The Cost of Legal MSP is Greatly Exaggerated (Indian Express)
- 17 Feb 2024
Why is it in the News?
Farmers have resumed protests without a specific trigger, unlike their previous march against contentious farm laws. Their main demand is a legal guarantee for Minimum Support Prices (MSP).
- The renewed protest by farmers, advocating for a legal assurance of Minimum Support Prices (MSP), underscores the enduring battle for agricultural sector stability.
- Amidst this, it's crucial to delve into the intricacies of MSP, address prevailing misconceptions, and explore the advantages of formalising this system.
What is the Minimum Support Price (MSP)?
- MSP (Minimum Support Price) is the cost at which the government buys crops from the farmers, to guarantee farmers against any sharp fall in agricultural income.
- It is declared by the Government based on the proposal of the Commission for Agricultural Cost and Prices (CACP), at the start of the planting season.
- This mechanism aims to protect small and marginal farmers from financial losses and ensure an adequate supply of food grains for public distribution across India.
- Since its inception in 1966-67 for wheat, the MSP framework has expanded to cover various essential food crops, facilitating their availability to the public through subsidized rates under the public distribution system.
- However, only a small percentage, approximately 6% or less, of farmers are able to sell their produce at prices higher than the MSP.
Is the MSP Different in different states?
- Because of the variety in irrigation and wages, the expense of a similar yield changes from one state to another.
- However, there is no draft of the local Minimum Support Price, so there is one MSP for the whole country.
Significance of Minimum Support Price:
- Fixed Remunerations: The farmers are financially insured against the impulses of price fall in the market.
- It gives security to farmers from crop loss and price uncertainty.
- Help in Decision Making: MSPs are reported toward the start of the planting season, this assists farmers with settling on the best choices of crop that they should plant.
- This development data assists the farmer with settling on the best choice with regards to which yield to plant for the most extreme monetary advantage inside the restrictions of his agricultural land size, environment, and irrigation framework.
- Crop Diversification: The MSP declared by the Government of India without precedent for 1966-67 for wheat has reached out to around 24 crops at the present.
- This has urged the farmers to develop these different crops to maximize their agricultural income.
- Price Limitations for Private Purchasers: MSP conveys a value message to advertise that if vendors don’t offer higher than MSP costs the farmer may not sell them his produce.
- In this manner, it goes about as an anchor or benchmark for agricultural produce.
- It guarantees the market costs won’t be radically lower than the Minimum Support Price.
- Commercial Crops: MSP is utilized as an instrument to boost the creation of explicit food crops which is short in supply.
- MSP spurs farmers to develop commercial crops and expand creation on a commercial basis.
- Purchasing Power Enhancement: MSP provides fixed amounts in framers’ hands which makes them financially stable.
- It helps in upgrading the buying limit and updating the style of living of farmers and their families.
Challenges in Implementation of MSP:
- Selective Intervention and Limited Coverage: Despite the annual announcement of MSP for 23 crops, actual implementation tends to be selective, primarily focusing on major crops like rice and wheat.
- This limited coverage undermines the broader objective of ensuring stability across various agricultural commodities.
- MSP Implementation Bias: The unequal application of MSP, favouring specific crops, marginalizes farmers cultivating other essential commodities.
- This bias exacerbates regional disparities and impacts the economic well-being of farmers engaged in non-major crop cultivation.
- Disconnect Between Market Price and MSP: The disparity between market prices and MSP poses a significant challenge, as government intervention is triggered primarily when market prices fall below the MSP.
- Inconsistent intervention exacerbates uncertainties for farmers, leading to financial distress during market downturns.
- Perceived Government Apathy: Farmers perceive a lack of genuine interest or urgency from the government in effectively implementing MSP.
- This perceived apathy breeds distrust and frustration among farmers, fueling demands for a legal guarantee to ensure consistent and widespread implementation.
- Political Hesitation and Decision-Making Delays: While there is political consensus supporting a legal guarantee for MSP, successive governments have hesitated to formalize this mechanism.
- Delayed decision-making perpetuates uncertainties in the agricultural sector, undermining the effectiveness of MSP as a stabilizing force.
What Does a Legal Guarantee of MSP Mean and What Obstacles in Legalising MSP?
- It means that anyone paying less than the price set by the government for crops could be criminally charged.
- Currently, there is an MSP for 23 crops.
- However, the highest procurement by the government is of wheat and rice.
- According to experts, if MSP is legally guaranteed, the government will have to pay it regardless of supply and demand dynamics.
- At the moment, about 60 per cent of the total field crop production in India comes from wheat and paddy.
- Fiscal Concerns: Misconceptions regarding the fiscal implications of guaranteeing MSP have posed obstacles to its legalization.
- Despite the political consensus, concerns over perceived excessive fiscal burdens have deterred governments from formalizing MSP.
- Prevalent Misconceptions: There is a prevalent misconception that legalizing MSP necessitates government procurement of all agricultural produce, which is inaccurate.
- Government intervention is required only when market prices dip below MSP, and it does not entail the procurement of the entire marketable surplus.
- Misunderstanding of Procurement Costs and Subsidies: The cost of procuring rice and wheat is often misconstrued as the cost of the MSP program, whereas it primarily serves as a subsidy to consumers rather than farmers.
- For other crops, government procurement is not a cost unless sold with a subsidy, with the actual cost being the difference between economic cost and issue price.
Potential Advantages of Legalising MSP:
- Ensuring Uniform Implementation: Formalizing Minimum Support Prices (MSP) establishes a clear legal framework, ensuring consistent application across all crops.
- This move addresses current issues of selective intervention, providing farmers with a dependable safety net.
- Promoting Inclusive Agricultural Growth: Expanding MSP coverage to various crops ensures that price stability benefits all segments of the farming community.
- Small and marginal farmers cultivating diverse crops can access MSP protection, fostering inclusive agricultural development.
- Reducing Farmer Vulnerability: Formalizing MSP reduces farmers' susceptibility to market fluctuations by guaranteeing a minimum income for their produce.
- This assurance enables farmers to navigate uncertainties with confidence, knowing that government intervention is assured during price downturns.
- Boosting the Rural Economy: A secured MSP contributes to farmers' economic well-being, leading to increased rural income.
- This upliftment stimulates the rural economy by generating demand for goods and services, fostering growth across multiple sectors.
- Clarifying Consumer Subsidies: Formalization helps distinguish between procurement costs and consumer subsidies, often conflated as MSP program expenses.
- This clarity aids policy discussions and ensures targeted subsidy allocation, benefiting both farmers and consumers.
- Facilitating Strategic Government Operations: A legal framework empowers the government to conduct strategic operations in domestic and international markets.
- Through controlled sales during periods of high market prices, the government can manage inflation, ensuring price stability for consumers.
The legalization of MSP presents a holistic remedy to the agricultural sector's woes.
Beyond ensuring uniform application, it fosters diversification, inclusivity, and economic robustness, ultimately benefiting farmers and bolstering rural prosperity. By dispelling misconceptions and tackling apprehensions, policymakers can pave the way toward a more secure and prosperous future for our farmers.