Legalising the Minimum Support Price (MSP)

Syllabus: GS3/Economy, Agriculture

Context

• Recently, the groups of farmers asked for a legal guarantee for purchasing crops at Minimum Support Price (MSP).

Minimum Support Price (MSP)

• It is a form of market intervention by the Central Government to insure agricultural producers against any sharp fall in farm prices.
• It protects the producer- farmers against distress sale during bumper production years.

Current Status of MSP

• The UnionGovernment sets a MSP for 23 crops before the sowing period every year, based on a formula of one-and-a-half times production costs.
  • It is implemented mostly for rice and wheat mainly because India has vast storage facilities for these grains and uses the produce for its public distribution system (PDS).
• It takes into account both paid-out costs such as seeds, fertilisers, pesticides, fuel, irrigation, hired workers and leased-in land, as well as the imputed value of unpaid family labour.
  • However, there is currently no statutory backing for these prices, nor any law mandating their enforcement. A farmer cannot demand MSP as a matter of right.

Demand for Legal Guarantee

• Farmers have been demanding a legal guarantee for MSP by arguing that without such a price, farmers will become bankrupt and leave farming, which will have serious consequences for our food security, adversely affecting consumers.
• The demand for a legal guarantee for MSP has two parts:

1. MSP should be based on the comprehensive cost of production (C2), as determined by the Commission for Agricultural Costs and Prices (CACP), plus 50%, as recommended by the Swaminathan Commission.
2. The 23 crops for which MSP is announced should be legally purchased at or above the MSP price by anyone who ‘willingly enters’ the market.

Arguments Favouring Legalising MSP

• Agricultural Crisis: The agricultural sector has been squeezed in many ways over the past 30 years, and there is a need for a legal guarantee for MSP to address this crisis.
• Nutrition Security: As India shifts from food security to nutrition security, a legal guarantee for MSP for 23 crops could be a way to achieve this.
• Price Stabilisation: The government is not expected to buy all the 23 crops. But if at least 5-10% of the produce is purchased, it would be a marginal intervention and stabilise the prices.
• Support to Farmers: The government’s price policy is to ensure remunerative prices to farmers by offering to procure their produce at MSP.

Arguments Against Legalising MSP

• Implementation Challenges: While the Centre has fixed MSP for 23 farm commodities, it is implemented mostly for rice and wheat mainly because India has vast storage facilities for these grains.
• Limited Reach: According to the Shanta Kumar Committee’s 2015 report, only 6% of the farm households sell wheat and rice to the government at MSP rates.
• Need for Policy Review: There is a need for a detailed, thorough review of agricultural trade policies and production and also what will happen to agriculture in the next 20-25 years.

Government’s Stand

• The Union government has repeatedly asserted that a legal guarantee for MSP will not be possible by arguing that MSP is a minimum price that the farmer must get to remain in business.
  • However, it has not taken any concrete steps towards providing a legal guarantee for MSP.

Conclusion

• The debate around the legality of MSP in India is complex and multifaceted. It involves considerations of economic policy, agricultural sustainability, and social justice.
• While the demand for a legal guarantee for MSP is strong among farmers, the government and policy makers need to consider the broader implications of such a move.