Abstract:
This dissertation studies the economic impact of increasing the minimum support
price for the agricultural produce as per the recommendation of the National
Commission on Farmers, 2007. The results of the analyses show that there is a slight
positive growth in the economy after the increase in MSP rate, with higher growth in
the primary sectors of the economy which is dominated by the agricultural sector. The
employment creation as a result of the increase in MSP is mostly concentrated in the
cereals and pulses sub-sectors, which is highly labour-intensive and this is expected
to moderately assuage the underemployment crisis in the rural economy. However, it
is seen that the income effect of increase in MSP mostly benefits the bigger farmers
and the implementation of this policy would lead to further accumulation of wealth by
bigger farmers which in turn would lead to perpetuation of inequality in the rural
economy.
The results in the second part of the study explain how the agrarian relations reduce
the effectiveness of the MSP by making it exclusionary. The credit market relations
and consumption to production ratio seems to have a significant negative impact on
the utilisation of MSP policy by the farmers. The results of this study shows that the
price policy of MSP has very little impact on the income of majority of the farm
households and this denotes the urgent need to move from an agricultural price policy
to income policy which would provide basic income ensuring minimum standards of
living for the farmers.
