Citing inflation and WTO subsidy limit, NITI, Commerce red-flagged MSP hike

• The Union Ministry of Agriculture and Farmers’ Welfare recently proposed a hike in the Minimum Support Price (MSP) for kharif crops in the 2023-24 season.
• Key central government ministries and departments have conveyed apprehensions about this proposal.
• Their concerns included inflation, adherence to World Trade Organization (WTO) obligations, labour shortages and rising wages.

Proposed Hike in MSP

• The increase suggested in MSP varies from 5.3 percent in case of urad to more than 10 percent in crops like cotton (long staple), sesamum and moong.
• NITI Aayog stated, the proposed increase in MSP would make it difficult to keep inflation in check.

MSP and Cost of Production

• The cabinet keeps prices at 1.5 times the projected cost for kharif season 2023-24.
• Hence, the entire increase in MSP recommended by CACP is on account of increase in projected cost.
• According to Niti Aayog, actual data shows that the real wages in agriculture are not rising.
• Also, the increase in price of urea has been absorbed by the Government of India by increasing subsidies.

Recommendations

• The Ministry and CACP should collaborate to verify the on-ground situation at the state level regarding the effects of both price and non-price recommendations.
• This can help sensitise the states about the operations related to procurement and challenges of marketing.

Labour Shortage and Mechanization

• According to CACP, labour shortage and rising wages are key concerns in Indian agriculture.
• It recommends encouraging collective or group ownership of machinery to make high-cost farm machinery and implements affordable to all classes of farmers at the doorstep.
• Supply side bottlenecks such as storage, warehouse infrastructure and transportation also need to be addressed in a mission mode.

WTO Obligations

• The Department of Commerce highlighted the need to adhere to the World Trade Organization.
• It requires that product specific support is within the de-minimis limit i.e. 10% of the value of the production of the respective crop.
• Similar de-minimis limit also applies to non-product specific price support across the agriculture sector.

Agriculture Ministry’s Stance

• While recommending MSP, CACP considers the cost of production and overall demand-supply situations of various crops in domestic and world markets.
• It is essential to ensure remunerative prices for farmers, encouraging them to invest more in production and to ensure food security in the country.
• Higher MSP for crops such as oilseeds, pulses and Shree Anna aims to promote crop diversification.

Prelims Takeaway

• Minimum Support Price
• World Trade Organisation