Fixation/Calculation of MSP:

 Fixed on recommendations of Commission for Agricultural Costs and Prices (CACP)

 Cabinet Committee on Economic Affairs (CCEA) takes final decision
 Factors taken into consideration:
 Cost of production (A2 + FL method)
 Implications of MSP on consumers
 50% more than cost of production
 Intercrop parity
 Price trends in domestic and international etc
 Procurement: FCI (Central agency) + some State Agencies

POSITIVES:

 Transferring incomes to rural areas

 Incentivise produce more
 Counter food inflationby producing market demanded crop
Higher MSP for pulsesincrease production (since 6 years back India is a
net importer of pulses)
 To export & reap international market
 Tool to diversify crops &cropping pattern
 To align—food produce--to industrial (food producing industries) and consumer needs
at reasonable price
 2Higher profits farmer invest in necessary infrastructure and equipment
 Prevents distress sale (bumper production year)
 EnsuresReasonable relationship between prices of agricultural commodities and
manufactured goods
 Providesuniform market for same produce over country

Disadvantages of MSP:

 Reach of MSP: Shanta Kumar-headed High Level Committeeonly 6% farmers were sold
produce at MSP
 Awareness issue: Survey by National sample surveymany small and marginal farmers
are unaware of MSP
 Skewed croppingtowards cereal crops (as procurement of wheat & paddy ensured by
FCI)
 Groundwater depletion, deteriorating soil and water conditions from overuse of
fertilisers
  Due to cultivation of rice in north-west India, water table went down by 33 cm
per year during 2002-08
 Does not cover perishables
 Inadequate infrastructure (in states): less procurement. Ex: North-eastern states,
West Bengal (in 2018, WB procured only 45,000 tonnes paddy against 149 Lakh MT
production)
 Farmers within APMC’snot able to take higher profit offered by private agencies
outside APMC
 Procurement by government agencies has created a shortage of crops in the open
market
 Subsidizing with high price penalizes consumers
 Issues in WTO: MSP challenged by many countries like, USA, EU @ WTO
 Fixing MSPDistorts free market
 Higher production due to higher MSP affected at international market when food price
is low
 MSPnon-scientific agricultural practices overexploitation of ground water soil
salinisation
 Arbitrary fixation of cane prices by state governments affected sugar mills (not able to
pay dues)

SUGGESTIONS AND COMMITTEE RECOMMENDATION:

1. National Commission on Farmers: Swaminathan Committee:

 MSPA2 + FL + C2
 A2credit expenditure to produce crop
 FLcost of unpaid family labour
 C2rent on land + interest on capital taken for farming
 Establish National Land Use Advisory Service link land-use decisions with
ecological meteorological and marketing factors
 Mechanism to regulatesale of agricultural landbased on quantum of land,
nature of proposed use and category of buyer.
 Distribute ceiling-surplus and waste land
 Prevent diversion of agricultural and forest land
 Lift curbs on international trade on agri commodities
2. Ramesh Chandra Committee: constituted to examine methodological issues in fixing
MSP
Proposed MSP should include,
 Interest on working capital of whole season
  Post-harvest costs, including cleaning, grading etc.
3. Recent Budget Initiatives:
 Market Assurance Scheme:
 Statesallowed to intervene in agricultural markets
 Center bear 40% & 50% loss forother than northeastern states &
north-eastern states

Other Suggestion Related to MSP:

 Focus on researchboost productivity per Ha.

 NITI Aayog
 Timely dissemination of information of research (KVK’s) and meteorology
 Announce MSP well before Sowing
 Decentralized procurement from Panchayat level lessens transportation charge,
meets PDS scheme
 Crop diversificationthroughMSP for all crops & setting procurement mechanism for
them crops
 Nutritional security (growth of pulses)
 Prevent supply side shocks (India imported pulses continuously since 2014)
 Sustainable agriculture (Rice, wheat due to MSPreduced ground water table,
salinisation of soil)

Explore alternative to MSP Bhavantar Bhugtan Yojna (MP); Bhavantar Bharapai Yojna for
vegetables (Haryana)  price deficiency scheme avoids market distortions, save storage and
transpiration cost and even attracts private investment

PDS:

BASICS:

 PDS evolved as a system of management of scarcity through distribution of food grains

at affordable prices
 FCI procure fooddistributes through government regulated ration shopsPDS
 Fixed quotas of food grains at subsidised price ‘Issue price’
 PDS system system of management of scarcity through distribution of food grains at
affordable prices
 High incidence of poverty level (as reported by the NSSO) 1970s, three important food
intervention programmes were introduced:
 PDS
 Integrated Child Development Services (ICDS)—1975
  Food for Work (introduced in 1977–78
 Targeted Beneficiaries for PDS (TPDS)—1997two sets of PDS issue prices we one
each for APL and BPL households

OBJECTIVES of PDS:

 Eliminate hunger and ensure food securityto poor

 Price support to farmers
 Making grain affordabledistribution from surplus to deficit regions and also to poor
 Helped to handle huge amount of grains which started o procure from mid 1960’s
 MSP & Procurementincreased production
 PDS insulate poor from impact of food price inflation and maintain their minimum
nutritional status
 PDSmaintains Buffer stock
 Redistributesfrom surplus region to deficit region
 PDS (apart from food) also includedKerosene oil, pulses etc. to people

Evolution of PDS in India:

 PDS traced to  World War II as rationing system by British India

 FCI & Agriculture Prices Commission –1960’s to procure (domestic) and store food
grains for PDS
 1970s PDS—universal scheme without any specific target beneficiaries till 1992
 Revamped Public Distribution System (RPDS)-1992  for food to reach remote places
 Targeted Public Distribution System (TPDS)-1997 focus on poorAPL & BPL
 Antyodaya Anna Yojana (AAY)-2000making TPDS to aim at reducing hunger among
poorest segments of BPL population
 NSSO 5% of total populationsleeps without two square meals a day
 National Food Security Act, 2013 relies largely on the existing TPDS to deliver food
grains as legal entitlements to poorshifting right to food a justiciable right
 People’s Union for Civil Liberties (PUCL) v. Union of India caseSC “right to food”
included under Article 21

Need of PDS in India:

 Designed as Anti-poor schemewith Rice, Wheat, Sugar, Pulses and Kerosene

 Objective: Food & nutritional security
 2018 Global Nutrition Report India highest number of malnourished and
underweight children in the world with 31% of stunted children under 5
Functioning of PDS:

 Ministry of Consumer Affairs, Food, and Public Distribution

 operated under: joint responsibility of Centre and State
 Centrethrough FCI procurement, storage, transportation and allocation of
food grains to State
 Operational responsibilities allocation within State, identification of eligible
families, issue of Ration Cards and supervision of the functioning of Fair Price
Shops (FPSs)
 4.6 Lakh ration shops
 Three kinds of ration cards with different price
a) Antyodaya cards  poorest of poor
b) BPL cards  below poverty line
c) APL cards  all others
 Distribution of items varies from staterice, wheat + additional iodized salt, edible oil
etc
 PDShealth impact in TN & Himachal Pradesh. However, in Bihar & Jharkhand health
impacts begun now
 Hascentralized procurement (by FCI) & decentralized (by states on behalf of
FCIreduce transportation charge from surplus region to deficit region)
 Open-ended procurement may exceed storage capacity, reduces food grains
availability at open market
 Centre issues food grains to state at “Central Issue Price”
 Allocation for BPL and AAY done on the basis of the number of identified households
 However, allocation for APL families is made on the basis of:
 Availability of food grains stocks in the central pool
 Past lifting of food grains by a state from the central pool
 Issues with allocation of Food Grains:
 Inclusion & exclusion error
 Bogus ration cards created by shop owners to sell in open market
 Issues with Transportation: siphoning of food grains during transportation
(Parliamentary standing committee)

Issues with PDS:

 Inclusion and exclusion errors: estimation by expert group set up in 2009 PDS suffers
from nearly 61% error of exclusion and 25% inclusion of beneficiaries
 Leakage of food grains: (Transportation leakages + Black Marketing by FPS owners):
Planning Commission found 36% leakage of PDS rice and wheat at all-India level.
  Lower Density of Fair Price Shops in many states.
 Migrant Workers –unable access their entitlement
 Issue with procurement: Open-ended Procurement over capacity of storage place &
shortage of food grains in open market
 Issues with storage: CAG  shortfall in government’s storage capacity;
 Ministry of public distribution rotting and damage of food gains: 40,000
tonnes of food damage from 2014 to 2019
 Low Purchase-Entitlement ratio: due to poor quality of food grains & irregularity of FPS
operations
 Poor internet connectivity: beneficiaries don't get benefits due to inability to
authenticate their Aadhar biometrics because of Network Failures
 Centralised procurementthough WB produces one of the highest rice in the country
but government procures just 2% of national total but allots 7% of PDS of national share
this distribution mainly from Punjab, Haryana etc

SUGGESTIONS: PDS reforms

 Technology integration: end to end computerization, POS machine, Adhaar Linked

digitized cards data management, monitoring scheme, reduce leakages, online entry
verification of beneficiary, online tracking of monthly entitlements and off take of food
grains by beneficiaries
 DBT: cash transfer to beneficiary’s account instead of subsidised food grains.
Beneficiariesfree to buy food grains from anywhere in market
 Estimatedcash transfers alone save exchequer Rs.30, 000 crore every year
 Use of GPS technology: track trucks carrying food grains prevent diversion
 SMS-based monitoring: SMS alerts during dispatch and arrival of TPDS commodities

Decentralised procurementwin-win situation for farmers with high demand and price and
low rate for consumers as transportation from other state has reduced in local market and for
government transportation and stock piling cost has reduced

Reforms

 Beneficiary identification by Aadhar.

 Direct Benefit Transfer.
 Technology-based reforms of TPDS
 Implemented by states. digitisation of ration cards, the use of GPS tracking of delivery, the use
of SMS based monitoring by citizens, etc.
 Computerisation of FPS allocation: declaration of stock balance, issuance of web-based
truck challans, etc very convenient.
 Installed ePOS (electronic point of sale)— at fair price shops to track the sale of food-
grains to actual cardholders