As farmers march again towards the corridors of power in New Delhi, their demands reverberate with urgency. Beyond a mere outcry for economic security, their call for a legal guarantee on the minimum support price (MSP) is a plea for stability in an increasingly volatile landscape. The saga of India’s farming community is one riddled with complexities, from rising production costs to the perennial struggle for fair returns amidst consumer-centric policies. In this intricate jump between market forces and governmental priorities, farmers often find themselves on the losing end, their voices drowned amidst the clamour for consumer affordability. Yet, amidst the echoes of dissent, lies a steadfast resolve to secure a future where the MSP for farmers is not just a promise but a legally binding guarantee.
About MSP
MSP is the minimum rate at which farmers sell their crops to the government. This price provides support for farmers and protects them from market fluctuations. This enables them to stabilise their income and offers security. The Commission for Agriculture Costs and Prices (CACP) was established in 1965 to make recommendations on the MSP.
The government has announced the MSPs for 22 specified crops and a fair and remunerative price (FRP) for sugarcane. These 22 crops include 14 crops for the kharif season [paddy, jowar, bajra, maize, ragi, tur (arhar), moong, urad, groundnut, soyabean (yellow), sunflower seed, sesamum, nigerseed, and cotton], six for the rabi season [wheat, barley, gram, masur (lentil), rapeseed and mustard, and safflower], and two other commercial crops (jute and copra besides de-husked coconut). Additionally, the MSPs for toria and de-husked coconut are determined on the basis of the MSPs of rapeseed/mustard and copra, respectively.
Currently, MSPs are officially declared for 23 different crops, yet procurement activities primarily focus on wheat and paddy, fulfilling the needs of the public distribution system (PDS).
FRP is the base price that sugar mills are obligated to pay to sugarcane farmers. The Sugarcane (Control) Order of 1966 underwent an amendment on October 22, 2009, replacing the concept of statutory minimum price (SMP) with FRP for sugarcane. FRP is decided by the central government relying on the recommendations from the CACP in coordination with state governments and input from sugar industry associations. However, some of the state governments like Punjab, Haryana, Uttar Pradesh, and Tamil Nadu announce state advised price (SAP) which is generally higher than the FRP.
Formulas for Establishing MSPs
The government sets the MSPs on the basis of the recommendations of the CACP, which outlines three primary formulas for establishing MSPs.
These formulas are as follows:
A2 This encompasses the expenses borne by the farmer during the production of a specific crop. It includes various inputs such as spending on seeds, fertilisers, pesticides, leased-in land, hired labour, machinery, and fuel.
A2+FL This incorporates the costs incurred by the farmer along with the valuation of family labour.
C2 This represents a comprehensive cost, which includes A2+FL costs in addition to the imputed rental value of owned land and interest on the fixed capital, as well as rent paid for leased-in land.
The government maintains that the MSP has been established at a minimum of 1.5 times the all-India weighted average cost of production (CoP); however, it computes this cost as 1.5 times the A2+FL cost.
MSP was one of the important aspects of the Green Revolution. The revolution has been in place to improve food production and reduce the dependence on imports for food grains. The government provided subsidies, electricity, credit, water, and MSP to encourage farmers to produce particular crops.
When the new farm laws were to be introduced, farmers protested against it with the fear of threat from entry of agri-business companies in 2020–21 and demanded a legal guarantee for the MSP. Recently again in 2024, thousands of farmers protested in the northern states to implement legality for the MSP and to implement the recommendations of the Swaminathan Committee.
Swaminathan Report on MSP
The demand for legalising the MSP in India, as advocated by protesting farmers, is rooted in the recommendations of the Swaminathan Commission, which was established in 2004 under the chairmanship of agricultural scientist, M.S. Swaminathan. The commission was tasked with suggesting measures to enhance the productivity, profitability, and sustainability of farming systems in the country, aligning with the Common Minimum Programme of the Congress-led United Progressive Alliance (UPA) government at the time.
The commission submitted five comprehensive reports between December 2004 and October 2006, which addressed various aspects of agricultural distress and recommended policy interventions to support farmers. While the reports sympathetically acknowledged the challenges faced by farmers, including acute agricultural distress and occasional farmer suicides, they did not explicitly recommend a legal guarantee for the MSP or provide a formula for its calculation, contrary to the demands of the protesting farmers.
However, the reports did highlight the importance of the MSP in ensuring income security for farmers and recommended improvements in its implementation. The commission emphasised the need to avoid delays in issuing the MSP, particularly for Kharif crops, and called for better implementation of the MSP across regions to prevent prices from falling below the MSP, except in states like Punjab, Haryana, UP, and Andhra Pradesh.
Despite not specifying the C2 formula (actual CoP plus 50 per cent) demanded by the farmers, the commission recognised the significance of considering various factors, including the variability of the cost of production, risk factors, and marketing expenses, in determining the MSP. It suggested that the CACP should consider these aspects while recommending MSP, ensuring that it is at least 50 per cent more than the weighted average CoP.
Furthermore, the commission proposed that MSP should serve as the bottom line for procurement by both the government and private traders, with the government procuring staple grains for the PDS at prices equivalent to those offered by private traders to farmers.
Importance of Legal Guarantee to MSP
A legally guaranteed MSP holds immense potential in transforming the landscape of Indian agriculture, offering a lifeline to small-scale farmers, and bolstering rural economic stability.
Some of the benefits of legalising MSP are as follows:
Addressing market failures The current system of public crop purchase primarily focuses on procuring basic food grains for the PDS system, often neglecting the remunerative prices for other crops. A legal guarantee for MSP addresses this market failure, ensuring that farmers receive fair prices for their produce beyond just rice and wheat.
Ensuring farmer’s income security Legalising MSP ensures that farmers are guaranteed a minimum price for their crops, mitigating the risks associated with volatile market conditions. This income security is vital for farmers’ economic well-being and sustenance of rural livelihoods.
Utilising different methods A legally guaranteed MSP does not necessarily entail the government purchasing all crops. Instead, it can utilise various methods to stabilise prices, including strategic purchasing, imports and exports management, and compensating farmers for selling below MSP. These strategies ensure market stability while minimising financial burdens on the government.
Need for Legalising MSP
The need for legalising MSP in India stems from a multitude of challenges faced by farmers in the agricultural sector. These challenges highlight the urgency and importance of establishing MSP as a legal safeguard for farmers’ incomes.
Challenges in price negotiation and power imbalance with traders Farmers encounter significant hurdles when negotiating prices for their crops, especially with skilled traders who often prioritise maximising their profits. This power imbalance, coupled with market fluctuations, leaves farmers vulnerable to receiving unfair prices for their produce. Legalising MSP would address this disparity by providing farmers with a guaranteed minimum income, thereby empowering them to navigate market uncertainties and secure fair prices for their crops.
Unrealistic expectations from farmers Farmers are burdened with the dual responsibility of producing high-quality crops and negotiating prices with traders, which can be unrealistic given the complexities involved. Legalising MSP would alleviate this burden by providing farmers with a stable pricing mechanism, ensuring they receive a minimum price for their produce without the added pressure of negotiation.
Rising costs of cultivation and high-risk nature of agriculture The increasing costs of cultivation exacerbate the financial strain on farmers, making agriculture financially unviable for many. Moreover, agriculture in India is inherently at-high-risk due to unpredictable factors such as weather, pests, and market volatility. Legalising MSP would provide farmers with financial security and stability, mitigating the risks associated with farming and ensuring a reliable source of income to offset rising cultivation costs.
Impact of volatile crop prices and financial viability of farming Volatile crop prices pose a significant risk to smallholder farmers, leading to immediate financial pressures and financial losses during harvest seasons. Legalising MSP would help mitigate these risks by providing farmers with a safety net against fluctuating market prices, thereby ensuring the financial viability of farming and preventing economic distress among farmers.
Importance of MSP for livelihoods Agriculture plays a crucial role in the Indian economy and sustains the livelihoods of millions of people. Legalising and effectively implementing MSPs is imperative to support the financial well-being of farmers and sustain agricultural livelihoods. It would promote crop diversity, incentivise sustainable farming practices, and ensure food security for the population.
Pros of Legalising MSP
- It ensures income security for farmers by guaranteeing a minimum price for their produce, mitigating the financial uncertainties associated with agriculture.
- It stabilises agricultural incomes, providing vital support to the rural economy and fostering local economic growth.
- With the transition from food security to nutrition security, legal MSP for a diverse range of crops ensures the availability of nutritious food, thereby promoting public health and well-being.
- It aligns with the government’s agenda to formalise agricultural transactions and promote digitalisation, contributing to the modernisation of agricultural practices.
- It helps in regulating prices by preventing drastic fluctuations, thereby reducing food inflation, and ensuring consumer protection.
- It serves as a regulatory mechanism in the agricultural market, preventing exploitation of farmers by intermediaries and ensuring fair pricing.
- Legalising MSP for various crops incentivises farmers to diversify their crop cultivation, promoting agricultural sustainability and resilience.
- It will help in mitigating risks due to environmental or climate factors.
- lt will reduce dependence of people on imports and international markets.
- It will help in reaching equilibrium or normal prices in the agricultural markets. Generally, prices of crops vary a lot with prices being so high in one year and hitting rock bottom the next year.
Cons and Challenges of Legalising MSP
Financial feasibility It is not practically feasible for the government to procure all produce at MSP due to the substantial costs involved. The combined value of crops covered under MSP far exceeds the government’s financial capacity, resulting in unsustainable expenditure. For instance, the total value of crops covered under MSP in 2020 amounted to Rs 10 lakh crore, whereas the total expenditure in 2023–24 was Rs 45 lakh crore.
Incentivising profitability over sustainability Legalising MSP may incentivise farmers to prioritise cultivating crops offering the highest profitability, potentially disregarding considerations such as soil suitability and environmental sustainability.
Neglect of certain crops MSP typically covers only specific crops, neglecting others that may be moral sustainable and nutritious. This could discourage farmers from diversifying their crop cultivation, thereby impacting food diversity and nutritional security.
Challenges in implementation Implementing legal MSP for all crops faces challenges due to the informal nature of agricultural transactions, particularly in regions where the mandi system is not functional. This complication complicates the procurement and distribution processes, hindering effective implementation.
Logistical challenges The government may struggle to procure all crops covered by legal MSP, leading to logistical challenges and potentially unsustainable financial burdens.
Impact on consumers Legalising MSP may result in higher prices for agricultural produce, impacting consumers, especially if the government faces difficulties in managing procurement and distribution efficiently. While price deficiency payments (PDP) can offer an alternative to physical procurement, its implementation requires careful consideration of its financial sustainability and effectiveness in supporting farmers.
Methodological challenges The methodology for calculating input costs, such as A2+FL and C2+50 per cent, may pose challenges. Discrepancies between actual costs and market prices can affect farmers’ profitability and complicate MSP implementation.
Dependency on government intervention Legalising MSP reinforces dependency on government intervention in agricultural markets, potentially hindering the development of independent farmer-producer relationships and market dynamics.
Disincentive for private investment Legalising MSP may disincentivise private investment in agriculture, potentially hindering innovation and modernisation efforts in the sector.
Exacerbating water scarcity MSP-supported crops, particularly water-intensive ones like paddy and sugarcane, may exacerbate water scarcity issues in regions where they are extensively cultivated.
Neglect of non-MSP crops Legalising MSP may lead to the neglect of non-MSP crops, impacting food security, dietary diversity, and nutritional outcomes.
Reduced export competitiveness Elevated domestic prices resulting from higher MSP rates may reduce the export competitiveness of MSP-supported crops, affecting India’s position in international markets.
Trade disputes Legalising MSP may lead to trade disputes with importing countries, impacting export volumes and market access. Increased resistance at the World Trade Organization (WTO) may also occur due to elevated MSP.
Despite cons looking more than pros, it is important to understand the number of people this policy affects. Providing MSP is an important factor that could contribute to the welfare of farmers, doubling their incomes and food security. Though it might require Rs 10 lakh crore which is the value of all crops produced, around 25 per cent of the total production is used for personal consumption. So, the required amount for MSP is around Rs 7.5 lakh crore. It would impact the Indian budget expenditure.
Way forward
Balanced agricultural pricing policy Transitioning to a balanced agricultural pricing policy that incorporates mechanisms like MSP and direct income support schemes is crucial. This policy should aim to protect farmers’ incomes while also considering consumers’ interests and market dynamics.
Enforcement of Swaminathan Committee recommendation Implementing the Swaminathan Committee’s recommendation of setting MSP at least 50 per cent above the weighted average CoP (C2 cost) should be prioritised to ensure fair returns to farmers.
Expansion of MSP criteria Factoring in additional expenses incurred by farmers, such as education and health services for their families, when determining MSP would provide a more accurate reflection of farmers’ costs and needs.
Price deficiency payments Exploring options like Price deficiency payments (PDP) can offer an alternative to physical procurement and provide farmers with income support when market prices fall below MSP.
Enhancing farmers’ income Investing in measures to enhance farmers’ income, such as integrating agriculture into schemes like MGNREGS, promoting crop diversification, and strengthening agricultural marketing infrastructure, is essential.
Investing in agricultural infrastructure Increasing public investment in rural infrastructure, promoting technology adoption and innovation, and facilitating access to credit and insurance services for smallholder farmers are critical for enhancing agricultural productivity and market access.
Improving land and water management Implementing sustainable land and water management practices, promoting efficient water use, and empowering farmers through collective action and decision-making are necessary for ensuring agricultural sustainability.
Ensuring social protection Expanding social safety nets and insurance schemes to provide income and livelihood support to vulnerable farming households during periods of distress is essential for enhancing resilience in agriculture.
Improving governance Strengthening governance and regulatory frameworks to reduce bureaucratic hurdles, corruption, and market distortions is crucial for fostering a conducive environment for agricultural development and farmer welfare.
Encouraging adoption of modern technologies Encouraging the adoption of modern technologies for efficient and low-cost production, along with increasing public investment in agriculture, can complement efforts to ensure fair prices and improve farmers’ incomes.
Conclusion
In conclusion, while legalising MSP is important, it is not the sole solution to address agricultural challenges. A comprehensive approach that combines MSP with other supportive measures, such as income support schemes, infrastructure development, and sustainable land management practices, is necessary to achieve the overarching goals of reducing the debt burden on farmers, improving farmers’ incomes, and ensuring food security. Additionally, continual review and adaptation of policies based on the evolving agricultural landscape and recommendations from expert committees like the Swaminathan Committee are essential for addressing the complex challenges faced by the agriculture sector.
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