Some intellectuals who'd previously welcomed the reform are ready for a compromise that a minimum support price be guaranteed in the legislation
This is a thread against this idea. Please RT (1/8)
This is a thread against this idea. Please RT (1/8)
MSP creates in the agricultural sector, a classic scenario of the Paradox of Plenty. The guarantee of a high price for their commodity, induces farmers to produce abundance of the crop, not actually in demand in the market (2/8)
Overproduction of the crop, instead of commercially helping the farmer, reduces the market price of their produce which would have otherwise had a higher price
[Increase in supply decreases the price of commodities] (3/8)
[Increase in supply decreases the price of commodities] (3/8)
This is an excerpt from the book, In Service of the Republic, which explains the market distortion due to MSP which ultimately ends up hurting the farmer itself (4/8)
Every year, the government announces an MSP for more than 20 crops. However, the FCI procures very few of these crops (mostly rice and wheat) and most other crops are sold in the open market at a crashed price, as explained in the above excerpt (5/8)
Guaranteeing MSP in the open market, will continue this distortion as farmers will continue producing a high quantity of the crop, which is more than they demand, yielding low income
MSP which was supposed to be 'Minimum Support Price" will become "Maximum Sale Price" (6/8)
MSP which was supposed to be 'Minimum Support Price" will become "Maximum Sale Price" (6/8)
The object of these reforms was to incentivise crop diversification and encourage farmers to produce those crops which yield them a profit. To backtrack and make a compromise would mean that the remaining set of reforms much needed in the sector are left incomplete forever (7/8)
For those who think that they can legislate prices from a central authority, ending with this quote from Hayek:
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design"
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design"