Legalisig Minimum Support Price (MSP)

GS Paper 3

 Syllabus: Agriculture

Source: IE

 Context: Farmers are again protesting, seeking legal guarantees for MSP to ensure fair prices for their produce.

What is MSP?

The Minimum Support Price (MSP) is a minimum price for any crop at which the government purchases it from farmers, and is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers.

MSP does not have any legal basis but has been implemented since the 1960s with the following objectives:

1. Ensuring food security in the country.
2. Protection from price drop for farmers
3. Incentivise desirable crop production

Importance of MSP:

• Safeguard against Price volatility: The system of MSP acts as a tool for the government to control sharp falls and rises in the prices of any crops
• Surety of minimum prices: The MSP is announced before the sowing season so that farmers can make an informed decision. Hence, supporting farmers from distress sales.
• Control crops short in supply: by offering more price support for these crops so that more and more farmers are tempted to grow these crops.
• Crop Diversification: MSP for crops promotes their diversification and curbs import-dependence and food inflation (e.g., there was a notable increase in the MSP of pulses and oilseeds in 2021 in order to incentivise its domestic production)
• Food security: The government can use these crops to be sold at government fair price shops at a price lower than the market rate to the below poverty line people at a lower price.
  • Developmental schemes like PM-POSHAN, ICDS, Anganwadi Services Scheme, and TPDS rely on grains procured by FCI at MSP.

Limitations of MSP:

• Lack of legal guarantee: Farmers cannot demand MSP as a matter of right. The only crop where MSP payment has some statutory element is sugarcane.
• Issues with the cost of production: Farm activists say that the 1.5-times MSP formula — originally recommended by the National Commission for Farmers headed by agricultural scientist M S Swaminathan should have been applied to the C2 costs.
• Lack of effective data: The CACP does not do any field-based cost estimates itself.
• Ineffective coverage: Though government announces MSP for 23 crops only.
• Highly unequal across states: In 2019-20 roughly 90% of the rice produced in Punjab, and Haryana was procured by the government whereas roughly 1% was procured in Karnataka and Gujarat.
• Ineffectively Implemented: The Shanta Kumar Committee, in its report in 2015, stated that only 6% of farmers receive MSP, which directly means that 94% of the farmers in the country are deprived of the benefit of the MSP.
• Lack of awareness: NITI Aayog on the MSP revealed that only 10 per cent of the farmers were aware of MSP prices right price before the sowing season.

Therefore, the legalization of MSP is needed:

1. Legalizing MSP enables farmers to claim MSP rights, enforceable through courts.
2. Improved price realization from the private sector could boost the rural economy.
3. Diversification of any of the MSP crops helps farmers avoid the high input costs of select crops.
4. Increased production of pulses and millets promotes climate-smart agriculture.

However, there are major impediments to legalizing it:

• It would lead to a heavy subsidy burden on the government.
• Ineffective grain management: Legalising MSP will further aggravate the issues related to grain management in India.
• Market distortion as the natural cycle of demand-supply would be disturbed.
• It is more of a “One size fits all’ approach; as the ultimate solution for agricultural stagnation in the country is not MSP.

Conclusion:

Legalizing MSP alone doesn’t ensure financial sustainability in farming. Income-support schemes like PM-KISAN and price deficiency systems like PM-AASHA offer more progressive solutions.

As suggested by the Swaminathan Commission the methods of calculation need to be restructured to make it more profitable for farmers and encourage crop diversification. But at the same time, other aspects such as irrigation, soil, irrigation, knowledge input, etc. also need to be considered to impart holistic development in the agricultural sector of the country.

Mains Links:

What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the low-income trap? (UPSC 2019)

Prelims Links: