Approval of recommendations of Expert Committee to examine methodological issues in fixing MSP
The Cabinet Committee on Economic Affairs today gave its approval to the following:
(a) For recommending MSP, the following items of cost will also be considered by CACP:
(i) The premium, actually paid by farmers for crop insurance, as a cost item.
(ii) Marketing and transport charges incurred by farmers
(b)Existing FARMAP software will be replaced with a new user friendly software for estimating cost of production.
(c) A technical committee will be constituted to look into the existing survey schedule for cost studies and it will be modified, if necessary.
(d) A system of ‘Recognition Certificates and token gifts for respondent sample farmers of Cost of Cultivation Scheme will be put in place for ensuring their continued cooperation.
(e) A joint study will be conducted by CACP & DES to ascertain the actual spread of expenditure vis-a-vis borrowings during the crop season for assessing the interest burden on the farmers.
(f) CACP will consider quality aspects of the produce in its price and non-price recommendations.
(g) Following will be added/revised in the Terms of Reference (TORS) of CACP:
(i) TOR no2 (iii) will be revised from “The likely effect of the price policy on the rest of the economy, particularly on the cost of living, level of wages, industrial cost structure, etc.” to “The like effect of the price policy on the rest of the economy, particularly on the cost of living, level of wages, cost structure of agro-based products and the competitiveness of agriculture and agro-based commodities”.
(ii) TOR no 3 will be revised from “The Commission will also suggest such non-price measures as would facilitate the achievement of the objectives set out in (i) above” to “The Commission will also suggest such non-price measures related to credit policy, crop and income insurance and other sectors as would facilitate the achievements of the objectives set out in (i) above”.
(iii) A new TOR will be added stating “To effectively integrate the recommended non-price measures with price recommendations and to ensure competitive agriculture”.
(h) The TOR, “To advise from time to time on the tariff structure and other measures relating to imports and exports of agricultural commodities and their processed products”, as suggested by the Committee will not be added.
(i) Statutory Status will not be given to CACP.
(j) Adoption of Long Range Marginal Cost principle for analysis and development pricing and economic policies for the purpose of fixation of MSP will not be accepted for agricultural crops.
(k) Upward revision of the tariff rate on edible oil and additional protection for cotton beyond the World Trade Organisation bound rate will not be accepted.
(l) The interest rates actually paid by the farmer on credit in the Cost Estimates will not be taken into account as the interest rate of 12.5% is already being allowed on working capital for half the crop period, which is higher than the present rate on crop loans from institutional sources.
(m) Expanding coverage of Cost of Cultivation Studies and MSP to fruits and vegetables will not be accepted.
(n) Strengthening the statistical, trade and tariff wings in CACP and the Cost of Cultivation Scheme in DES including promotional avenues for field staff under cost of Cultivation Scheme will be taken up separately by the Ministry of Agriculture.
(o) The following recommendations are already under implementation and will be accepted:
(i) Promoting commodity exchanges in various parts of the country and the CACP to consider using NCDEX and other networks for informed analysis and as a policy instrument in its working.
(ii) Restructuring procurement agencies such as FCI, NAFED, CCI and JCI and delineating responsibilities of national nodal agencies and the concerned State Governments for effective price support operations.
(iii) Amendment of APMC Act to increase the involvement of private sector in development of marketing infrastructure and to sensitise the key stakeholders.
(iv) Formulating policies that encourage Crop Diversification, Strengthening Farmers’ Groups, promoting Information Technology in Agricultural Marketing, timely implementation of the recommendations of different Committees on Rural Credit.
(v) Imputing value of family labour on actual market rate for casual labour in cost estimates.
BACKGROUND:
With the changing policy paradigm in terms of trade liberalisations, privatisations and globalisation, the Ministry of Agriculture had set up an Expert Committee under the Chairmanship of Prof. Y.K. Alagh on 7th May, 2003 to examine methodological issues in fixing MSP with the following Terms of Reference (TORs):
(a) To examine the existing mandate of the Commission for Agricultural Costs and Prices and suggest whether – by way of a measure of response to the rapidly changing external environment arising in the wake of liberalisation, privatisation and globalisation – there is a need to reposition the Commission in terms of its mandate and remit.
(b) To examine the existing cost concepts for the purpose of fixing minimum support prices and suggest various factors including cost of transportation, marketing, processing, storage etc. to determine MSP. Besides the Committee will also analyse the appropriateness of existing methods followed in imputing the value of (i) family labour; (ii) rental value of land; (iii) interest on capital; (iv) depreciation on fixed items such as tractors, bullocks etc. and recommend measures for improvement so as to make them more realistic.
(c) To examine the existing structure of tariff, taxes, credit, market etc. and to suggest various measures to make it most competitive and remunerative to the farmers in the wake of trade liberalisation and globalisation and also to encourage diversified agricultural growth.
(d) To examine any other related and relevant matters that are important for improving the system.
The Expert Committee submitted its report to the Government on 31st May, 2005. The report contains 48 recommendations including certain observations on various aspects of costs and prices of the agricultural commodities, non-cost and non-price measures like trade and tariff policy, market reforms, re-vamping of procurement agencies, strengthening of rural credit measures.
The Report of the Committee was sent to Ministry of Finance (Department of Revenue), Department of Commerce, Department of Consumer Affairs, Department of Food & Public Distribution, Ministry of Textiles, Ministry of Rural Development, Department of Company Affairs, Planning Commission and Commission for Agricultural Costs & Prices for furnishing their considered views.
After taking into account the views of different Ministries / Departments, a note was submitted for consideration of Committees of Secretaries (CoS). Based on the CoS decisions taken in its meeting held on 7.9.07, Hon’ble Agriculture Minister put up the proposals for approval of CCEA.
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AD/HS/RK
(Release ID :46638)