Topic: Issues related to direct and indirect farm subsidies and minimum support prices
6) Saddling private sector with the burden of MSP will hurt the interest of both the farmers and the industry. Critically analyze.(250 words)
Why this question
MSP is controversial as convincing arguments can be made both in favour and against it. Here the focus of the question is the trend seen recently, where, to secure the interest of the farmers, the burden of MSP is thrust on the private sector. The proposed MSP policy in the case of cotton for purchase by mills is exhibit A. Discussing the impacts and justification of this move is important.
Key demand of the question
The question expects us to emphasize on the following points in our answer
- The evidences where such a policy is being followed
- The impact of imposing the burden of MSP on private sector – whether it would help in securing farmer’s income and the effect it would have on the economic viability of the industries. Other impacts that such a policy would have.
- Discuss the situations where MSP makes sense and where it doesn’t. Suggest alternatives to MSP.
- Present your view on whether or not it makes sense for the government to impose the burden of MSP on private sector.
Critically analyze – You need to conclude with a fair judgement, after analyzing the nature of each component part and interrelationship between them. You need to conclude with a fair judgement, after analyzing the nature of each component part and interrelationship between them.
Structure of the answer
Introduction – explain MSP and the rationale behind government’s reliance on it. Thereafter, mention the proposed MSP policy for cotton and the experience of sugar. Mention that the impact of this move needs to be analyzed in depth.
- Discuss some of the merits of MSP (the usual). Thereafter, highlight the problem of imposing MSP on private sector. Discuss issues like distortion of market prices, post facto decision making tool, impacts the input cost of businesses making them less profitable etc
- Take the case study of sugar to show that MSP has not served well. One can also examine the case of rice and wheat where the policy despite certain limitations has worked fairly well. However, one should point out the difference in the two situations (PDS – backward linkage) and where MSP makes sense.
- Discuss other advantages / disadvantages like – issues in procurement, crops being grown which are ill suited to the climatic conditions etc.
- Present your view on whether the burden of MSP should be imposed on private sector by summarising the arguments made above
Conclusion – Highlight some alternative to MSP as a way forward such as a robust futures market for agricultural commodities.