The Minimum Support Price (MSP) is the predetermined rate at which the government purchases specific crops from farmers. The Commission for Agricultural Costs and Prices (CACP) provides recommendations to determine the MSP.
The rationale behind the establishment of MSP is as follows:
- Protection against Price Volatility: MSP safeguards farmers from unforeseen price fluctuations that often lead to distress sales in the market.
- Ensuring Food Security: Assured procurement at MSP acts as an incentive for farmers to cultivate crops, thus contributing to food security.
- Supporting Developmental Schemes: Grains procured by the Food Corporation of India (FCI) at MSP aid in the implementation of developmental schemes such as PM-POSHAN, Aaganwadi Services Scheme, and TPDS, which help alleviate extreme poverty.
- Crop Diversification: MSP is instrumental in promoting the diversification of crops, as it is implemented for 23 different crops, including Ragi, Bajra, and Soybean.
- Reducing Import Dependence and Food Inflation: MSP is utilized as a measure to decrease reliance on imports and control food inflation. For instance, the MSP for pulses and oilseeds saw significant increases in 2021.
However, the MSP regime also faces various issues, including:
- Fiscal Burden and Trade Distortion: Subsidies associated with MSP create a fiscal burden for the government and pose challenges during trade negotiations at the World Trade Organization (WTO). Moreover, these subsidies deter private investments in the agricultural sector.
- Unsustainable Cropping Patterns: MSP incentives can lead to the cultivation of crops that may not be suitable for specific agroclimatic zones, resulting in ecological harm. An example is the depletion of the water table in Punjab due to paddy cultivation.
- Neglect of Non-Wheat and Non-Rice Crops: The focus on wheat and rice procurement by the FCI often overlooks other crops under the MSP, leading to the sale of these crops at prices below the MSP.
- Import Dependence and Inflation: Insufficient land allocation for crops such as oilseeds and pulses contributes to import dependence for edible oil and protein-based inflation, respectively.
- Limited Benefit for Small Farmers: Only a small percentage of land-owning farmers, around 14%, actually benefit from MSP. Smaller farmers face difficulties in obtaining fair prices due to middlemen cartelization.
- Inadequacy in Addressing Current Agricultural Priorities: The MSP regime, established during a period of food shortages, may not effectively address present agricultural challenges, such as ensuring stability in food production, addressing fragmented land holdings, and promoting investments.
Regarding the importance of providing legal backing for MSP to ensure financial sustainability in farming, there are both positive aspects and limitations:
1 .Positive Role:
- Right to Claim MSP: Legalizing MSP would grant farmers the right to demand MSP and allow for enforcement through the judicial system.
- Improved Price Realization: Legal backing could lead to better price realization for farmers from the private sector, consequently benefiting the rural economy.
- Diversification and Climate-Smart Agriculture: Farmers could shift their focus to diverse MSP crops, including pulses and millets, promoting climate-smart agricultural practices.
- Increased Litigation and Judicial Burden: Legalizing MSP may result in a rise in litigation and add to the burden on the judicial system.
- Inflation and Procurement Costs: Higher procurement costs associated with legal MSP could lead to inflationary pressures.
- Impact on Private Sector Purchases and Food Security: Legal MSP may discourage private sector purchases, and coupled with limited storage capacity at FCI, it could potentially create food insecurity.
- Export Competitiveness and Trade Hurdles: High production costs and poor yield could hamper export competitiveness, while global trade restrictions on amber-box subsidies pose additional challenges.
- Unsustainable Subsidy Requirements: Procuring all crops at MSP is not feasible due to the unsustainable subsidy requirements. The procurement of just 10% of the output of the 23 MSP crops would require approximately Rs. 5.4 lakh crore.
- Addressing Agrarian Distress: MSP alone does not effectively address underlying issues such as small farms, disguised unemployment, lack of investments, and inadequate infrastructure, which are key factors contributing to agrarian distress.
Conclusion: Therefore, while legal backing for MSP is neither sufficient nor necessary for ensuring financial sustainability in farming, alternative solutions like income-support schemes (PM-KISAN, KALIA, Rythu Bandhu) or price deficiency systems (PM-AASHA) may provide more progressive approaches. It is essential to revamp the MSP regime and implement comprehensive sectoral reforms in agriculture and beyond.