Is Minimum Support Price Effective in India? Evidence from State-wise Paddy Procurement

Abstract

Aims: The paper tries to examine the effectiveness of the minimum support price (MSP) policy based on empirical data on price deviations as well as the procurement of paddy crops by various agencies. The cost and gross margin of cultivation are also analysed to add further reliability to the overall assessment of MSP policy. Data and Methodology: The effectiveness of price policy is examined by studying farm harvest price (FHP) with respect to MSP of Paddy. We have calculated the deviations of FHP of paddy from MSP for the entire study period of 1996-2016, where the positive deviations are taken as an indicator of the effectiveness of price policy. Our study has analysed the procurement data published by the Food Corporation of India (FCI) and the Ministry of Agriculture and Farmers welfare. We also used the unit-level data from the ‘Situation Assessment Survey of Agricultural Households’, 2012-13 of NSSO. Results: The MSP policy is found to be effective in Kerala, Madhya Pradesh, and Punjab but ineffective in other major rice-producing states across the country. And in states like Himachal Pradesh, Uttar Pradesh, Bihar, Assam, West Bengal, Jharkhand, Odisha, Andhra Pradesh, Karnataka, and Tamil Nadu, a vast majority of the medium, semi-medium, and small farmers sell their paddy to private agencies, thus making MSP policy for paddy in those states a complete failure. In states such as Haryana and Maharashtra, large farmers are found selling a significant portion of their total marketed surplus to processors. Conclusion: Overall, at the national level, procurement by government agencies (which stands at 17.2 percent) is far from satisfactory. The policy implication calls for enhancing paddy procurement by government agencies across the farming groups rather than concentrating only on medium and large farmers.