Amid demand by farmers on legalising the minimum support price (MSP), the World Trade Organization (WTO) has taken up a review of India’s trade policy, that states floor prices distort cropping patterns.
Distortion of cropping patterns is in favour of commodities such as wheat, rice, cotton, and sugar that are procured by the central government at MSP and away from other items such as pulses, coarse grains, and oilseeds, said a report by the WTO Secretariat, written independently.
The practice of procurement from certain states has also resulted in regional disparities in production, the report taken up for review among other trade policies said.
“It is also suggested that due to fragmentation of agricultural markets and weak infrastructure, farmers receive only a fraction of the price paid by consumers, with the bulk going to intermediaries,” it said. India’s last policy review took place in 2015.
The issue of guaranteed MSP is one of the main concerns of farmers currently protesting near Delhi to repeal new farm laws introduced by the government. The government has held seven rounds of consultations with farmer unions that have remained inconclusive over their two key demands of repealing the newly enacted laws, and provision of legal guarantee on the MSP.
India’s agricultural policy aims at providing stability in domestic food prices and food security, and to ensure this its food subsidy accounts for almost half of the government’s total subsidies, the report said. An additional third of total explicit subsidies are accounted for by the subsidy for fertilisers.
The report quoted an independent research that estimated the size of the government’s subsidies for agriculture was at around 8 per cent of farm output in 2015-16, while public-sector investment in the sector continued to decline.
To address these, India introduced marketing reforms by implementing new laws — Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 — that give freedom to farmers and traders to conduct intra or interstate trade of agricultural products. It also encourages contract farming with the goal to protect and empower farmers, so that they can engage with agri-business firms, processors, wholesalers, exporters or large retailers for farm services at mutually agreed prices, in a transparent manner, the report said.