SBI Research Ecowrap Proposes Converting MSP To Floor Price On e-NAM

SBI Research Ecowrap has suggested that converting the minimum support price (MSP) to a Floor Price of Auction on National Agriculture Market (e-NAM) can benefit growers of crops like maize, ragi, and moong. 

The recent increase in MSP for Kharif crops for the marketing season 2023-24, approved by the Union Cabinet, ranges from 5 per cent to 11 per cent. However, the impact on inflation is expected to be minimal, as it depends on procurement and the prevailing market prices.

The e-NAM is an online platform that connects existing agricultural produce market committees (APMC) mandis to create a unified national market for agricultural commodities. 

Currently, there are 1.76 crore farmers participating in e-NAM across 1361 mandis. The modal prices observed in e-NAM mandis are higher than the MSP for certain crops, indicating the potential benefits for growers. Converting MSP to a Floor Price of Auction on e-NAM would further enhance these benefits, particularly for crops like maize, ragi, and moong.

The impact of MSPs on inflation has been a subject of debate, with mixed empirical findings. The actual impact of the MSP hike depends on the government’s procurement strategy and the prevailing market prices compared to the revised MSPs. 

Given that e-NAM prices are higher than the increased MSP for many crops, the inflationary impact is expected to be subdued. Additionally, procurement of crops other than rice and wheat is limited, further mitigating the impact on inflation.

Overall, the suggestion to convert MSP to a Floor Price of Auction on e-NAM aims to maximize the benefits for growers and align the pricing mechanism with market dynamics. This approach acknowledges the importance of procurement strategies, ruling market prices, and the role of e-NAM in shaping the agricultural market landscape in India.