Expert Speak India Matters
Published on Aug 04, 2018
Completely aligned with a control mindset, the practice of ensuring that farmers get a fair return on their production in an era of food surpluses continues till date — and seems more a political tool than an economic one.
70 Policies — Agricultural Prices Commission, 1965 The following is a chapter from the book 70 Policies that Shaped India: 1947 to 2017, Independence to $2.5 Trillion. Find the book here.

The year 1965 began with the setting up of the Agricultural Prices Commission, later renamed Commission for Agricultural Costs and Prices (CAPC), with a mandate to recommend minimum support prices <1> (MSPs) and raise productivity and grain production <2> to serve the emerging demands of the country. Today, the CACP recommends MSPs of 23 commodities: seven cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), five pulses (gram, tur, moong, urad, lentil), seven oilseeds (groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower, nigerseed) and four commercial crops <3> (copra, sugarcane, cotton and raw jute). These it determines by analysing demand and supply; cost of production; price trends in the market, both domestic and international; inter-crop price parity; terms of trade between agriculture and non-agriculture; and the likely implications of MSP on consumers of that product. Effectively, the CAPC regarded itself as an arbitrator in the distribution of real incomes between producers and consumer, with cost-plus as its intellectual foundation. <4> Completely aligned with a control mindset, this practice of ensuring that farmers get a fair return on their production in an era of food surpluses continues till date and seems more a political tool than an economic one, a tool used for collective bargaining by farm leaders in a sector bereft of market-driven structures to control other voter constituencies and inflation. Several committees have raised this issue, but their mandate, ironically, was to recommend MSPs. Effectiveness of a price policy as an incentive to higher production would depend upon several other factors, some applicable to the whole economy in general and others more particular to agriculture, the Jha Committee on Foodgrain Prices stated <5> in its 1965 report. “The agricultural problem is not really a price problem but is a net farm income problem,” noted the S.R. Sen Committee <6> in its 1980 “Cost of Cultivation” report, the echoes <7> of which are still heard today. An October 2007 study by the Planning Commission was even sharper: “The gains accruing to society (producers and consumers of rice and wheat) is at the cost of rising fiscal burden,” it stated. <8> Further, the MSP nudge as part of directing the production of food has created serious imbalances in the demand and supply of principal crops in the country, and shortages of pulses and edible oils, <9> pushing the country to import its requirements. As the June 2005 Committee to Examine Methodological Issues in Fixing MSP stated, <10> “India is a ‘food grains secure’ country but not ‘food secure’.” Despite this, the use of MSP as a tool to increase farm incomes still continues. Budget 2018 stated that the MSP would be 1.5 times the cost. <11> These anomalies and contradictions must be smoothened out.

<1> Citizen’/Client’s Charter for Commission for Agricultural Costs and Prices (Department of Agriculture, Cooperation & Farmers Welfare), Ministry of Agriculture & Farmers Welfare, accessed 4 January 2018.

<2> Organisation, The Commission for Agricultural Costs and Prices, Ministry of Agriculture and Farmers Welfare, Government of India, accessed 4 January 2018.

<3> Ibid.

<4> Rustic, “The Agricultural Prices Commission: What It Has Done and What It Could Have,” The Economic Weekly, 14 August 1965, 1 and 277, accessed 4 January 2018.

<5> Report of the Jha Committee on Foodgrain Prices for 1964–65 Season, Department of Agriculture, Ministry of Food and Agriculture, Government of India, 19 October 1965, 19, accessed 4 January 2018.

<6> S.R. Sen Committee Report on Cost of Cultivation, Commission for Agricultural Costs and Prices, Ministry of Agriculture and Farmers Welfare, Government of India, 31 March 1980, Para 11.13, 49, accessed 4 January 2018.

<7> Ramesh Chand, “Doubling Farmers’ Income: Rationale, Strategy, Prospects and Action Plan, National Institution for Transforming India,” Government of India, March 2017, accessed 4 January 2018.

<8> Extension of MSP: Fiscal and Welfare Implications, Integrated Research and Action for Development (IRADe), Planning Commission, Government of India, October 2007, 51, accessed 4 January 2018.

<9> Ibid., 5.

<10> Report of the Committee to Examine Methodological Issues in Fixing MSP, Ministry of Agriculture, Government of India, 27 June 2005, 32, accessed 4 January 2018.

<11> Budget 2018–2019 Speech of Arun Jaitley, Minister of Finance, Government of India, 1 February 2018, para 3, accessed 1 February 2018.

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