How Modi government's MSP policy boosts agricultural income, social security and distributive justice

The Union Cabinet on 7 June 2023, increased the Minimum Support Price (MSP) of all mandated Kharif crops to the tune of 5.3 per cent to 10.35 per cent for marketing season 2023(July)-2024(June). This is going to be beneficial to the farmers as the retail inflation rate is on the declining trend and the MSP should ideally be over the current inflation rate, considering the cost and yield factors, this increasing rural income. The latest data from the Ministry of Statistics and Programme Implementation reveals that India’s retail inflation, as measured by the Consumer Price Index (CPI), dropped to a more than two-year low of 4.25 per cent in May 2023. Additionally, the wholesale price inflation, measured by the wholesale price index (WPI), stood at -0.92 per cent in April 2023, down from 1.34 per cent in March 2023. These figures indicate a favourable trend in the country’s inflation rate. The CPI, estimates the retail inflation of goods and services in the economy across 260 commodities. The CPI-based retail inflation considers the change in prices at which the consumers buy goods. The data is collected separately by the Ministry of Statistics and Program Implementation and the Ministry of Labour. The WPI, on the other hand, analyses the inflation of only goods, not service across 697 commodities. The WPI-based wholesale inflation considers the change in prices at which consumers buy goods at a  wholesale price or in bulk from factory, mandis, etc MSP: Factor costs India, one of the world’s key producers of an array of agricultural produces, announces support prices to set a benchmark. Strengthening of MSP is a major requirement to increase rural income as  there has been a substantial increase in the cost of production due to a significant rise in key input prices like  chemical fertilisers such as Urea and DAP, increased cost of hiring farm machineries due to the rising cost of fuel and the nominal wages of farm labourers also doubled between 2014 and 2021. Paddy production has  increased at an average annual rate of around 1 per cent  since 2014, wheat yield has increased at an average annual rate of 2.5 per cent. The MSP of the common grade variety of paddy increases by Rs 143 to Rs 2,183 per quintal for the 2023-24 crop year, from Rs 2,040 in the previous year. The support price of the ‘A’ grade variety of paddy has been increased by Rs 143 to Rs 2,203 per quintal from Rs 2,060. Paddy’s seeding being commencing with the onset of the South -West monsoon, is the most crucial kharif crop. While the dependence of agricultural output on the quantum of rainfall has reduced, variance in the spatial and temporal distribution of rainfall is emerging as a key risk. India has three cropping seasons – summer, kharif and rabi but Monsoon is crucial specially for kharif crops which are dependent on rains However the IMD has forecast a normal El-Nino (occurs due to changes in the surface temperature of the Pacific Ocean off the coast of Peru, which affects monsoon in India) for this season. However the highest MSP increase has been in moong, which witnessed a hike by 10.4 per cent to Rs 8,558 per quintal for the crop year 2023–24 from Rs 7,755 per quintal the previous year. A policy boost: The policy intervention has been taken to motivate the farmers to bring more area under the crop and boost their income and the prices are based on the recommendations of the CACP (Commission for Agricultural Costs and Prices).  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. The government announces MSP for 23 major crops prior to their sowing seasons to ensure guaranteed prices to farmers and protection from price fluctuations and market imperfections. Of these 23 items, RBI took into account 16 major crops. The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, approved the increase in MSP for all mandated Kharif (summer) crops for the 2023-24 crop year. The increase in MSP of Kharif crops for this year is highest compared to the previous years. Scientific method of calculation devised by Modi government: The MSP determination formula was unspecified during the UPA rule. However, according to the CACP’s ‘Price Policy for Kharif Crops for the Marketing Season 2018-19,’ its Minimum Support Price recommendations are based on 1.5 times of  the A2+FL costs. This 1.5-times MSP formula was initially recommended by M S Swaminathan, who headed the  National Commission for Farmers.  The same Committee specifies three variables to determine production costs A2, which refers to out-of-pocket expenditure incurred by farmers, such as a loan for fertiliser, machinery, fuel, irrigation, and so on, and the cost of leasing land; A2+FL, which estimates the value of unpaid labour for crop harvesting, such as contributions from family members, etc and it is a paid-out cost and C2, which is a comprehensive Cost, or the actual cost of production. In addition to the A2+FL rate, it considers rent and interest foregone on land and machinery owned by farmers. Food stock to avoid crises: The principal objective of the MSP policy is  to support the farmers to avoid distress sale of the agricultural produces and obtain food grains for public distribution. If the market price for the commodity falls below the announced minimum price due to bumper production and a consequent market glut, Central and State Government agencies will purchase the entire quantity offered by farmers at the announced minimum price. This protects the farmers from market volatility. The central pool of foodgrains is used for providing foodgrains under the Public Distribution System (PDS) and other welfare schemes, and also kept as reserve in the form of buffer stock, in case of untoward food crisis situation. There can be violent fluctuations in prices of important commodities due to macro-economic imbalances for e.g. due to short term price rises in production can soon shift from essential food crops to cash crops. In such situations, nations usually have two options to secure, either to maintain physical stock of foodgrains or to maintain enough FOREX reserves, so that at time of food crisis, the country is able to import sufficient food stocks. In the latter case, the country may lose its own capacity to intervene. 2007 global food crisis is an example, where India could comfortably avoid such a situation whether other ASEAN countries had to spend a high amount of their FOREX reserves importing food grains.   Since rice and wheat are the primary foodgrains distributed under PDS and stored for food security, their procurement level is considerably high.    FCI maintains stocks of grains in excess of what is needed for meeting operational needs, and these stocks are called strategic stocks. Buffer stocks are part of strategic stock. A Technical Group, chaired by the Secretary of the Ministry of Food, with representations from the Ministry of Agriculture, FCI, Planning Commission and Ministry of Consumer Affairs, periodically evaluates both the levels and composition of buffer stocks of food grains (rice, wheat and coarse cereals) to be maintained through the year with both the central pool (with FCI) and with the states. The  Technical Group determines buffer stock scientifically, taking into account the production and consumption/offtake by states’ patterns of the past and expected patterns of future. However, the National Food Security Act, 2013 requires the central and state governments to progressively undertake necessary reforms in PDS.  One of the reforms requires them to diversify the commodities distributed under PDS over a period of time along with a geographical diversification of the procurement operations. Price control mechanism: Open Market Sale Scheme is a price control mechanism devised. The FCI on the instructions from the government has been resorting to sale of foodgrains i.e.  wheat and rice at predetermined prices to the open market from time to time using the  National Commodity and Derivatives Exchange Limited(NCDEX). The objectives are to -  (1) enhance the supply of foodgrains especially during the lean season and thereby to have a healthy and moderating influence on the open market prices; (2) offload the excess stocks in the Central pool and to reduce the carrying cost of foodgrains to the extent possible; (3) to save the foodgrains from deterioration in quality and to use foodgrains for human consumption (4) to release valuable storage space for stocks procured during the ensuing marketing season of wheat / rice. The last objective becomes imperative in a situation wherein India’s stocks are almost double than it needs and per year carrying cost of grain is as high as Rs 5 per 1 kg food grain. Carrying costs incorporate rent, management, maintenance and interest on money  blocked in stock. This couples with pilferage, theft and quality deterioration costing heavily. An inclusive PDS: Previously, under the UPA government,  distribution happened on subsidised foodgrains only to below poverty line people and those covered under Antyodaya Anna Yojna (about 2.5 crore families). But now the government is committed to provide food to 50 per cent of urban and 75 per cent of rural population at an even higher subsidy. Through a Union Cabinet decision new integrated food security scheme has been approved of for providing free foodgrains to Antodaya Anna Yojna (AAY) & Primary Household (PHH) beneficiaries, which rolled out from 1 January 2023,  named as Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY),  benefitting more than 80 crore poor and poorest of poor people. Keeping in view the welfare of the beneficiaries and in order to maintain spatial uniformity across the States, free foodgrains will be provided under PMGKAY for the year 2023 to all PHH and AAY beneficiaries, as per entitlement under National Food Security Act, 2013. The integrated scheme will strengthen the provisions of NFSA, 2013 in terms of accessibility, affordability and availability of, 2013, for the poor. For effective and uniform implementation of NFSA 2013, PMGKAY will subsume the two subsidy schemes of Department of Food & Public Distribution (a) Food Subsidy to FCI (b) Food Subsidy for decentralised procurement states dealing with procurement, allocation and delivery of free foodgrains to the states under NFSA. A technology driven PDS: The government is now implementing the Scheme for Modernisation and Reforms through Technology in Public Distribution System (SMART-PDS). The lack of precise, credible and dynamic data on consumption and mobility patterns has always been a serious challenge for the government. This scheme will go a long way in addressing this deficit. This initiative generates vast amounts of data, which can be leveraged to improve the delivery of other central schemes and welfare programs. Smart ration cards (along with One Nation One Ration Card to migrant labourers) are issued to the citizens which can be used for biometric verification, through their fingerprints. The purpose  is to address the issues faced in the efficient delivery of critical central welfare schemes to the most vulnerable sections of society to do away with ghost beneficiaries. The transformative potential of SMART-PDS goes beyond food security, enabling data-driven decision-making, convergence, and integration with AI for improved delivery of central schemes and welfare programs across India. Such data generated can be leveraged for the delivery of many other central schemes and welfare programmes like e-Shram Portal, Ayushman Bharat, and PM-SVANidhi Yojana. Convergence and integration with the use of AI can really be a game changer for people as well as governments in bringing transparency and  accountability across all programmes. There will be a standardisation of the PDS operation through the use of technology and integrating the same with FCI, CWC, transport supply chain of rail and road, Ministry of Education, Women and Child Development and UIDAI. Technology-led reforms are expected to overcome the state-level technological limitations of PDS operations concerning IT hardware, software and technical manpower and also institutionalise an integrated central system for all PDS-related operations across all states/UTs. The initiative also focuses on streamlining the supply chain from procurement to distribution by incorporating technology-driven solutions, such as electronic Point of Sale (ePoS) devices, real-time monitoring, and tracking systems. The transformative character of the Integrated PDS under the Modi government is yet another milestone achieved during his 9 year tenure of Prime Ministership. A highly inclusive and technology driven systematic approach which reveals acumen of good governance and political leadership dedicated to the welfare of the stakeholders. The author is a senior faculty in the Department of History, ARSD College, University of Delhi. Views expressed are personal. Read all the  Latest News ,  Trending News ,  Cricket News ,  Bollywood News , India News  and  Entertainment News  here. Follow us on  Facebook,  Twitter and  Instagram.