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LATEST NEWS UPDATES | Direct income transfers will help farmers more than minimum support prices, says new report -Mridula Chari

Direct income transfers will help farmers more than minimum support prices, says new report -Mridula Chari

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published Published on Apr 24, 2018   modified Modified on Apr 24, 2018
-Scroll.in

A new report says that a crop-neutral direct payout scheme might be better than paying farmers the difference between market price and production cost.

Raising minimum support prices to 1.5 times the cost of production could severely distort agricultural markets, suggests a new report from the Indian Council for Research on International Economic Relations. The report takes a look at government schemes to bolster the crop procurement process.

The Centre offers minimum support prices for 23 crops grown in the kharif (monsoon) and rabi (winter) agricultural seasons. This price, which is supposed to be set at the cost of production, represents a promise from the government to farmers that should market prices fall, usually due to high supply, the government will purchase those crops and protect them from heavy losses. In practice, neither the Centre nor the states have the capacity to procure most of these crops and they end up procuring only wheat and rice, and occasionally pulses, under this scheme.

While the minimum support price is set to the cost of production, this cost can be defined in three different ways. The lowest base, A2, the one at which the minimum support price of most crops is at now, calculates only the cost of inputs for the farmer. The second base, A2+FL, includes the imputed cost of unpaid family labour. C2 is the highest base, which includes all of this and the imputed value of fixed capital assets and rental value.

The Bharatiya Janata Party had promised in the run up to the 2014 Lok Sabha elections that it would increase the minimum support price to 1.5 times the cost of production, a promise that Finance Minister Arun Jaitley reiterated would be implemented in his budget speech this year. However, while Jaitley’s promised increase would take minimum support prices to 1.5 times of A2+FL, farmer groups have been demanding that the prices be increased to 1.5 times of C2.

All this would be somewhat theoretical given the Centre’s lack of interest in procuring anything but wheat and rice if it were not for the Centre also mulling implementing two new schemes that would make minimum support prices a reality.

One is the Price Deficiency Payments Scheme, a pilot of which was implemented under the name “Bhavantar Bhugtan Yojana” by the Madhya Pradesh government in 2017, but rolled back by the start of the rabi season. Under the scheme in Madhya Pradesh, the state did not buy farm produce from farmers but said it would pay them the difference between the market price and the minimum support price. For instance, if the minimum support price for maize is Rs 1,425 per quintal, but the average market price is just Rs 1,225, the government would pay the farmer the remaining Rs 200.

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Scroll.in, 22 April, 2018, https://scroll.in/article/875771/direct-income-transfers-will-help-farmers-more-than-minimum-support-prices-says-new-report


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