In agriculture, there are two major types of government support measures. The first one is price support measure and the second one income support measures. Price support means the government is procuring the agricultural produce from farmers at a remunerative price. India’s Minimum Support Price based procurement is a
In the case of MSP, the farmers are supposed to be encouraged to produce more and the market price and production levels are influenced. Here, a high cost country can become a big producer by giving higher prices to farmers. WTO calls these subsidies as amber box subsidies that distort trade. Such subsidies should be reduced as they may make a high cost producer a big producer and the country may export its produce.
Indian Food Subsidy (Rs 184220 crores as per 2019 budget) belongs to the amber box subsidies that the WTO had requested to reduce it. According to the WTO, a support (subsidy) by the government that influences production and price is trade distorting and it should be reduced. In the income support, the government will be giving direct payment to the farmers for their low income from farming. Under the WTO terminology, it is called Direct Payments to farmers or Decoupled Income Support. Decoupled means such an income transfer to farmers will not influence (or minimum influence) production and price of the respective crops.
According to WTO, direct support includes income guarantee and security programmes (natural disasters, state financial contributions to crop insurance, etc.); programmes aimed at adjusting structures and environmental protection programmes, regional development programmes. Under Agreement on Agriculture (WTO), the direct payment to farmers comes under the Green Box. The Green Box subsidies can be given by a government or in other words, they need not be reduced.
The political economy of farm support is that most of the developing countries are giving price support (like the MSP). This is because they don’t have the fiscal capacity (tax revenue) to provide money to the large size of their farming people. Hence, most traditional and developing economies cannot afford to provide price and income
supports for agriculture.
Giving subsidies to huge population is a fiscal challenge as well as a targeting (finding the deserving people) challenge as the farming community in India is around 46% of the population.Direct income support to farmers is the type of support provided by developed countries’ governments. Less number of farmers and an easy way to find the deserving farmers make direct income support as the easiest and effective agricultural support in the developed countries. Most developed countries are known for providing direct income support to the farmers.
In the EU, decoupled income support is the primary support measure by the government. In the US also, there are direct payments to farmers.
The PM-KISAN has changed everything. It is very clear as a direct income support scheme; the subsidy is like the ones given in advanced countries. Or in other words, with PM-KISAN, India entered the Green Box era in the WTO terminology. India’s agricultural support strategy migrates from price support (MSP) to income support with
the launch of PM-KISAN.
Other Income Support Schemes
Income support schemes for farmers are in vogue. The government had made the agri sector its prime focus, rolling out a series of reforms such as e-NAM and the price deficiency payments scheme to deal with farmers’ distress over falling prices.
The Price Support Scheme (PSS) promises to provide an assured price for farmers and protect them from making distress sale during bumper harvest. The scheme proposes to strengthen physical procurement of pulses, oilseeds and copra.
State governments will be entrusted with the responsibility of deciding the type and quantity of the crop to be procured when wholesale prices fall below MSP. Besides, the State governments will also procure 25 per cent of the marketable surplus of farmers for eligible crops.
Under the Private Procurement Stockist Scheme (PPSS), the government is mulling to allow the entry of private players in the procurement of oilseeds on a pilot basis. The private players can procure oilseeds at the state-mandated MSP for which they would be paid a service charge not exceeding 15 per cent of the notified support price. While some private players are already engaged in procurement of wheat, this initiative got a fresh momentum
as it is expected to increase the outreach of MSP operations among all crop growers, which is essential to increase farmers’ income. The crux of the issue is that unless procurement is strengthened by various means, any hike in MSP will not proportionately benefit farmers.
When markets have failed miserably to pull out farmers from the perpetual indebtedness over the years, the launch of PM-AASH can be seen as the dawn of new market architecture. Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM-AASHA) has been introduced by the Centre to plug the holes in the procurement system and
address the gaps in the Minimum Support Price (MSP) scheme. The new scheme is a mix of sub-schemes which involve direct procurement from farmers, paying them for losses incurred when market prices are lower than the announced MSP, and pilot of private procurement and stockist scheme.
The Pradhan Mantri Kisan Samman Nidhi will provide assured income support to small and marginal farmers. Under the scheme, farmers with small landholdings, of up to two hectares, will be provided direct income support of Rs 6,000 per year.
Benefits of Direct Income Support
Direct Income Supports’ ability to encourage farmers to raise production is less.
There is no leakage – income is transferred through DBT. There is protection for farmers against income loss and adverse terms of trade impact on agriculture.
It is less distortionary and is WTO compatible; there is less influence on production and price.
Farm income support is superior to price support as it is crop neutral. The farmer is rewarded for continuing with agriculture whatever may be the crop he is cultivating. On the other hand, India’s MSP historically, favoured
wheat and rice farmers as procurement was concentrated on these two crops.