Farmers need an income policy, different from the current minimum support price regime, so that they can respond to market signals, according to a working paper by the Department of Economic Affairs in the finance ministry.
?An income policy may be adopted whereby farmers can be given a lump sum amount, inclusive of all farm subsidies (fertilizer, power and others), on a graded per hectare basis, as an income support,? the paper titled ?Crossing the Rubicon? says.
According to it, the government should adopt a dual pricing system ? the minimum support price in case of market distress and the procurement price, which would effectively be the market price.
It argues that agricultural markets, particularly those of wheat and rice would perform more efficiently if prices are discovered in the market and procurement is effected at market prices.
?It is important to keep the distinction between MSP and market price; the former is an instrument that provides basic insurance to the farmer, while the latter is the income source for the farmer. MSP is thus not a proxy for income; this needs to be highlighted given that most states seek higher MSP on the basis of rising costs. These issues lead us to question the economic utility of continuing with the extant MSP policy,? the paper said.
The paper has suggested that government intervention in farm production, procurement, and distribution has distorted the competitive functioning of agricultural markets.
?In the present scenario of bulging grains stocks, rising food prices and changing consumption patterns, these interventions are misplaced and create market distortions that also raise World Trade Organisation compliance issues,? the paper argues.
The income policy for farmers cannot operate effectively unless the public distribution system is also concurrently revamped, it said.
?In view of changing consumption functions, a system of cash transfers (conditional or un-conditional) or food stamps may be adopted, which consumers can use as per their preferences,? it said.
Last month, a working paper of the Indian Council for Research on International Economic Relations had also argued that direct cash transfers would help in better targeting and reduce huge costs associated with government intervention in the grain market.
By Cogencis
