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Business News/ Politics / Policy/  Alternatives to MSP fraught with challenges

New Delhi: At the heart of the recent farmer protests has been discontent with the government’s minimum support price (MSP) system, which guarantees procurement of a farmer’s produce at a fixed price. In response to farmer angst, the government has hiked this minimum price but the MSP system still faces challenges. Procurement is weak in several states and limited to a few crops.

One solution to all this could be a deficiency payments scheme along the lines of the Bhavantar Bhugtan Yojana (BBY) initiated by Madhya Pradesh. In this scheme, the government, rather than procuring from farmers, compensates farmers with cash transfers when the market price falls below MSP.

According to a new study by C.S.C. Sekhar from the Institute of Economic Growth and others published in the Economic and Political Weekly, BBY is a promising scheme in principle, but faces several issues in practice. The authors use primary and secondary data from agriculture markets in Madhya Pradesh and neighbouring states from April 2015 to April 2018 to examine the scheme’s performance.

They find that farmers experience long delays in payments while also incurring significant transaction costs. Under the scheme, farmers also bring low-quality grains to the markets creating a glut in supply which depresses already low crop prices. To address some of these issues, the authors recommend implementing different MSPs based on the quality of crops.

In addition, they suggest providing better information on prices and widening the selection of crops in the scheme to address major issues with BBY.

They also argue that allowing private sector procurement would help. The authors conclude that the BBY experience highlights the challenges with replacing the current system of procurement. As the government mulls over possible alternatives, they should tread cautiously.

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Updated: 16 Jan 2019, 08:15 AM IST
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