10.

Agriculture
Part 1
➢ Minimum Support Prices (MSP)
o Background
▪ During the sixties the government to address the food
crisis promoted technological changes. However, it felt
that only this would not bring the required dynamism
in the growth of the agriculture sector. Hence in
addition to this govt introduced (institutional reforms
to support growth)
• Land reforms
• Promotion of agri credit
• Agricultural education
• Banking sector reforms (PSL)
▪ As a next step, the government appointed the L K Jha
committee to recommend agricultural price policy.
Following the recommendations a series of measures
were taken
• Agricultural Prices Commission came into being
in January 1965 (has been renamed as CACP from
1985). CACP submits the recommendations to
the government in the form of Price Policy
Reports (The Food Corporation of India was also
established in 1965, with passage of FCI act 1964.

SHYAM SHANKAR KAGGOD

(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)
 It had the objectives of procurement, storage,
and distribution of food grains).

o Basic Points
▪ It is the price paid for foodgrains purchased from
farmers (either by centre or state) for the central pool
of foodgrains
• The central pool is used for providing food grains
under PDS (Public Distribution System) and other
welfare schemes and kept as buffer stocks
▪ MSP was introduced for the first time in 1965-66
season (July-June) for wheat and now it covers 23
crops
▪ Is announced weeks before the sowing season, so that
the farmers can take informed decisions regarding
cultivation
▪ The centre though announces MSP for 23 crops, it
doesn’t procure all of them
▪ The states pay bonus in addition to the MSP by the
centre
o Benefits
▪ Will provide guaranteed price for the farmers
irrespective of the market price
▪ Will protect the farmers from being market price
volatility
▪ Government needs foodgrains for distribution under
its programmes

SHYAM SHANKAR KAGGOD

(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)
 ▪ Through MSP policy the government may promote
production of certain crops

o Concerns
▪ The expenditure of the government would be higher
contributing to revenue deficit and fiscal deficit
▪ The MSP policy will lead to skewed production and
supply
▪ The procurement under MSP is focused on few states
(surplus states)
▪ According to Shanta Kumar Committee Report, just 6%
of the farmers benefit from MSP
▪ With higher MSP, the market prices would be higher,
and this will contribute to inflationary trends

o Legalized MSP
▪ The government announced MSP under its executive
powers and there is no law mandating this. Hence
there has been a concern from certain sections of the
farmers’ unions which have been demanding a
legalized MSP
▪ Benefits
• The procurement will be spread across rather
than getting concentrated in few states
• There will be no fear of the government stopping
procurement as it will be legalized
• Other crops and other farmers will be covered
▪ Concerns

SHYAM SHANKAR KAGGOD

(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)
 • If the procurement is done by the government,
the overall expenditure will be much higher
• The government does not have sufficient storage
capacity to warehouse when such quantity is
procured
• If the MSP is higher compared to the global
prices, then the exports of agriculture
commodities would be affected
• The procurement operations by the traders
would be affected and higher MSP would be
much more inflationary

➢ PDS (Public Distribution System)

o PDS has three major objectives
▪ Price stability
▪ Price support to farmers
▪ Making grains affordable through distribution from
surplus to deficit regions and to the poor
o PDS was first introduced in 1939 (in 1992, the government
introduced
o PDS is implemented as a joint responsibility between the
centre and states
▪ Central government has the responsibility for
procurement, storage, transportation and allocation of
essential commodities namely wheat, rice, sugar etc.
These commodities are made available at fixed Central
Issue Prices (CIPs), which are determined by the
central government (the issue price under NFSA was
fixed at ₹ 3, ₹ 2 and ₹ 1 per kg of rice, wheat and
coarse grains since its launch. It has not been changed
after that until bringing PMGKAY under NFSA. After
SHYAM SHANKAR KAGGOD
(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)
 this the government has made the food grains free of
cost to the beneficiaries)
▪ The state governments have the responsibility of
distribution to consumers including target groups
through a network of over 5 lakh fair price shops
(FPSs).
o In 1997 the government introduced Targeted PDS (TPDS)
▪ It was done to serve the population living in poverty
(Below Poverty Line -BPL - in urban and rural areas)
▪ The beneficiaries were now divided into above poverty
line (APL) and below poverty line (BPL) based on the
recommendations given by the Planning Commission
▪ States were to identify the beneficiaries
▪ The beneficiaries included the population BPL and APL
(above poverty line; as sudden withdrawal of benefits
was not considered to be feasible)
o Antyodaya Anna Yojana (AAY)
▪ Was introduced in 2000
▪ This was introduced to make the TPDS much more
targeted towards reducing the hunger amongst the
poorest of the poor.
▪ Initially it was for one crore poor families and 25 kgs of
food grains per family was issued. Later the coverage
and benefits have been increased
• Foodgrains allocation was increased to 35 kgs in
2002
• Coverage of beneficiaries increased to 2.5 Cr
households
o Procurement – There are two methods
▪ Centralized Procurement

SHYAM SHANKAR KAGGOD

(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)
 • Under this the food grains for the central pool is
undertaken either by FCI (Food Corporation of
India) directly or by the state government
agencies (SGAs).
• SGAs procure and hand over the food grains to
FCI for storage and issuance either in the same
state or in other states
• The SGAs will be incurring expenditure to procure
the food grains and this is re-imbursed by the FCI
▪ Decentralised Procurement (DCP)
• Under this the State Government Agencies
(SGAs) procure, store and distribute the food
grains
• The SGAs will be incurring expenditure for doing
above activities which are reimbursed by the
centre
• to procure the food grains and this is re-imbursed
by the FCI

➢ Food Subsidy
o The government provides food grains to the beneficiaries
and in the process incurs expenditure. When the food grains
are issued the government earlier used to issue the grains at
₹ 3, ₹ 2 and ₹ 1 for rice, wheat and coarse grains
respectively. Now the government has decided to issue
them free of cost. Which essentially. Means the government
is bearing a huge subsidy burden
o In addition to this, the government also maintains buffer
stocks. For this also the government incurs the expenditure.
o Economic Cost
SHYAM SHANKAR KAGGOD
(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)
 ▪ It is the total cost to FCI.
▪ It consists of Acquisition Cost and Distribution Cost.
▪ Acquisition cost consists of Minimum Support Price
(MSP) plus procurement incidental cost.
• Procurement incidentals are expenses incurred
during procurement till the foodgrains reach the
first point of godown.
• It includes the state taxes, commission to arthiyas
(middlemen), bagging materials, mandi labour,
transportation from mandi to depot etc.
▪ Distribution cost
• Freight (transportation)
• Handling charges
• Storage charges
• Interest etc.

o One Nation One ration Card (ONORC)

th
▪ Was implemented on 9 August 2019
▪ ONORC has been effectively implemented in all 36
States and Union Territories, making food security
portable throughout the country, with Assam
becoming the last state to implement it
▪ It enables migrant beneficiaries to get their food grains
from any Fair Price Shop of their choice, in any part of
the country, by using their same/existing ration card
with biometric authentication of identity on an ePoS
device

SHYAM SHANKAR KAGGOD

(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)
 ▪ The Department is collaborating with other
Ministries/Departments to leverage the ONORC
database for deepening the outreach of citizen-centric
government schemes across the country
▪ Mobile App on ONORC “Mera Ration” has also been
launched for the benefit of all NFSA beneficiaries. The
app makes portability of ration easier
▪ During year 2023, around 28 Cr portability transactions
were performed in 11 months of 2023 delivering more
than 80 LMT foodgrains including inter-state and intra-
state portability transactions of NFSA and PMGKAY.
Presently, more than 2.5 crore portability transactions
are being recorded every month under PMGKAY
foodgrain distribution.
o Jan Poshan Kendras (JPK)
▪ The government wants to convert the FPSs (Fair Price
Shops) into nutri-hubs in the next three years
▪ The beneficiaries under PMGKAY to buy millets, pulses
and dairy products and get their share of subsidized
food grains
▪ The govt wants to use these shops which are visited by
the people to generate additional revenues
• The owner of FPS earns 90 paise per kg of rice
and wheat handling charges from the centre
▪ These shops would be getting loans and invoice
financing support from SIDBI for making these outlets
economically viable
▪ The PDS outlets will sell items under FMCG
▪ The conversion of FPSs into JPKs is built on four key
pillars
• Training and capacity building for the FPS dealers

SHYAM SHANKAR KAGGOD

(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)
 • Access to working capital for FPS dealers through
invoice financing
• Market linkages via B2B aggregators
• Promotion of nutritional literacy
o The DFPD (The Department of Food and Public Distribution)
has signed a memorandum of understanding (MoU) with the
National Institute for Entrepreneurship and Small Business
Development (NIESBUD, functions under ministry of skill
development)
▪ It aims to provide skill development programs and
promote financial, nutritional literacy and business
management information to the FPS owners
o DFPD has entered into an MoU (Memorandum of
Understanding) with SIDBI to create FPS-Sahay (mobile
application) to allow the FPS dealers to finance invoices
which will help the owners to purchase the non-PDS
commodities
o FPS dealers are being oriented to serve as Poshan Mithras to
offer guidance to the beneficiaries on the benefits of
consuming nutrient rich and balanced foods

➢ The Food Corporation of India was also established in 1965, with

passage of FCI act 1964. It had the objectives of procurement,
storage, and distribution of food grains. The functions of FCI are
o Implements govt food programme through procurement at
MSP
o Stores the food grains, transports from surplus to deficit and
distributes to the states under PDS
o Maintains buffer stocks
o Is not involved in any commercial ventures

SHYAM SHANKAR KAGGOD

(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)
 o Intervenes in the domestic market to control rising prices of
food grains

➢ PMGKAY Extended – Food Security Vs Nutritional

Security
o Basics
▪ Food Security – Aim of the government is to provide
food security i.e. provide food to people.
▪ Food security refers to three terms
▪ Food availability (enough production of
food grains)
▪ Food affordability (sold at a lower price)
▪ Food accessibility (the place of sales is in
the vicinity)
▪ To achieve food security, the government has
introduced National Food Security Act (NFSA) in 2013
as per which
▪ 50% of urban and 75% of rural population (two-
thirds of total population). The population is
based on the census of 2011
▪ Entitlement
▪ Priority Households – 5 kgs of food
grains/person/month
▪ Antyodaya Card Holders - Poorest of the
poor households will continue to be
covered under AAY (Antyodaya Anna
Yojana) and will get 35 kgs per month
▪ For issuing ration cards eldest woman of the
house will be considered
▪ Redressal mechanism-DGRO and SGRO

SHYAM SHANKAR KAGGOD

(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)
 ▪ States must identify eligible households
▪ Proposes using AADHAR, ICT for better
implementation

▪ Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY)

▪ It was launched by the government during the
pandemic i.e. in 2020
▪ Under this the government distributed additional
5 kgs per month of foodgrains (above and over
the entitlement under the NFSA)
▪ The PMGKAY was to end on 31st December 2023
(initially had a deadline of December 2022)
▪ The government has merged the PMGKAY under
National Food Security Act (NFSA)

o The government has extended the Pradhan Mantri Garib

Kalyan Anna Yojana for 5 years (till December 2028)

o Benefits of the extension

▪ This will make sure food grains are available for the
population
▪ The pandemic has affected the rural households more
which have lost wage opportunities, and this extension
will provide relief to them
▪ Will reduce the stock of food grains which usually end
up rotting in the warehouses
▪ PMGKAY is as much a safety net for the farmers as it is
for consumers

SHYAM SHANKAR KAGGOD

(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)
 • The government to provide the food grains will
have to procure from the farmers which means
the farmers will be earning

o Concerns
▪ It will add to the central government’s revenue
expenditure and add to its revenue and fiscal deficit
▪ The food subsidy bill is already high, and this would
add to it
▪ The scheme will provide food security but not nutrition
security
▪ It will be promoting populism at the cost of fiscal
prudence

o Nutritional Security
▪ According to The Food and Agriculture Organization
(FAO) report - Regional Overview of Food Security and
Nutrition 2023: Statistics and Trends
• More than 74% of the Indians were not able to
afford a healthy diet in 2021 (it was 76.2% in
2020)
• If the rising food costs are not matched by rising
incomes, then more and more people may find it
difficult to afford healthy diet
• 16.6% of country’s population is
undernourished
▪ As per the NFHS-5 for 2019-21 reveals that 36% of
children under the age 5 exhibit stunted growth
indicating chronic undernutrition
SHYAM SHANKAR KAGGOD
(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)
 • 19% of these suffer from chronic undernutrition
▪ As per the recent NITI Aayog’s MPI, 31.5% of the
population is nutritionally deprived. Hence there is a
need to redraw the coverage of the PMGKAY so that
leakages can be trimmed and those deserving ca be
covered
o How to ensure nutritional security – Way Forward
▪ Support transition of farmers towards cultivation of
such crops
▪ Shift farming subsidies from kind to cash
▪ Provide pulses and millets under PDS
▪ Ensure cash subsidies provided are used for purchasing
nutritious food grains
▪ Increases the awareness regarding the importance of
balanced diet

SHYAM SHANKAR KAGGOD

(EDUCATOR, DIRECTOR - ACADEMICS, UNACADEMY)