Question 59 from UPSC CSE 2020 - ECONOMICS

Question

Consider the following statements:
1. In the case of all cereals, pulses, and oilseeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India.
2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise.
Which of the statements given above is/are correct?

Accepted Answer

Correct Option: D. Neither 1 nor 2

Strategy: - Statement 1: The claim of 'unlimited' procurement is incorrect because actual procurement is limited by budget, storage, and state-specific operations.
- Statement 2: The assertion that Minimum Support Price (MSP) is set above all possible market prices is false; MSP is a floor, and market prices can exceed it.
- Conclusion: Neither statement 1 nor statement 2 is correct.

Key Info: ## Minimum Support Price (MSP) Overview

The Minimum Support Price (MSP) is a price set by the Government of India to protect farmers from sharp declines in agricultural produce prices.

### Determination and Scope
-   **Crops Covered**: MSP is determined for 22 mandated crops, and a Fair and Remunerative Price (FRP) for sugarcane.
-   **Recommendation Body**: Prices are based on recommendations from the Commission for Agricultural Costs and Prices (CACP).
-   **Key Factors**: Considerations include production cost, market prices, demand-supply dynamics, and inter-crop price parity.
-   **Purpose**: Ensures farmers receive a minimum guaranteed price if market prices fall below a certain threshold.

### Operational Realities and Limitations
-   **Limited Effective Procurement**: Government procurement under MSP primarily occurs for a few crops (e.g., wheat, paddy) and is concentrated in specific states (e.g., Punjab, Haryana, parts of Western UP).
-   **Procurement is Not Unlimited**: Despite some 'open-ended' schemes, actual procurement is constrained by storage, administrative capacity, and government budget. It does not cover all crops, regions, or farmers.
-   **MSP as a Floor, Not a Ceiling**: Market prices can, and often do, rise above the MSP. MSP acts as a floor price, not a price ceiling, intended to prevent market crashes below production costs.
-   **No Universal Guarantee**: The system does not guarantee the purchase of all produce at MSP from all farmers, nor does it universally benefit all farmers across India.

Answer

Option A: 1 only

Answer

Option B: 2 only

Answer

Option C: Both 1 and 2