcement of MSP and procurement prices by CACP (Commission for Agricultural Costs and Prices) provides an assurance to the farmers and they can confidently invest in the crops.

b) Contributes to inflationary trend: There has been continuous hike in MSP and Procurement prices due to the rich farmers’ lobby and it has pushed up the carrying cost of buffer stocks of FCI considerably. This has pushed up the food subsidy bill to a very high level.

c) Bias in favour of surplus states: Almost all states produce wheat, but 95% procurement is from Punjab, Haryana and Western UP. Similarly, around 20 states produce rice, while 90% is procured from Punjab, Andhra Pradesh, Haryana, UP and Tamil Nadu. Other states do not get much benefit from it.

d) Adverse impact on investment: Due to extra expenditure in food procurement, the other sectors looses out on new investments. It has been observed that a 10% increase in MSP of wheat and rice leads to a decline in investment by 1.9% and in overall GDP by 0.33%.

e) Distortion in cropping pattern: MSP of wheat and rice has generally been higher than the cost of production and that of cereals and pulses has been less than the cost of production. So farmers get incentivised for growing profitable crops and hence cropping pattern gets distorted.

f) Faulty criterion being used for calculating MSP: Since cost of production is the major criterion to decide MSP by CACP, inefficiency gets built up, land unsuitable for cultivation of particular crop is being used e.g. rice cultivation is being done in semi-arid regions of Punjab & Haryana which is creating environment and natural resources problem.

g) Bias in favour of large farmers: It has been estimated that in each state, the average income transfer to large farmers is approximately ten or more times greater than those received by marginal farmers.

h) Deterrent to crop diversification: With the price support policy favoring food grains, there is very little incentive for the farmer to move away from the food grains to the production of other crop. The price support policy has been a major deterrent to crop diversification. In determining minimum support prices, the CACP has taken into account cost of production as well as domestic and global market conditions. MSP is determined by the principle of full
cost of production that includes the rental value of land, an imputed value of family labor and returns to management.

By: ABHISHEK KUMAR GARG