ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Are Deficiency Payment an Option?

Ensuring MSP to Farmers

In the wake of the central government’s minimum support prices hike for kharif 2018–19, the state government in Madhya Pradesh implemented a variant of the deficiency payments system called the Bhavantar Bhugtan Yojana for compensating the farmers when market prices fell below MSP. Besides the problems of long delays in payments to farmers, large transaction costs that farmers incurred due to multiple registrations, and the disposal of inferior quality produce by farmers, a major limitation of BBY is that it is a counter-cyclical payment, insulating farmers from the market by ignoring the demand side completely. A differentiated MSP based on quality and dovetailing with electronic National Agriculture Market may help address some of these problems. A carefully designed price deficiency payment system with partial procurement and dovetailing with e-NAM and other ways of ensuring MSP to farmers, such as direct payments and participation of private sector, are also discussed.

The union government has recently hiked the minimum support prices (MSP) of 14 commodities for the 2018–19 kharif season. The prime objective of this hike is to ensure higher incomes to farmers, if not doubling the same. This is one of the several steps in that direction. This is also in accordance with the commitment made in the union budget for 2018–19, of raising MSPs to the level of 150% of the cost of production. The hike in MSPs is quite large. The median hike is about 25% and the increase ranges from 4% for arhar and urad to 52% for ragi. The large scale of increase can be judged from the fact that the median increase during the last four years has only been 3%–4%. This massive hike in MSP is expected to yield a handsome return of more than 50% over the cost of production to farmers. The return is estimated to be as high as 97% for bajra and 60%–65% for urad and arhar! The announcement of MSPs is only an important first step in meeting the objective. The more crucial step is ensuring that the farmers get the MSP.1

What are the possible ways of ensuring that the farmers get the (announced) MSP? Some of the options being considered by the government, in consultation with the Niti Aayog, are public procurement (or the market assurance scheme), price deficiency payments and involvement of the private sector. Public procurement has been undertaken for the last five decades for two crops, rice and wheat, and its effects are well-documented. The price deficiency payment system (PDPS) is relatively new in India. This has been implemented under the name Bhavantar Bhugtan Yojana (BBY) in Madhya Pradesh (MP) on a pilot basis in the 2017–18 kharif season. This system is being considered as an important alternative to physical procurement. We undertake a detailed review of this scheme and examine the possibility of scaling it up to the national level. We also assess possible alternatives such as direct payments and participation of private sector for ensuring MSP to farmers.

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Updated On : 2nd Jan, 2019

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