Higher MSPs not a durable way to raise farm output

What are the key challenges faced by Indian agriculture at present?

Agriculture in India is now facing some new sets of challenges. These have come up because of erratic weather pattern witnessed in the last few years. We have never had three successive seasons of either deficit or unseasonal rains (witnessed in March, 2015). It happened for the first time in the recorded history of agriculture. We witnessed excessive rains in the northern regions in March this year causing huge losses. We had two successive drought years or monsoon rainfall was deficient (2014 and 2015). The wheat output went down by more than six million tonne this year from previous year.

These challenges you cannot address by giving higher price or Minimum Support Price (MSP) to farmers. You can give price as an instrument to give relief to farmers, but you cannot use price to address the deficiency in output.
Given the current situation, we need to use both price as well as non-price factor to impart momentum to the sector.

Could you explain these factors?

The price factor is, of course, the higher MSP or other incentives to farmers. The non-price factors include dealing with this aberration in monsoon or rainfall pattern due to climate change, sudden outbreak of insects and pests (white fly has done so much damage to cotton crops in Punjab recently). These are issues which cannot be addressed through prices. Through price support, you can give compensation to farmers, but you cannot raise output. When we talk of more MSP, it helps in harnessing potential, but it does not create potential.

Potential has to be created through technology, infrastructure, irrigation, modern inputs and seeds.  We will be working on four to five aspects as far as the price factor is concerned. We have to come up with some sort of risk mitigation and adaptation measures like crop insurance. Earlier, we used to go for only insurance of production or output, but now a pilot project is being tried in Madhya Pradesh for income insurance of farmers. You talk of income insurance, both price and production come into the picture. We should have price insurance with production insurance. After evaluating the result of the pilot project, we may scale it up.

Technology is an important non-price factor to boost production. Infrastructure which includes irrigation, requires a lot of investment in land and soil health and there is the need to increase efficiency in fertiliser use.

What about the subsidy required for crop insurance?

Huge subsidy for crop insurance is given across the world. The US provides subsidy of more than 60% while China gives 80% subsidy. The nature of agriculture insurance is such unless it is heavily subsidised, neither farmers nor private companies will show interest. There are issues about compensating farmers for crop losses when damages are not uniform across the country. There are serious problems of errors of inclusion and exclusion of farmers.

What about the method of assessing crop damage for settling insurance claim?

For crop-cutting exercise, increasingly space technology is being used to assess crop losses. Some of the parameters will be different for crop insurance depending on geography. In a meeting with  the finance ministry officials recently, we suggested that rather than using crop insurance mechanism to cover risk of the farmer, we should give compensation to the entire farmer community impacted by crop damage. In the crop insurance model, you collect premium from all, then you pay insurance claims to a few.