Agriculture Economy Notes for UPSC

Agriculture is the livelihood of nearly half of India's workforce, though it contributes only about 15 to 18 percent of the national output. The government supports farmers through Minimum Support Price (MSP), input subsidies, procurement, credit and insurance, and it protects consumers through the Public Distribution System (PDS) and the National Food Security Act. These issues are in the news every year and are an essential part of the UPSC Civil Services Examination, both in Prelims (MSP crops, CACP, schemes, NFSA) and in Mains (farm distress, price policy, subsidies and WTO). This note explains MSP, procurement, subsidies, food security and the major farm schemes in simple language, with tables.

Agriculture in the Indian Economy

India is one of the world's largest producers of rice, wheat, pulses, sugarcane, milk and cotton. Agriculture supplies food, raw material for industry and a market for goods. Yet the sector faces problems: about 86 percent of the farmers are small and marginal with less than two hectares of land; productivity is low compared with many countries; farmers depend on monsoon; and prices are unstable. The Green Revolution of the 1960s, using high-yielding seeds, fertilisers and irrigation, made India self-sufficient in foodgrains, but it also caused regional imbalance, depletion of groundwater and soil damage in Punjab and Haryana.

Minimum Support Price (MSP)

The MSP is the price at which the government is ready to buy crops from the farmers, to protect them from sharp falls in market prices. It is announced by the Union Government before each sowing season based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), an expert body set up in 1965 (as the Agricultural Prices Commission). The Cabinet Committee on Economic Affairs approves it.

• Crops covered: 22 mandated crops: 7 cereals (paddy, wheat, maize, jowar, bajra, ragi and barley), 5 pulses (gram, arhar or tur, moong, urad and lentil), 7 oilseeds (groundnut, rapeseed-mustard, soyabean, sunflower seed, sesamum, safflower and nigerseed) and 3 commercial crops (copra, cotton and raw jute). Of these, 14 are kharif crops, 6 are rabi crops and 2 (jute and copra) are other commercial crops. For sugarcane, the price is called the Fair and Remunerative Price (FRP).
• How it is fixed: The Government has promised an MSP of at least 1.5 times the cost of production (Budget 2018-19), calculated as the A2+FL cost (paid-out costs plus the imputed value of family labour). The Swaminathan Commission (National Commission on Farmers, 2006) had recommended the C2 cost (which also includes the rent of owned land and the interest on capital) plus 50 percent.
• Legal status: MSP is a policy, not a law, so it is not a legal right of the farmers, and the demand for a legal guarantee is a major debate.
• Procurement: The Food Corporation of India (FCI) and State agencies buy mainly wheat and rice, while NAFED buys pulses and oilseeds. In practice, procurement is concentrated in a few states and crops, so the benefit of MSP reaches a limited number of farmers.

Related schemes include the Market Intervention Scheme for perishable crops, the Price Stabilisation Fund for pulses and onions, and the PM-AASHA (2018), which has price support, price deficiency payment and private procurement models.

Public Distribution System and Food Security

The PDS distributes subsidised foodgrains through fair price shops. The National Food Security Act (NFSA), 2013 gives a legal right to subsidised food to up to 75 percent of the rural and 50 percent of the urban population, about 81 crore people. Priority households get 5 kg of foodgrains per person per month, and the poorest households under the Antyodaya Anna Yojana (AAY) get 35 kg per household per month. The original prices were 3 rupees per kg of rice, 2 rupees for wheat and 1 rupee for coarse grains; since 2020, under the Pradhan Mantri Garib Kalyan Anna Yojana, the grains are free, and the free supply has been extended for five years from 2024. The Act also provides for meals for pregnant and nursing women and children, maternity benefits of 6,000 rupees, and a grievance redress mechanism. The Government maintains buffer stocks of foodgrains for the stability of prices and for emergencies. Reforms in the PDS include the digitisation of ration cards, linking with Aadhaar, One Nation One Ration Card (portability across states), and the use of electronic point-of-sale devices to reduce leakages.

Four Dimensions of Food Security

Major Subsidies

Fertiliser subsidy: The Government controls the price of urea and gives subsidies on phosphatic and potassic fertilisers through the Nutrient Based Subsidy (NBS) scheme. The heavy use of urea has caused soil imbalance, so neem-coated urea, soil health cards and nano urea are promoted. Food subsidy: the cost of running the PDS and procurement, the biggest subsidy item. Power and irrigation subsidies: free or cheap electricity for pumps, mostly by the States, has led to the overuse of groundwater. Interest subvention: short-term farm loans under the Kisan Credit Card at a low interest. Subsidies protect the poor and farmers, but they strain public finances, distort cropping patterns (too much rice and wheat in water-scarce areas) and often benefit larger farmers. Experts suggest shifting to direct income support and better targeting, as with PM-KISAN.

Important Farm Schemes

Market Reforms and the WTO Issue

The Agricultural Produce Market Committees (APMCs) regulate the mandis, but in many places, they are criticised for the dominance of traders and fees. In 2020, three farm laws were passed to open private markets, contract farming and the limits of stocks, but they were repealed in 2021 after protests by farmers. At the WTO, India faces a dispute over its public stockholding programme, because the MSP-based purchase of foodgrains is counted as trade-distorting subsidy under the Agreement on Agriculture, which has a limit of 10 percent of the value of production. India has asked for a permanent solution on this and has used the "Peace Clause" as an interim protection.

Challenges and Way Forward

The main challenges are the low income of farmers, price volatility, small farms, over-dependence on rice-wheat, depletion of groundwater, weak infrastructure for storage and markets (post-harvest losses are significant), climate change, indebtedness and the limited reach of MSP and insurance. The suggestions include diversification to pulses, millets, oilseeds and horticulture with assured procurement; shifting subsidies to direct benefit transfers; strengthening FPOs and cooperatives; expanding cold chains and food processing; promoting natural and organic farming; using technology such as satellite data and drones; reforming market laws in consultation with the States; and improving irrigation efficiency. A good answer will balance the interests of farmers, consumers and public finances.

Crop Seasons and Cropping Patterns

To understand MSP, one must know the crop seasons. Kharif crops are sown with the onset of the south-west monsoon in June-July and harvested in September-October: paddy, maize, jowar, bajra, cotton, groundnut, soyabean and pulses like tur. Rabi crops are sown in October-November and harvested in March-April: wheat, barley, gram, mustard and peas. Zaid crops are grown in the short summer season between rabi and kharif: watermelon, muskmelon, cucumber and fodder. Because MSP and assured procurement are strongest for rice and wheat, farmers in Punjab, Haryana and parts of Uttar Pradesh keep growing these crops even when water is scarce. This distorts the cropping pattern and drains groundwater, which is why experts advise a more balanced price support for pulses, oilseeds and millets, and crop diversification programmes.

Quick Revision

• MSP: recommended by CACP; 22 mandated crops; at least 1.5 times A2+FL cost; not a legal guarantee.
• NFSA 2013: 75 percent rural and 50 percent urban; 5 kg per person; AAY gives 35 kg per household.
• PM-KISAN (6,000 rupees), PMFBY, Soil Health Card, e-NAM, FPOs, Agriculture Infrastructure Fund.
• WTO: public stockholding and the 10 percent subsidy limit.

Agriculture and food security connect economy, politics and nutrition. Learn the facts of MSP, NFSA and schemes, and prepare balanced arguments on reforms and WTO for the Mains.

Related Notes to Read Next

Continue your preparation with these related notes from the same subject:

• External Sector: Balance of Payments, Forex Reserves
• Planning in India: Five-Year Plans to NITI Aayog Notes for UPSC
• GDP and National Income Notes for UPSC
• All Indian Economy notes

Frequently Asked Questions (FAQ)

What is MSP?

Minimum Support Price is the price at which the government agrees to purchase crops from farmers to protect them from sharp falls in market prices.

Who recommends MSP?

The Commission for Agricultural Costs and Prices recommends MSP, and the Cabinet Committee on Economic Affairs approves it.

How many crops are covered by MSP?

MSP is announced for 22 mandated crops, including cereals, pulses, oilseeds and commercial crops, while sugarcane has an FRP.

Is MSP a legal right?

No. MSP is a policy of the government and not a legal right, so there is no legal guarantee of purchase for all crops.

What was the Swaminathan Commission recommendation on MSP?

The Swaminathan Commission recommended an MSP at least 50 percent more than the comprehensive cost of production (C2).

What is the National Food Security Act, 2013?

It is a law that gives a legal right to subsidised foodgrains to up to 75 percent of the rural and 50 percent of the urban population.

What is the Antyodaya Anna Yojana?

AAY provides 35 kg of foodgrains per household per month to the poorest families under the PDS.

What is PM-KISAN?

PM-KISAN is a scheme under which eligible farmer families receive 6,000 rupees a year in three instalments as direct income support.

What is the Pradhan Mantri Fasal Bima Yojana?

PMFBY is a crop insurance scheme launched in 2016, which gives farmers protection against crop loss at low premium rates.

What is e-NAM?

e-NAM is an online national agriculture market launched in 2016 to connect mandis and improve price discovery for farmers.

Why did India face a problem at the WTO on agriculture?

Because India’s public stockholding for MSP purchases is counted as trade-distorting subsidy, and the cost may exceed the limit of 10 percent of the production value under WTO rules.

What are the four pillars of food security?

The four pillars are availability, access, utilisation and stability of food.