The imperative need for a legislation-backed MSP grows ever more urgent, promising stability and prosperity for the backbone of India's economy
The resurgence of protests by farmers has brought attention to their longstanding struggle for sustainable profitability in the agricultural sector. Although their demands are diverse, their primary request is for a legal guarantee for MSP (Minimum Support Prices). Farmers believe that the government has not shown genuine interest in effectively implementing MSP, which has led to distrust, frustration, and the need for a legal guarantee. These issues have forced them to leave their homes and farms and take to the highways in protest, resulting in the death of three farmers a couple of injuries, and disruption of normalcy that has affected the commuters and business activities.
In September 2020, the government introduced three controversial farm laws that were met with widespread protests and demands for their repeal. While the laws were eventually repealed in November 2021, there has been no interim report from the Committee on MSP formed to address farmers’ concerns. This delay in decision-making perpetuates uncertainties in the agricultural sector and undermines the effectiveness of the present MSP as a stabilizing force.
MSP was introduced in 1966-67 to ensure food security amid food scarcity. Despite broad political support for a legal guarantee for MSP, successive governments have failed to formalize this issue, leaving the agricultural sector in a state of uncertainty. However, it is high time to address the weakening of the decades-old MSP policy, remove the complexities surrounding its legislation, and recognise the potential benefits of legalising MSP to fuel the wholesome growth of the agriculture sector, which is the country’s lifeline. The Modi government has demonstrated its commendable ability to revamp decades-old mechanisms with various robust reforms such as the amendments to Indian Penal Codes and the abrogation of Article 370 in Kashmir, and now they must take bold steps to address this pressing issue.
Why farmers asking for legal guarantee: The MSP is an administered advisory price for 23 crops and is determined annually by the Commission for Agricultural Costs and Prices (CACP) as a key government intervention to insulate farmers from price volatility when the market prices fall below the MSP as well as of consumers against corrupt manipulative market inflation and maintains food security. It has been in existence in India for more than five decades. Why, then, are farmers asking for a legal guarantee? Only 6% of farmers benefit from MSP, and it procures just 11% of total agricultural output in the country, according to the latest available NITI Aayog data.
Over 90 % of crops are sold at prices that are 20-30% lower than the declared MSP, leading to average losses of Rs 20,000 per acre and about Rs 10 lakh crore annually for farmers. A study by the Indian Council for Research on International Economic Relations and the Organization for Economic Cooperation and Development found that Indian farmers have been suffering losses since 2000 due to ineffective policies. The report revealed that Indian farmers lost Rs 45 lakh crore during 2000-2017 due to low prices.
Misconceptions in legalising: The legalisation of MSP has been hindered by exaggerated claims about its fiscal costs. These claims have misled successive governments, and it is essential to clarify that legalising MSP does not entail the government procuring all agricultural produce. The apprehensions over excessive fiscal requirements are unfounded and should not prevent the legalisation of MSP.
To make MSP a legal guarantee, necessary amendments are needed in the Agricultural Produce & Livestock Market Committee (APMC) Act by incorporating a clause that ‘auction of farm produce in APMC’s markets is legally not permitted below the declared MSP prices’. The apprehensions on the operation of MSP legal guarantee are that most of the sales of farm produce are not in APMCs, and traders may boycott the purchases of farm produce. The government does not have physical and economic resources to purchase, store, and market the procured farm produce, which is an irrational argument. Government intervention is necessary only when market prices fall below MSP, and it does not require the procurement of the entire marketable surplus.
The potential boycott of farm produce in places MSP legal regimes by the traders is an irrational argument because the commodity’s supply is tight against the demand for farm produce. First, this was also evident from the fact that the government could manage to procure only 26 million tonnes of wheat at MSP against the target of 44.4 million tonnes fixed for the 2023 season. Second, the government’s expenditure on procurement and imports of farm produce like edible oil and pulses, and on procurement of food grains on MSP in 2022-23, has already surpassed Rs 5 lakh crore and Rs 2.28 lakh crore, respectively.
Claims that the MSP legal guarantee will create fiscal disasters for India are baseless. According to government estimates, the MSP values of the total production of the 23 crops worked out to be around Rs 17 lakh crore, and some studies worked out to be around Rs 10 lakh crore. Furthermore, only 70% of the farm produce comes to markets as a marketable surplus, and farmers’ families consume the rest for household purposes. The MSP legal guarantee will cost the government about Rs 5 lakh crore if traders or big corporations engaged in processing boycott the APMC’s markets, which is an unlikely scenario. It is time to dismiss the misconceptions surrounding the legalisation of MSP and focus on the merits of providing a legal guarantee for MSP. Merits of legalising MSP: Farming is inherently risky, influenced by factors such as weather conditions, pest attacks, and market dynamics. By establishing a legally binding framework for minimum floor prices across all crops, will mitigate the current challenges and safeguard farmers from unpredictable fluctuations in the prices of their produce.
However, the government has proposed buying cotton, maize, tur, urad and Masur for five years directly from the farmers at the MSP without any quantitative limit. Notably, these crops are grown outside Punjab and Haryana, the home states of the protesting farmers. From this, can it infer that small pulses growing farmers all over the country stand to benefit? Legalising MSP for a wider variety of crops ensures that the benefits of price stability are not limited to specific segments of the farming community.
Small and marginal farmers cultivating diverse crops can access the protective shield of MSP, contributing to inclusive agricultural growth, and playing a pivotal role in ensuring food security for the nation by maintaining a stable production environment for key staples, contributing to the overall food security of the country.
A legal framework enables the government to conduct strategic operations in domestic and international markets. By selling procured produce at minimal markups during times of higher market prices, the government can manage inflation surges, ensuring price stability for consumers.
MSP reduces the vulnerability of farmers to market fluctuations, ensuring a minimum income for their produce. Farmers can navigate uncertainties more confidently, knowing that the government is legally bound to intervene when market prices fall below the MSP. A guaranteed MSP leads to increased rural income. This, in turn, stimulates the rural economy by boosting demand for goods and services, creating a positive ripple effect in various sectors.
The way forward: Policymakers can pave the way for a more secure and prosperous future for farmers by dispelling misconceptions and addressing concerns. Replacing the decades-old and inefficient MSP policy with a legislatively guaranteed MSP offers a comprehensive solution to the challenges faced by the agricultural sector. It not only ensures consistent implementation but also promotes diversification, inclusivity, and economic resilience, contributing to the wholesome well-being of farmers and the prosperity of the rural economy. This will help to fuel the dream of a ‘Viksit Bharat’.
(The author is Vice-Chairman of Sonalika Group, Vice-Chairman of the Punjab Economic Policy and Planning Board, and Chairman of ASSOCHAM Northern Region Development Council; Views expressed are personal)
