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Essay on Agricultural Price Policy in India

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In this essay we will discuss about Agricultural Price Policy in India. After reading this essay you will learn about: 1. Subject Matter of Agricultural Price Policy in India 2. Need of Agricultural Price Policy 3. Objectives 4. Measures 5. Evaluation 6. Features 7. Effects 8. Suggestions for Rationalisation.

Contents:

  1. Essay on the Subject Matter of Agricultural Price Policy in India
  2. Essay on the Need of Agricultural Price Policy
  3. Essay on the Objectives of Agricultural Price Policy
  4. Essay on the Measures Introduced for Enforcing Price Policy
  5. Essay on the Evaluation of Agricultural Price Policy
  6. Essay on the Features of Agricultural price Policy 
  7. Essay on the Effects of Agricultural Price Policy
  8. Essay on the Suggestions for Rationalisation of Agricultural Prices

Essay # 1. Subject Matter of Agricultural Price Policy in India:

Agricultural price policy in India was introduced since independence. But the agricultural price policy formulated in India has varied widely for different years and also for different crops. This policy put much emphasis on the prices of foodgrains like wheat, rice and coarse cereals such as jowar, bajra, maize etc.

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In India, the price policy was first introduced in 1947 with the formation of Food grains Policy Committee which recommended a policy of progressive decontrol, reduction of imports or food grains and substantial increase in the production of foodgrains. Again in 1950, Foodgrains Procurement Committee was appointed which introduced the system of rationing and control in the supply of foodgrains in the country.

The main objective of the price policy in India was to protect the interests of consumers. In this policy no attention was paid to provide incentive price to farmers. It was only in 1964, a clear-cut policy was introduced for providing incentive price to farmers.

The Third Plan document rightly observed that, “The producer of foodgrains must get a reasonable return. The farmer, in other words, should be assured that the prices of foodgrains and the commodities that he produces will not be allowed to fall below reasonable minimum.” Accordingly, the foodgrains Price Committee was appointed in 1964.

This committee recommended various measures such as:

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(a) Introduction of rationing in major cities,

(b) Establishing lower prices through lower prices or Fair price shops,

(c) Acquisition of control over adequate stocks,

(d) Withdrawing restrictions of inter-state movement of foodgrains,

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(e) Imposing regulation and licensing of wholesale trade of foodgrains and finally strengthening of the administrative machinery in the States. Again as per the recommendation of this committee, the Agricultural Price Commission was set up in 1965.

In 1966, the government appointed another foodgrains Policy Committee which recommended the following matter in connection with the prices of agricultural commodities:

(i) In order to create a favourable condition for increasing production, the government should announce the minimum support prices well in advance of the sowing season.

(ii) Procurement price should be higher than support price so that it can offer proper incentive to the producer and reasonable price to consumer.

(iii) To create a favourable climate for long-term investment, minimum support prices should be fairly stable.

(iv) Making adequate marketing arrangement for making purchases at minimum support prices.

Moreover, in 1965, the Food Corporation of India (FCI) was set up for making necessary procurement, storage and distribution of foodgrains. In 1989-90, total capital employed in FCI was to the extent of Rs 5,138 crore with its total storage capacity at 18 million tonnes.

The policy of minimum support prices was accepted by the Fourth Plan but its effectiveness depends on the efficacy of the purchasing machinery like FCI and State Trading Corporation (STC). The Fifth Plan also formulated the agricultural price policy in order to meet two important considerations, i.e., firstly for providing incentive for sustained and higher agricultural production and secondly for inducing the farmers to plan the production of various crops as per estimated demand through discriminating manipulation of inter­crop prices relationship.

In order to build up buffer stocks, various public sector organisations would announce purchase prices at different times which would be higher than minimum support prices.

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Again, the Sixth Plan realised the importance of price policy for agricultural development on the following grounds “Firstly, modern agriculture increasingly involves the use of costly inputs as part of improved technology and hence an assured minimum prices becomes a necessary underpinning for sustained agricultural production. Secondly, price policy is an important tool for facilitating crop planning, an aspect which so far has not received adequate attention in the country. Finally, price policy can be geared towards community are not eroded by continuing unfavourable terms of trade between the agricultural sector and non-agricultural sector.”

To fulfill this last consideration necessary arrangement was made for amending the terms of reference of the Agricultural Prices Commission and the commission was advised to take care of movement in terms of trade.

The Seventh Plan realised the importance of rationally determined support prices for wheat and rice in reducing price fluctuations, raising profitability and stimulating growth of output. The Plan argued to introduce such systems for coarse grains, pulses and oilseeds and also agreed to determine the appropriate relative prices of different types of crops in order to make provision for efficient use of resources in the country.

At present, the government decides on the MSPs for various agricultural commodities taking into account the recommendations of the Commission for Agricultural Costs and Prices (CACP), the views of state governments and central ministries as well as such other relevant factors which are considered important for fixation of support prices for agricultural commodities.

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In 2011-12, the MSPs for various agricultural crops have already been increased. In the mean time, the MSPs of some major crops exhibit a rising trend in line with costs and as incentive for higher output.


Essay # 2. Need of Agricultural Price Policy:

Movement of price is a common feature. But rapid and violent movement or fluctuations in the prices of agricultural commodities have serious consequences on the economy of the country. As the sudden steep fall in the price of a particular crop, result in huge loss to the farmers producing that crop as their income declines.

This will force the farmers not to cultivate the crop next year leading to a serious shortage in the supply of that food item and that may force the government to import that food crop from foreign countries.

Alternatively, a sudden hike in the price of a particular crop may cause huge suffering to the consumers which may force the consumers to discard it or to curtail their other expenditure substantially for meeting the consumption expenditure on that crop. In both ways, the large scale fluctuation in the price of agricultural produce will create a disastrous effect on the economy of the country.

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Price policy of the government for agricultural produce seeks to ensure remunerative prices to growers for their produce in order to encourage higher investment and production and also for safeguarding the interests of consumers by making available food supplies at reasonable prices.

The price policy of the country also seeks to evolve a balanced and integrated price structure in keeping with the overall needs of the economy.

In order to achieve this end, the government announces minimum support prices (MSPs) for major agricultural commodities in each season and also organises purchase operations through the Food Corporations of India (FCI), and cooperative and other agencies designated by state governments for the purpose.

In order to safeguard the interest of both producers and consumers a comprehensive agricultural price policy must be suitably formulated. This should be supported by maintaining buffer stocks of agricultural commodities alongwith the extensive network of public distribution system.

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These will provide a minimum support price to the producers and arrange the supply of these agricultural produce to the consumers at fair prices. Thus while fixing the minimum support prices and procurement prices care must be taken to fix those prices at such level which will induce the farmers to produce more. Thus, the agricultural price policy can be designed as an “instrument of growth”.


Essay # 3. Objectives of Agricultural Price Policy:

The agricultural price policy of the country like India should have the following objectives:

“(1) To protect or insure the producer through guaranteed minimum support price, which as a stabilisation measure reduces the variability in product prices and therefore price risk of the farmers. The impact of the risk reduction is expected to induce farmers to undertake large investments and to adopt improved production technology.

(2) To induce the desired outputs of different crops according to growth targets.

(3) To induce an increase in aggregate agricultural output through large input use and adoption of high yielding seed, fertilizer and water responsive technology.

(4) To induce farmers to part with a large proportion of foodgrains production as a marketed surplus.

(5) To protect the consumer against the excessive rise in prices, especially to protect the low income consumers in periods when supplies lag behind demand and market prices rise continuously”.


Essay # 4. Measures Introduced for Enforcing Agricultural Price Policy:  

Thus the agricultural price policy which was introduced just after independence made a compromise with the situation and followed a variable policy of progressive decontrol in 1947 and then a partial control in 1955. Then in 1959, the government introduced the state trading in foodgrains particularly in rice and wheat.

After that in 1964, the government introduced food zones for imposing restriction on the movement of foodgrains from one zone to another in order to enforce stability in agricultural prices.

In 1965, the Agricultural Price Commission was set up which announced the minimum support prices and procurement prices in the successive years in order to guarantee minimum prices to the producers and for building up buffer stocks to maintain the public distribution system.

The minimum support price for wheat which was fixed at Rs 37.50 per quintal in 1964-65 gradually raised to Rs 50 per quintal in 1965-66 and then to Rs 350 per quintal in 1993-94. The procurement price for paddy per quintal was also gradually raised from Rs 77 in 1977-78 to Rs 230 in 1991-92.

The procurement price for coarse grains was also raised from Rs 48.29 pre quintal in 1965-66 to Rs 205 in 1991-92. While fixing these procurement prices, the large farmers’ lobby has played an important role in its decision making.

Again in order to meet the minimum needs of the weaker sections of the society, the rationing system through public distribution system was introduced in India and accordingly the total number of fair price shops has also increased from 2.39 lakh in 1979 to 3.54 lakh in 1980. This public distribution system has been handling about 19 million tonnes of foodgrains.

NAFED is also an important agency which appoints state agencies for undertaking Price Support Scheme (PSS) operations. The losses, if any, incurred by central agencies on undertaking PSS operations are reimbursed up to 15 per cent by the Central Government. Apart from this, government also provides working capital to the central agencies for undertaking PSS operations.

Moreover, the government also implements Market Intervention Scheme (MIS) for horticultural and agricultural commodities, especially perishable in nature and not covered under the PSS which helps the farmer to get remunerative prices for their produce.

The MIS is contingent on the basis of specific request of a State or Union Territory (UT) government which is just ready to bear 50 per cent (25 per cent in respect of north-eastern states), if any, incurred on its implementation.

However, the loss in such case is restricted up to 25 per cent of total procurement value. However, the profit earned, if any in implementing the MIS is retained by the procuring agencies.

Moreover, in order to ensure a minimum remunerative price to the farmers some other steps were also followed by the government which included state trading, building up of buffer stocks, nationalisation of wholesale trade in wheat and rice, procurement from wholesalers, import of foodgrains etc.


Essay # 5. Evaluation of Agricultural Price Policy:

The agricultural price policy in India has succeeded in establishing certainty and confidence in respect of the prices of agricultural commodities through the fixation of minimum support prices by Agricultural Prices Commission (later on renamed as Commission for Agricultural Costs and Prices).

But due to the variations in the degree of enforcement of procurement in different years, some degree of uncertainty and instability in prices were experienced by the Indian farmers.

Again raising the minimum support prices and procurement prices offered incentive to the producers to increase their production but these benefits were mostly restricted to large farmers. Moreover, the public distribution system in India is also subjected to various limitations such as its restricted operation in wheat and rice only, insufficient coverage of rural areas, inadequate coverage of the people lying below the poverty line and its too much expensiveness due to lack of targeting.

As argued by several economists, continuous increase in the procurement prices has resulted a spurt to inflationary pressures in the economy. This increase in the price of foodgrains has also resulted in huge hardships to the rural poor consisting of marginal farmers and landless labourers who constitute the bulk of rural population.

Moreover, the fixing of uniform purchase price for the country on the basis of cost of production of huge cost states by the Commission for Agricultural Costs and Prices has benefitted the developed states having low average cost of production such as Punjab, Haryana etc. Thus, the policy had a bias in favour of the rich states at the cost of consumers in general.


Essay # 6. Features of Agricultural Price Policy in India:

Following are some of the important features of agricultural price policy followed by the Government of India since independence:

(i) Setting up Institutions:

The Government of India has set up some institutions for the implementation of agricultural price policy in the country. Accordingly, the Agricultural Price Commission was set up in 1965 which announced the minimum support prices and procurement prices for the agricultural products.

In 1985, the name of this institution was changed into Agricultural Cost and Prices Commission. Moreover, the foodgrains Policy Committee was appointed by the Government in 1966 which also recommended various measures of price support.

FCI:

The Food Corporation of India was set up in 1965 for making necessary procurement, storage and distribution of food grains. In 1989-90, total capital employed in FCI was to the extent of Rs 5138 crore with its total storage capacity at 18 million tonnes. The corporation organises the price of food grains at government determined prices and sale these food stocks through the network distribution system.

(ii) Minimum Support Price:

The government fixes the minimum support prices of agricultural products like wheat, rice, maize, cotton, sugarcane, pulses etc., regularly for safeguarding the interest of farmers. The FCI also make their purchases of food grains at the procurement prices so as to maintain a rational price of foodgrains in the interest of farmers.

Accordingly, minimum support price of foodgrains fixed by the government increased from Rs 388.26 per quintal in 2003-04 to Rs 429.22 in 2007-08 and then to Rs 829.94 (at average) in 2012-13.

(iii) Protecting the Consumers:

In order to safeguard the interest of the consumers, the agricultural price policy has made provision for buffer stock of foodgrains for its distribution among the consumers through public distribution system.

(iv) Fixation of Maximum Prices:

In order to have a control over the prices of essential commodities the government usually determines the maximum price of agricultural products so as to protect the general people from exorbitant rise in prices.


Essay # 7. Effects of Agricultural Price Policy:

Important effects of Agricultural Price Policy are as follows:

(i) Incentive to Increase Production:

Agricultural price policy has been providing necessary incentive to the farmers for raising their agricultural output through modernisation of the sector. The minimum support price should be determined effectively by the government which will safeguard the interest of the farmers.

Accordingly, minimum support price of foodgrains fixed by the government increased from Rs 388.26 per quintal in 2003-04 to Rs 429.27 in 2007-08 and then to Rs 829.94 (at average) in 2012-13

(ii) Increase in the Level of Income of Farmers:

The agricultural price policy has provided necessary benefit to the farmers by providing necessary encouragement and incentives to raise their output and also by supporting its prices. All these have resulted in an increase in the level of income of farmers as well as their living standards.

(iii) Change in Cropping Pattern:

The agricultural price policy has resulted in a considerable change in cropping pattern of Indian agriculture. The production of wheat and rice has increased considerably through the adoption of modern techniques by getting necessary support from the Governments. But the production of pulses and oilseeds could not achieve any considerable change in the absence of such price support.

(iv) Benefit to Consumers:

The policy has also resulted in considerable benefit to the consumers by supplying the essential agricultural commodities at reasonable price regularly.

(v) Benefit to Industries:

The agricultural price policy has also benefitted the agro industries of the country, like sugar, cotton textile, vegetable oil etc. By stabilising the prices of agricultural commodities, the policy has made provision for adequate quantity of raw materials for the agro industries of the country at reasonable prices.

(vi) Price Stability:

The agricultural price policy has stabilised the prices of agricultural products to a large extent. It has become successful to contain the undue fluctuation of prices of agricultural products. This has created a favourable impact on both the consumers and producers of the country.


Essay # 8. Suggestions for Rationalisation of Agricultural Price Policy:

Following are some of important suggestions which can be advanced for the rationalisation of agricultural price policy of the country:

(i) Establishment of Some More Agencies:

Apart from Food Corporation of India, some more agencies should be set up for ensuring rational prices of other agricultural products and also for procuring other agricultural products. In the meantime the government has already set up Cotton Corporation and Jute Corporation, which needs to be further strengthened.

Moreover, the government should set up a separate agency for providing necessary minimum price support to perishable commodities like potato and other vegetables, fruit, etc., considering its growing potential market both for internal consumption and exports. The operational efficiency of existing agencies like FCI should be improved.

(ii) Extension of the Price Policy:

The agricultural price policy should be extended to cover more commodities over and above the 15 commodities covered at present. The commodities like pulses, potato, onion and other important vegetables and fruits may also be covered.

(iii) Rationalisation of Price Fixation:

The prices of agricultural commodities should be fixed in the most rational manner so that it could cover the entire costs of production. While fixing the prices, the increasing cost of agricultural input should be taken into consideration.

(iv) Protection of Consumers:

The agricultural prices should be so determined that it can also protect the interest of the general consumers.

(v) Modernisation:

The agricultural price policy should be framed in such a manner so that it can induce the farmers to go for modernisation of their agricultural practices.

(vi) Improvement in Agricultural Marketing:

In order to ensure the success of the agricultural price policy, the improvement of the agricultural marketing system is very important. The farmers should be set free from the clutches of middlemen and all intermediaries.

(vii) Improvement of PDS:

The public distribution system should be improved so as to ensure a success in the operation of agricultural price policy. The operation of fair price shops should be streamlined and be made more efficient and transparent.


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