Farm Subsidies and MSP

The government subsidizes agriculture in India with a wide range of farm subsidies. The intervention of the Indian government toward agricultural development aims to provide farmers with higher income and improve their standard of living.

Coverage under MSP is given to only certain crops in India like paddy, maize, sugarcane, jowar, bajra, groundnut, and soybean. The government announced a hike of Rs. 200 per quintal in MSP for paddy, maize, and sugarcane for the 2018-19 marketing year. To ensure that farmers can get support prices, the government has taken necessary measures by establishing warehouses where farmers can store their produce.

Farm Subsidies

Farm subsidies are one of the major subsidies provided by the government. Crude estimates of government expenditure on the agriculture sector in Rupee terms during 2017-18 showed an increase of about 0.4% over that in the previous budget but a decrease of 7% in the percentage of Gross Domestic Product (GDP) from 2.5% to 2%. These subsidy expenditures increased from a low base during 2014-17 when the government spent 4 % on the agriculture sector compared to 1.4% for all public welfare expenditures.

The total income received by the Government of India in the agricultural sector constitutes a very small proportion of total expenditure on the agriculture sector. It constitutes only 0.5% of government expenditure on public welfare. The per capita income received by the government from the agricultural sector has been declining every year.

MSP

Minimum Support Price (MSP) is when the Government of India undertakes to buy all produce.

This price is announced on an annual basis for each Kharif and rabi crop by the government of India to ensure that farmers earn a reasonable minimum return on their investment and, therefore, are encouraged to continue in farming. The respective state governments fix MSP for agricultural produce sold by farmers within their jurisdictions.

Social and Economic Benefits of MSP

The most important benefits of MSP are:

• MSP acts as an anchor price for the farmers. This enables the farmer to get a fixed income for his produce, and when prices fall, it also protects farmers from financial losses.

• Even if international prices are low due to a reduction in demand or increase in supply, the government can procure from farmers at MSP. This assures the farmer that he will be properly compensated for his produce no matter what happens.

• Ensures appropriate income levels for farmers and is linked to farming size, land quality, and level of investment. The MSP scheme helps the government control inflation by ensuring that the prices of essential commodities remain stable, even when there are fluctuations in international prices.

• Provides a price signal for production based on market demand and supply conditions at any given point in time. This ensures that production is not skewed towards overproduction leading to a surplus and damage to the agricultural or rural economy.

Farm Subsidies in India

The government of India has provided several subsidies to the farm sector, but its share in allocation to the agriculture sector has come down every year. Allocation for agriculture & allied sectors during 2017-18 is 2.4% (Budget Estimates), and actuals in 2016-17 (Actuals) was even less, 2.3%.

Advantages of Farm Subsidies

The subsidy given to a producer by the government is not a fixed amount. Still, it depends on several factors, such as the cost incurred in producing the crop and the area of land under cultivation. Subsidies are considered beneficial to farmers as they can produce crops even at lower costs, ensuring better returns. This further encourages farmers to increase their acreage and output. In some cases, where the MSP is higher than the cost of production, it encourages farmers to produce more even if their return is lower.

Disadvantages of Farm Subsidies

The government also announces higher MSP for a particular crop, which leads to poor price fixation. The government often makes mistakes in fixing prices for different crops that lead to the leakage of resources. The MSP revision caused significant budget overruns and poor implementation practices. The budget for the agriculture sector has also not been increased in real terms as far as the fiscal deficit (Rs. 7,714 crores in 2017-18) is concerned. The government’s allocation to the agriculture sector remained stagnant over the last four years. 1,985 crore in 2013-14 to Rs. 503 crore in 2017-18.

Goat Farming Subsidy

The government provides financial aid to farmers and other beneficiaries through subsidies, incentives, etc., which are credited directly into the beneficiary’s bank/post office account. The details of the subsidies granted to goats during 2017-18 are in Annexure. Interest-free loans also provide goat farming subsidies up to a certain limit.

Conclusion

The Economic Survey of India introduced the concept of MSP and farm subsidies in 2017. The government is accountable for ensuring that the farmers get a reasonable price for their produce. This ensures that farmers earn a reasonable minimum return on investment which will keep them in farming. The government also provides subsidies via other policies such as fertilizer, water, or crop insurance to increase farm incomes. The concept of farm subsidies and MSP is based on the idea that the government should support farmers and ensure that they get decent returns on investment.