Repying to Santosh's post on "Nation on the march" thread here, since the topic is more relevant here.
Maybe I don't get it, but I will try
and, if you think what I am saying is nonsense, maybe I really wasn't clear enough.
This answer will probably be a long one, since your post was pretty long.
In future I would prefer, if you tried to be logical and polite.
Thank you very much...
First let me say, that what you have "claimed" the positive point of MSP is that it helps poor farmer. Irrespective of whether I agree that this is happening or not, you forgot the negatives I had mentioned, viz.
1) It causes overproduction of certain things like grain, while Indians are moving to a more varied food basket with better economy.
2) It wastes our taxes by resulting in a lot of produce to rot.
c) It wastes the labour of the farmers whose produce is rotting
3) It increases food import for food products which have increasing demand in India, because they are under produced. This is lost potential jobs
4) It reduces the purchasing power of a lot of people by making certain food products (items with MSP, or those things that have to be imported) more expensive then they should be. If people could buy those things cheaper, they would have extra money left to buy other things like clothes, shoes etc. Since this is not the case, this is again lost potential jobs.
5) It makes basic food products more expensive for the poor people, because MSP is above what market price is, otherwise it will be useless and will have no effect.
Let me try to answer your post now...
My dear friend, the major reason for a lot of "ills" that you are claiming that MSP is solving are actually due to the govt. control of the agriculture market. Let me give you some examples --
1) The reason for "market imperfection and fragile market integration" is because there is no integrated market for agriculture in India. Do you know that Private traders are required to obtain a government permit to transport grain out of a particular state or even district? What do you think is the result? While a state like Punjab might have excess of grain due to these restrictions a state like Bihar might have deficiencies. Look at he link below for more details on statewise restrictions on movement of essential commodities.
2) The reason for poor infrastructure in things like "cold storage" is the govt. imposes restrictions on how much stuff you can store. The result? Lack of good and efficient storage means that while farmers throw away produce, or it rots in the godown.
There are many more at http://www.ccsindia.org/RP01_9.html
It does not matter if you have one babu or 100, 100 page document of 1000, there is no way to predict one single price for India, or even a handful of prices of any number of commodities. It has been tried by many govt.s and every one has miserably failed, just like GOI. Read this for why it does not work-- http://www.mises.org/journals/jls/5_1/5_1_2.pdf
Price is simply a signal as to how much needs to be produced of a certain good. If you try to set the prices through control, all you end up with is overproduction or underproduction as is happening today.
See it is very simple, if you think logically. If MSP is below market price, then it is useless. If it is above market price, then it simply results in overproduction. Let me illustrate by example -- Suppose there are 5 consumers in the market. 5 would be wiling to buy a TV at Rs 2000 (which, let us say is the market price), but let us say only 2 will be willing to buy at Rs 4000. Similarly, given the costs let us say manufacturers are willing to produce 5 TVs at Rs 2000, but 10 at Rs 4000. Manufacturers produce more if it fetches more profit.
Now, let us say that Govt. brings in minimum support price for TVs for Rs 4000. What happens? Demand reduces to only 2 TVs, and Producers want to produce 10 TVs. Govt. buys the rest at Rs 4000, at stores them in the godowns. Replace TVs with grains/crops, and you have exactly the same problem
By the way, you eat every day, does that make you a nutritionist? You deal with physical forces every day, does that make you a physicist? You are qualified by these actions to make decision about you personal physical work, or personal eating habits (maybe), but that does not qualify you to comment on physics or nutrition. Similarly a bania might make personal economic decisions everyday, but that does not qualify him to comment on bigger economic decisions.