MSP and Procurement Policy – The Way Forward


In a previous article of the same title, several problems related to current MSP and procurement policies in India were outlined. This article attempts to highlight the reforms that must be introduced to rectify these issues.

MSP linked procurement for “Other” crops

The biggest problem with MSP policy in India is that it is biased in favor of certain crops, while other crops, especially pulses and oilseeds, are neglected. It is important that higher MSP for crops other than wheat and rice is also announced. Higher MSP for wheat and rice is justified on the pretext of these crops being important for the food security of the country. Together they constitute the staple food for almost the entire country. However, in 21st century, where we have ample data on the nutrition deficiency among Indian children, it is time to shift focus from mere food-security to nutrition-security.

For nutrition security, it is important that due emphasis is put on production, procurement, and consumption of pulses as they are the principle source of protein for a vast majority of vegetarian population. Not only that, higher MSP for pulses and oilseeds in particular also makes economic sense. This is because a large part of India’s Current Account Deficit (CAD) is on account of imports of pulses and oilseeds. India is the largest consumer of oilseeds but a majority of this is imported. Therefore, a higher MSP for oilseeds will automatically lead to increase in production, will check the imports, and ultimately reduce CAD.

However, mere announcement of higher MSP is not enough. It is important that timely and MSP-linked procurement is also ensured. The year 2017 is a classic example of this– During this year, the central government announced higher MSP for pulses, but due to delayed procurement, it could not procure a majority of the resultant increased production. This proved disastrous for farmers because due to excess supply, the value of pulses in open market went down. Further, such incidents also lead to the loss of farmers’ trust in the government. Now even if the government announce higher MSP in the current year, farmers will still not not feel motivated to grow pulses. This will not only lead to scarcity and thereby inflation in the open market (hurting the consumer), but will also force the government to import pulses, leading to increase in CAD. Hence, an equitable or balanced MSP policy accompanied by actual MSP-linked timely procurement is the first major reform that is required.

A decentralized approach

It is time that focus is shifted from centralized to decentralized procurement i.e. procurement by states and not the central government alone. Tamil Nadu has done it in the past, and Chhatisgarh and Madhya Pradesh are doing it now. There are several benefits of this approach: It will ensure lower transportation costs and proper storage.

Empirical and visible evidence suggests that FCI’s storage capacity has been saturated. Therefore, states can pitch in to ensure to effective storage. Also, through decentralized procurement, the goal of nutrition security could be better realized because the states can procure as per their own local food preferences (staple food is not the same in all states). Finally, this step is also in sync with the principle of cooperative federalism that the present government proclaims to adhere to.

Target the FCI

Reforms within FCI are quintessential. The Shantakumar Committee recommendations aimed at achieving a more efficient transportation and storage infrastructure need to be implemented. A smart procurement strategy based on differential role of FCI is required.  FCI’s role  needs to be reduced in states that are already doing well in procurement, and increased in states that are performing poorly. The four potential states where FCI can focus on are Assam, Bihar, UP, and Odisha– These states have the potential to emerge as the sites for the Second Green Revolution, albiet with proper governance and policy.

New and innovative solutions

Madhya Pradesh and Haryana are experimenting with some new and innovative price deficiency payment policies; Telangana has successfully implemented an input credit scheme. MP’s Bhavantar Bhugtan Yojana (BBY) has been the most notable among the recent approaches.

BBY is a price deficiency payment scheme, a type of direct subsidy transferred directly to farmers’ bank account. Under this scheme, a subsidy amount equivalent to the difference between the MSP and average market price is paid to farmers directly. This is being touted as a major reform because it eliminates the need for physical procurement. However, several limitations such as lack of financial inclusion, poor awareness among farmers, digital illiteracy, are major hindrances that must be overcome for the yojna to be successful.

The government needs to adopt a comprehensive and pro-active approach to bring the agriculture sector out of distress. MSP and procurement reforms are only one pillar of the reforms that the Indian agricultural sector needs. Unless the government adopts a pro-active approach, the aim of doubling farmers’ income by 2022 will only remain an elusive dream.

-Contributed by Kunwar Suryansh

Picture Credits:

Most Popular

To Top
Please check the Pop-up.