The Indian government has reduced its intervention in agricultural industry. Therefore one main proponent which was minimum support prices (MSP) which were revised each year has been reducing year after year. A report from rating agency CRISL has shown that the average annual growth of MPS between 2009 and 2013 was 19.3% while between 2014 and 2017 it was only 3.6%.
The MSP is responsible for ensuring there was a rising floor price to prices so that incomes on farmers were increased along with a sustainable return on investment. When digging into the economics of MSPs it is seen that productivity rises as more costs can be incurred in terms of increasing supply. Costs of cultivation have increased 3.7 per cent per year and hence the fall in the increase in MSP leads to lesser incomes for farmers.
Further to this, trade is being liberalised leading to cheaper imports and thus linked domestic Indian prices with international prices. This has further lead to a fall in prices due to competition in the agricultural sector.
Even though income is seen to rise based on the official National Accounts Statistics Price Index over the three year period between 2014 and 2017, to 16% the inflation has also risen to 16.3%. As a result the real inflation adjusted incomes of the agricultural population is stagnated and shows no growth in terms of income.
There is also the issue of MSP being available to all farmers across India. The main problem is India is such a huge nation that an important benefit to farmers such as MSP is not known to some of the rural farmers.
Market prices are seen to be ruling below MSP for many of the commodities both in times of good and bad harvest. The government of India needs to establish good pricing strategies to protect both farmers and consumers so that India as a whole in benefited and not a selected few. The vision of India’s farmers getting a wider income in the next few years is not clear anymore, with government focusing on secondary issues and not primary issues such as the agriculture sector.