MSP is like a Salary for Farmers
Context: An analysis of vulnerabilities of Indian Agricultural markets.
Problems associated with Indian agricultural markets
- Status as the micro-market: Agriculture markets (Micro markets) cannot be aggregated to form a single big market.
- They need more capital and technology and a need for higher farmer incomes.
- The flat demand curve cannot be achieved in the micro-market: A flat demand curve means that there are so many producers that individually none of them can influence the price.
- Minimum Support Price (MSP) related issues :
- Increases the actual cost: for the government.
- Results in lazy farming: In Punjab, farmers want to keep the price line flat because they overproduce owing to huge input subsidies and an assured government market.
- Dilemma between farmers and farming: While farming is about economics and farmers are about politics.
- The dilemma is that if farming is to be efficient, farmers will be worse off — and if farmers are to be better off farming will be worse off.
Benefits of MSP
- Artificially flatten the demand curve.
- It smoothens the income stream and acts like a salary.
Conclusion: Governments in electoral democracies which try to reform farming get clobbered by the farmers. But still farming reforms is necessary for long term benefits.
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