Topic in Syllabus : General Studies Paper 3 : Indian Economy




A persistent slump in the commodities market despite substantial hikes in the official floor prices of major crops to 50 per cent above their production cost is among the issues the new government would need to address urgently. Most of the commodities for which the government fixes minimum support prices (MSPs) are being traded at 10 to 30 per cent below these rates in the ongoing rabi marketing season.


Reasons for price meltdown:

  • Consistent surplus production in the last couple of years subdued global commodity prices unfavourable domestic and external trade policies concerning agri-commodities.
  • Offloading previously procured stocks permitting imports while the domestic crops are still being marketed


Steps Taken by Government and its flaws:


  • The government’s flagship price support scheme, PM-AASHA (AnnadataAaySanrakshan Abhiyan)Pradhan Mantri AnnadataAaySanraksHan Abhiyan, intended to shore up the prices that farmers get for their produce.
  • The move follows increasing farmer unrest across the country as prices of many key agricultural commodities have fallen below their MSP (minimum support price).
  • The three different components of the scheme, will cover gaps in the procurement and compensation mechanism for crops and help boost farmers’ income.


Flaws of PM- AASHA:

The government’s flagship price support scheme, PM-AASHA (AnnadataAaySanrakshan Abhiyan), has remained virtually a non-starter.

  • Physical procurement of stocks at MSPs, price deficiency payment of the kind tried out in Madhya Pradesh, and a few other states, and the participation of private trade in the procurement and management of farm produce on a fixed-commission basis.
  • The system of open-ended procurement of staple cereals, notably rice and wheat, has been in operation for decades and has served well to run the world’s largest public distribution system but at a huge cost to the exchequer. It has, however, remained confined primarily to parts of a handful of states where the procurement infrastructure exists.
  • The price deficiency payment system, too, has failed to deliver the results because of a cumbersome registration procedure; mandatory sale through the regulated mandis dominated by manipulative middlemen; and capping total purchases at 25 per cent of production.
  • Roping in private traders:The third option of roping in private traders in price support operations has found no takers chiefly because the proposed commission of 15 per cent of the MSP for the operation involving buying, bagging, transporting, storing and disposing of the stocks is too meagre for the task.


Measures needed:

Apart from addressing these issues, several other measures may be needed to prop up agri-commodities prices.

  • An export window as an outlet for surplus stocks is a must.
  • This can be created by modifying import-export tariffs with an eye on boosting agri-exports.
  • Besides, the farmers need to be incentivised to diversify their production by growing high-value crops, which could yield better returns without the government’s intervention.
  • The overarching objective  of the policy regime has to  be  to  strike a balance between the farmers’  interests and inflation management


Sample Question

Despite of initiatives taken by  Government to increase minimum support price (MSP)  the problem still persists, analyse and  discuss the steps needed to be taken to boost farmers income.