DESCRIBE ANY THREE NEGATIVE EFFECTS OF INCREASE IN MINIMUM SUPPORT PRICE (MSP) OF FOOD GRAINS IN INDIA.
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MSP initially was started as a safety net for farmers through a guarantee that if there produce is left unsold in the market, will be bought by the government. Another purpose was to incentivize farmer to produce more crops so as to ensure food security in India.
An ideal environment for this is one in which market prices are higher than support prices. When new crop comes to the market it will be sold at market prices and a situation was possible where on fulfillment of needs of consumers and industry, surplus is left with farmers. This will happen when production is more than demand. Such situation will result in crash of prices of agri products. It is this time when government should ideally intervene and purchase unsold stocks.
This policy took off in 1960’s and at that time Procurement prices were announced at beginning of sowing season, along with MSP. Procurement price was one under which government will buy the crop which it needs to maintain buffer stock or for PDS. Once quantity required has been purchased, farmers could only sell at MSP, which were kept lower than Procurement Prices. Procurement prices were always kept lower than Market Prices. So preference of farmer was to sell in this manner – 1st: Market, 2nd: Government at Procurement Price, 3rd: Government at MSP.
An ideal environment for this is one in which market prices are higher than support prices. When new crop comes to the market it will be sold at market prices and a situation was possible where on fulfillment of needs of consumers and industry, surplus is left with farmers. This will happen when production is more than demand. Such situation will result in crash of prices of agri products. It is this time when government should ideally intervene and purchase unsold stocks.
This policy took off in 1960’s and at that time Procurement prices were announced at beginning of sowing season, along with MSP. Procurement price was one under which government will buy the crop which it needs to maintain buffer stock or for PDS. Once quantity required has been purchased, farmers could only sell at MSP, which were kept lower than Procurement Prices. Procurement prices were always kept lower than Market Prices. So preference of farmer was to sell in this manner – 1st: Market, 2nd: Government at Procurement Price, 3rd: Government at MSP.
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1. The increase in MSP (Minimum Support Price)raises the maintenance cost of procuring food grains by the Government.
2. It also raises the transportation and storage costs of the FCI (Food Corporation of India).
3. The procurement is concentrated in a few states of Punjab, Haryana and Andhra Pradesh and that too maily of two crops ,i.e., wheat and rice. So, the increase in the MSP has somehow induced the farmer to divert the land from the production of coarse grains (which is the staple food of poor) to the production of wheat and rice.
4.Cultivation of rice requires an intensive utilization of water, which led to environmental degradation and fall in the water level. All this is threatening the sustainability of agricultural development in these states
5. This also increases a burden of subsidy on the Government treasury.
2. It also raises the transportation and storage costs of the FCI (Food Corporation of India).
3. The procurement is concentrated in a few states of Punjab, Haryana and Andhra Pradesh and that too maily of two crops ,i.e., wheat and rice. So, the increase in the MSP has somehow induced the farmer to divert the land from the production of coarse grains (which is the staple food of poor) to the production of wheat and rice.
4.Cultivation of rice requires an intensive utilization of water, which led to environmental degradation and fall in the water level. All this is threatening the sustainability of agricultural development in these states
5. This also increases a burden of subsidy on the Government treasury.
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