MSP Demand & Possible Solution

GS-3: Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security
GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Context: Philosophy Farmers camping at Delhi’s borders for the past 10 months have clear cut demands —

What is the government’s position?

There are indications that the government was leaning towards the withdrawal or cancellation of the three farm laws.
However, the government is not willing to take direct responsibility of ensuring legal guarantee of MSP for all crops

What is Minimum Support Price (MSP)?

MSP is the price set by the government to purchase crops from the farmers, whatever may be the market price for the crops.

MSP is declared by Cabinet Committee on Economic Affairs before the sowing time on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP)
- CACP is not any statutory body but is an attached office of the Ministry of Agriculture and Farmers Welfare. It can recommend MSPs, but the decision on fixing (or even not fixing) and enforcement rests finally with the government.

Support prices generally affect farmers’ decisions indirectly, regarding land allocation to crops, quantity of the crops to be produced etc
MSP assures farmers agricultural income besides providing a clear price signal to the market
The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.

The government declares MSPs for crops, but there’s no law mandating their implementation

MSP is devoid of any legal backing. Access to MSP isn’t an entitlement for farmers. They cannot demand it as a matter of right.
The Centre currently fixes MSPs for 23 farm commodities based on the CACP’s recommendations —
- 7 cereals – paddy, wheat, maize, bajra, jowar, ragi and barley
- 5 pulses – chana, arhar/tur, urad, moong and masur
- 7 oilseeds – rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and nigerseed
- 4 commercial crops – cotton, sugarcane, copra and raw jute

What is the issue with MSP?

Most of the 23 crops, for which MSP is announced, are purchased by private players and there is high fluctuation in the prices.
Sometimes these crops are sold much below the MSP and sometimes they fetch a little more than the MSP.
The farmers, therefore, want a legal guarantee that crops can be sold only at MSP or above it.
But the government is not ready to give legal guarantees at the moment, except reiterated verbally several times that it will continue its current MSP regime, which mostly covers wheat and Paddy in Punjab, Haryana, MP and parts of UP. The farmers, however, have refused to budge.

Can state-level policies assure that the farmers get MSP for their crops?

Some states have stepped in and started compensating farmers for crops selling below the MSP rates under their own state-level policies.
In the past years, some states like Madhya Pradesh (MP) under Bhavantar Bhugtan Yojna (price difference payment scheme), Haryana under floor prices regime, Kerala under its Bhavantar Bharpayi Yojna, set the floor price or state price and if the covered crops are sold below that price then the state government pays the difference to the registered farmers on their respective portals.
While the MP government has covered some cereals, pulses, oilseed and horticulture crops under its scheme, Haryana and Kerala have covered only horticulture crops. Haryana has recently added millet to its scheme.
These schemes are good but the state governments do not have resources to sustain such policies and to cover all the crops in long run.

Is there a solution then?

Along with the current MSP regime, corporations, like Cotton Corporation of India (CCI), should be formed by the centre government for cereals, some of which are not covered under centres’ current MSP regime.
- CCI enters the market when the price of ‘Kapas’ (unginned raw cotton) goes below the MSP fixed by CACP. The CCI then purchases Kapas at MSP, which in turn forces the private players also to offer prices at par with the MSP so as to stop the CCI from purchasing all the cotton from the market.
In the case of Basmati last year, farmers got much less because of their dependence on the private players. That is where a corporation like CCI could step in and play the role of a deterrent to stop farmers from being exploited.
Just like wheat and paddy MSP, which the government purchases through Food Corporation of India (FCI) by taking cash credit limit (CCL) from RBI, such corporations too can follow the same policy because there is a huge market of oilseeds and pulses in our country.
Some farmer leaders suggested that even a state-Centre joint “Bhavantar scheme” can be launched to compensate farmers in case their crop price goes below the fixed rate.

Connecting the dots:

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