News Analysis

India’s spend on farmer support schemes on the rise; touches $46.6 billion in 2018-19

Rajalakshmi Nirmal BL Research Bureau | Updated on April 03, 2020 Published on April 03, 2020

Having invoked ‘peace’ clause at WTO, Centre can now increase support for farmers under MSP

The Indian government’s spend on farmers has increased over the past years, from ₹2.7-lakh crore in 2014-15 to ₹3.26-lakh crore ($46.6 billion) in 2018-19.



This information was submitted by the Centre to the WTO’s Committee of Agriculture a few days back.

What also comes as good news for farmers is that the Centre has invoked the peace clause at the WTO that lifts restrictions on the country to limit its support on procurement under the MSP programme to 10 per cent of the value of production in a crop in a year. In 2018-19, India had reported exceeding the 10 per cent limit in its MSP programme for paddy farmers to touch 11.46 per cent.

There was an increase in both the quantity of rice procured and the price paid to farmers for it. While in 2017-18, the total procurement of rice was 38.13 million tonnes, in 2018-19, it was 44.3 mt. Also, while the administered price (MSP) was $360.72/tonne for rice in 2017-18, it was $375.41/tonne in 2018-19.



Support for other crops

As per the agreement under WTO — Article 6, paragraph 4 of the Agreement on Agriculture (AoA) — India can provide a product-specific AMS (aggregate measurement of support) of up to 10 per cent of the total value of production in any crop. An analysis of the numbers provided by the Indian government to the WTO reveals that this 10 per cent limit has not been exceeded in any crop under MSP other tha
n rice. In wheat, in fact, the difference between MSP and the effective reference price set by the WTO is a negative number.

Let us explain this: To determine if any country has breached the 10 per cent cap, the WTO prescribes a formula. This is the difference between the administered price (MSP) for a particular crop and the external reference price, multiplied by the quantity of production eligible to receive the administered price. This value is then compared to the total value of production in the crop to see if it has exceeded 10 per cent.

In 2018-19, the MSP on wheat in India was $263.15/tonne, the external reference price was $264/tonne and the eligible production was 35.8 mt. This brings the total market support offered by the Centre to wheat farmers to (-)$30.53 million.

The external reference price is fixed by the WTO and doesn’t change year after year.

Spending on food security

India’s spending on food security has been increasing every year. In 2018-19 it stood at $17 billion, against just $9.4 billion in 2008-09.

While in crops other than rice the 10 per cent cap has not been breached, year after year, the procurement under MSP in most crops has only gone up. For instance, pulses procurement in 2018-19 as reported to the WTO was 2.18 mt. This is up from 1.83 mt in 2017-18 and 0.31 mt in 2014-15. Similarly, in groundnut, procurement in 2018-19 was 7.2 lakh tonne, up from 0.1 lakh tonne in 2014-15.

Now, with the WTO peace clause invoked, the government can be expected to procure more and support its farmers better.

Published on April 03, 2020

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