Master10
Indian Economy Module

Agricultural Economics, MSP & Rural Development

Agricultural economics in India examines farm productivity, price support mechanisms, rural credit, and agrarian marketing reforms. The government announces Minimum Support Prices (MSP) for 22 mandated agricultural crops and Fair and Remunerative Price (FRP) for sugarcane before each sowing season, based on recommendations by the Commission for Agricultural Costs and Prices (CACP). Institutional credit and rural infrastructure are catalyzed by the National Bank for Agriculture and Rural Development (NABARD), established in 1982. Key policy programs include the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) direct income transfer, PM Fasal Bima Yojana crop insurance, and the electronic National Agriculture Market (e-NAM) designed to unify wholesale agricultural mandis.

Key Concepts & Examination Highlights

  • CACP calculates agricultural production costs using A2 (paid-out costs), A2+FL (family labour), and C2 (comprehensive rental and capital cost) formulas.
  • The Swaminathan Commission (National Commission on Farmers) recommended that MSP should be at least 50% above the weighted average cost of production.
  • NABARD was established on July 12, 1982, on the recommendations of the B. Sivaraman Committee to oversee rural credit and agriculture.
  • The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) 2005 guarantees 100 days of wage employment per financial year to rural households.
  • The Commission for Agricultural Costs and Prices (CACP), established originally as the Agricultural Prices Commission in 1965, recommends MSP for 22 mandated crops and FRP for sugarcane.
  • Fair and Remunerative Price (FRP) is the statutory minimum price that sugar mills are required to pay to sugarcane farmers under the Sugarcane (Control) Order, 1966.
  • Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), launched in February 2019, provides an income support of ₹6,000 per annum to eligible farmer families in three equal installments.
  • The electronic National Agriculture Market (e-NAM), launched in April 2016, is an online pan-India trading portal integrating existing APMC physical mandis.
  • Pradhan Mantri Fasal Bima Yojana (PMFBY), launched in 2016, fixes premium rates at 2% for Kharif food and oilseed crops, 1.5% for Rabi crops, and 5% for annual commercial and horticultural crops.
  • Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) was launched in 2015 with the vision of 'Har Khet Ko Pani' and improving on-farm water use efficiency under 'More Crop Per Drop'.
  • Priority Sector Lending guidelines mandate domestic commercial banks to allocate 18% of ANBC to agriculture, with a 10% sub-target for small and marginal farmers.
  • Soil Health Card Scheme was launched on February 19, 2015, from Suratgarh, Rajasthan, to provide farmers with crop-wise nutrient recommendations.
  • The 22 mandated crops under MSP comprise 7 cereals (paddy, wheat, maize, jowar, bajra, barley, ragi), 5 pulses (gram, arhar/tur, moong, urad, lentil), 7 oilseeds, and 3 commercial crops (cotton, jute, copra).
  • The National Food Security Act (NFSA), enacted in 2013, legally entitles up to 75% of the rural population and 50% of the urban population to receive subsidized foodgrains.
  • Under NFSA, Antyodaya Anna Yojana (AAY) households receive 35 kg of foodgrains per month, while Priority Households (PHH) receive 5 kg per person per month.
  • The Food Corporation of India (FCI) was established in 1965 under the Food Corporations Act, 1964, to undertake procurement, storage, and distribution of foodgrains under the PDS.
  • Open Market Sale Scheme (OMSS) is utilized by the FCI to sell surplus stocks of wheat and rice at predetermined reserve prices in the open market to stabilize retail prices.
  • Economic Cost of Foodgrains to FCI comprises three components: Minimum Support Price (acquisition cost), procurement incidentals, and distribution costs.
  • Kisan Credit Card (KCC) scheme was extended in 2018–19 to cover farmers involved in animal husbandry, dairying, and fisheries for their working capital needs.
  • The Agriculture Infrastructure Fund (AIF), launched in 2020 with a corpus of ₹1 lakh crore, provides medium-to-long term debt financing for post-harvest management infrastructure.
  • Farmer Producer Organisations (FPOs) are registered under the Companies Act or Cooperative Societies Act to aggregate smallholder farmers for better bargaining power and market access.
  • The National Mission on Sustainable Agriculture (NMSA) promotes climate-resilient farming, water-use efficiency, soil health management, and integrated nutrient conservation.
  • Paramparagat Krishi Vikas Yojana (PKVY), launched in 2015, promotes organic farming through cluster approach and Participatory Guarantee System (PGS) certification.
  • Operation Greens was launched in 2018–19 on the lines of 'Operation Flood' to stabilize the supply and prices of TOP (Tomato, Onion, Potato) crops, later expanded to 22 perishables (TOTAL).
  • Market Intervention Scheme (MIS) is a price support mechanism implemented on the request of State Governments for perishable horticultural commodities not covered under regular MSP.
  • The Commission for Agricultural Costs and Prices (CACP), established in 1965 as the Agricultural Prices Commission, recommends Minimum Support Prices (MSP) for 22 mandated crops and Fair and Remunerative Price for sugarcane.
  • The A2 cost concept in MSP calculations covers all paid-out expenses directly incurred by the farmer on seeds, fertilizers, pesticides, hired labour, fuel, and irrigation.
  • The A2+FL cost concept incorporates actual paid-out costs plus an imputed economic value of unpaid family labour involved in crop production.
  • The C2 cost concept represents comprehensive cost, including A2+FL plus imputed rent on owned agricultural land and interest on owned fixed capital assets.
  • The National Commission on Farmers, chaired by Prof. M.S. Swaminathan, recommended in 2006 that MSP should be fixed at a minimum of 50% over the comprehensive C2 cost of production.
  • Fair and Remunerative Price (FRP) for sugarcane is statutory price determined under the Sugarcane (Control) Order, 1966, payable by sugar mills to cane growers regardless of profit margins.
  • The Pradhan Mantri Fasal Bima Yojana (PMFBY), launched in 2016, prescribes uniform actuarial premium caps of 2% for Kharif food crops, 1.5% for Rabi crops, and 5% for commercial/horticultural crops.
  • The PM-KISAN (Pradhan Mantri Kisan Samman Nidhi) scheme provides an income support of Rs 6,000 per year in three equal four-monthly installments directly into the bank accounts of landholding farmer families.
  • The National Agriculture Market (e-NAM) was launched in April 2016 as a pan-India electronic trading portal integrating physical APMC mandis into a unified national market.
  • Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) amalgamates Accelerated Irrigation Benefit Programme (AIBP), Integrated Watershed Management Programme (IWMP), and On Farm Water Management (OFWM).
  • The Kisan Credit Card (KCC) scheme was introduced in 1998 by NABARD on the recommendations of the R.V. Gupta Committee to provide timely short-term institutional credit for farm inputs.
  • Priority Sector Lending guidelines mandate domestic commercial banks to allocate 18% of Adjusted Net Bank Credit (ANBC) to agriculture, with a sub-target of 10% for Small and Marginal Farmers.
  • The Bhoodan Movement was initiated by Acharya Vinoba Bhave in April 1951 at Pochampally village (Telangana) to persuade affluent landowners to voluntarily donate surplus land to landless peasants.
  • Agricultural Census in India is conducted quinquennially by the Department of Agriculture and Farmers Welfare, classifying operational holdings into five standard size groups.
  • Marginal holdings are defined as operational land parcels below 1.0 hectare, constituting over 68% of all operational agricultural holdings in India.
  • Small holdings represent operational land parcels between 1.0 and 2.0 hectares, which together with marginal holdings account for over 86% of total farm holdings in India.
  • The National Food Security Act (NFSA), 2013, legally entitles up to 75% of rural and 50% of urban population to receive 5 kg of subsidised foodgrains per person per month under targeted PDS.
  • The SHG-Bank Linkage Programme was conceptualized and launched by NABARD in 1992, emerging as the world's largest community-based microfinance initiative.
  • The Central Sector Scheme for 'Formation and Promotion of 10,000 Farmer Producer Organisations (FPOs)' was launched in 2020 to enhance bargaining power and market access for smallholders.
  • Operation Greens was launched in Budget 2018-19 on the lines of Operation Flood to stabilize the supply and prices of Tomato, Onion, and Potato (TOP) crops, later expanded to 22 perishable crops.
  • The Agricultural and Processed Food Products Export Development Authority (APEDA) was established under an Act of Parliament in 1985 to promote the export of agricultural products from India.
  • System of Rice Intensification (SRI) is an agro-ecological rice cultivation technique that reduces water input by 20-50% while promoting root development through intermittent soil aeration.
  • Soil Health Card scheme was launched in February 2015 at Suratgarh (Rajasthan) to assess the nutrient status of agricultural soils across 12 chemical and physical parameters.
  • Paramparagat Krishi Vikas Yojana (PKVY) was launched in 2015 to promote organic farming through the adoption of organic villages by cluster approach and Participatory Guarantee System (PGS) certification.
  • Pradhan Mantri Annadata Aay Sanraksan Abhiyan (PM-AASHA), launched in 2018, integrates Price Support Scheme (PSS), Price Deficiency Payment Scheme (PDPS), and Private Procurement Stockist Scheme (PPSS).
Curriculum & Reference Sources: Commission for Agricultural Costs and Prices (CACP) Reports, Ministry of Agriculture and Farmers Welfare, NABARD Annual Reports.

Sample Solved Questions & Concept Explanations

8 Verified Concept Questions
Q1.EASY

What is the primary objective of NABARD in India?

Q2.EASY

What is the apex organization for handloom and khadi development in rural India?

Q3.EASY

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) guarantees how many days of wage employment?

Q4.MEDIUM

What is the maximum limit of loan disbursed under the 'Shishu' category of PM MUDRA Yojana?

Q5.EASY

The National Bank for Agriculture and Rural Development (NABARD) was established in 1982 to provide refinancing for what?

Q6.EASY

The price announced by the Government of India before the sowing season to protect farmers from sharp price drops is called what?

Q7.EASY

The "Kisan Credit Card" (KCC) scheme was introduced in India in 1998 on the recommendations of which committee?

Q8.EASY

Which agency is the apex body responsible for the procurement, storage, and distribution of foodgrains under the Public Distribution System (PDS)?