Relevance Of Msp During The Changing Agricultural Policy

The protest against the three controversial farm laws - Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020; Farmers (Empowerment and Protection) Agreement of Price Assurance, Farm Services Act, 2020; and the Essential Commodities (Amendment) Act, 2020) - has been called off by the farmer unions once these were repealed. Farmers feared that this legislation would put an end to both government purchases and the MSP.

• The government has agreed to the unions' demand for the establishment of a committee to ensure that all farmers receive minimum support prices (MSP).

Minimum Support Price

• Minimum Support Price (MSP) is the assured price at which food grains are procured from farmers by the central and state governments and their agencies, for the central pool of food grains.

Objectives

• The MSP are fixed to fulfill following objectives-
• To induce more investment by farmers in the farm sector
• To motivate farmers to adopt improved crop production technologies
• To enhance production and thereby farmers income

Crops Covered under MSP in India

• 22 Mandatory Crops
  • Cereals (7): Paddy, wheat, maize, sorghum, pearl millet, barley and ragi
  • Pulses (5): Gram, tur, moong, urad, lentil
  • Oilseeds(7): Mustard/rapeseed, Sunflower, Groundnut, Sesame, Soya bean, Safflower & Niger seed
  • Cash Crops (3): Cotton, raw jute, and copra.
• Fair and Remunerative Price (FRP) for Sugarcane.
• MSP for Toria and De-Husked coconut is fixed by the Department on the basis of MSP’s of Rapeseed/Mustard seed and Copra respectively.

Benefits of MSP

• Protection from Market Volatility: This protects agricultural prices and farmers from market changes.
• Economic Security: It's a fixed price that ensures farmers get a minimum profit on their harvest if the open market maintains a lower price for their crops. As a result, the farmers have economic assurance and security.
• Food Security: Large-scale buying at MSP assists the government in meeting the government's food security goals, which are achieved through programs such as MDM, Aanganwadi, and NFSA.
• Increases Production: It encourages farmers to produce specific crops, assisting in the achievement of agricultural output targets.
• Incentivizing Farmers: Agriculture provides a living for about half of India's people. The government has also used MSPs as a tool to incentivize the cultivators to adopt modern technology, and raise productivity and overall grain production in line with the emerging demand patterns in the country.

Concerns

• Inflation: Inflation can be fueled by rapid and frequent increases in MSP.
• Unequal Access to MSP: There are no benefits for all crops/farmers. The implementation in the North East is lacking. Large traders gain more from government purchases at MSP than farmers.
• Inadequate Amount: Input costs have been rising faster than sale prices, squeezing small farmers' already modest revenue and pushing them into debt.
• Procurement Related Problems: Almost two-thirds of entire cereal production is routed through MSP, leaving only one-third for the open market. As a result, a farmer who opts for the MSP cannot benefit from favorable market prices and must rely only on the MSP. This has resulted in a crop deficit on the open market, which has had a significant impact on consumption patterns. It has resulted in an imbalance in production demand due to a shift in consumer preference for non-cereal meals.
• Excess Storage: Procurement without adequate storage has resulted in massive stockpiles in warehouses, resulting in wastage of food.
• Market Distortion: It distorts the free market as farmers prefer to grow certain crops over others and excludes perishables from coverage. It reduces the competitiveness of Indian farm goods, especially when foreign market prices are lower.
• Ecological Problem: MSP leads to non-scientific farming methods that stress the soil and water to the point of damaging the ground water table and soil Stalinization.
• Killing of Competition: Any government intervention suffocates competition.
• Issues in WTO: According to WTO rules, MSP is a trade distorting support. The current Aggregate Measurement of Support (AMS) is used to calculate trade distorting domestic support, which has limits of up to 10% for developing nations (excluding China; 8.5%) and 5% for industrialized countries. India has twice surpassed this amount in rice production. Further MSP has been challenged by many countries. In the WTO, Australia has complained about the MSP on wheat, while the US and EU have objected to the MSP on sugarcane and pulses.

Possibilities and Prospects

• MSP to be calculated using C2 expenses plus 50%.
• Farmers must be educated on the advantages of crop diversity.
• The MSP should be determined based on current costs rather than previous expenditures.
• A focus on a scientific approach to agriculture and more research funding to promote productivity.
• Procurement reform is needed, with a focus on local procurement and modern infrastructure facilities at the Panchayat level.
• FCI to be reorganized in accordance with the Shanta Kumar committee's suggestions.