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5) The optimal policy response to  a structural surplus cannot be higher procurement prices. Critically examine the statement in the light of the increasing MSPs for farm products.(250 words)

Topic:Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security; Technology missions; economics of animal-rearing.

5) The optimal policy response to  a structural surplus cannot be higher procurement prices. Critically examine the statement in the light of the increasing MSPs for farm products.(250 words)

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Indian express

Why this question

Agriculture remains a critical employment and  livelihood source for around half of the Indian population. Getting a decent profit out of agricultural activities is essential to ensure sustainability of this critical sector. In this direction, the govt announces MSPs for several agricultural products. However, this does not simply translate into immediate or long term gains for the agricultural economy and has many negative ramifications as well.

Key demand of the question.

The question wants us to dig deep into issue underlying the question and discuss why there is a structural surplus in agricultural production and why higher MSPs will not help in solving the problem to the desired extent. Based on our discussion we have to form a personal opinion on the issue.

Directive word

Critically analyze- here we have to form an opinion on the issue after discussing the reasons behind the structural surplus in agriculture and the implications of providing higher MSPs for agricultural products.

Structure of the answer

Introduction – write a few lines about the state of Indian agriculture today where periods of abundance are followed by short periods of low production. Mention the emerging agricultural surplus state of our economy etc.

Body-

  1. Discuss why there is agricultural surplus. E.g improved seed varieties, faster diffusion of technology, low per capita land availability, better roads, electricity, irrigation and communication infrastructure etc.
  2. Discuss the implications of higher MSPs vis a vis its limitations and negative effects. E.g they provide incentive to grow more of a particular crop whereas in present times there is already agricultural surplus; limited procurement capacity of FCI; MSPs don’t guarantee procurement; spillover to generalized inflation which in turn will hurt the rural and agricultural economy etc.

Conclusion– Based on your discussion, form a fair and a balanced opinion on the issue in the form of a way forward. E.g allowing agro trading companies to buy more in the Indian market, fixing procurement caps above which no procurement will be guaranteed and upto which the whole produce will be procure; building the capacity of RBI monetary policy committee  to target inflation etc.