Indian Economy, TLP-UPSC Mains Answer Writing
Q. 1. “The demand for legal guarantee to MSP reflects deeper anxieties about market volatility and rural distress.” Critically analyse the implications of legalizing MSP in India. (150 words, 10 marks)
Introduction
Minimum Support Price (MSP) is a government-declared price that protects farmers from market fluctuations. As noted by the Shanta Kumar Committee, only 6% of farmers benefit from MSP procurement—triggering continued protests in 2020, demanding a legal guarantee.
Body
Rationale Behind Demand for Legal MSP
- Market volatility and price crashes: Non-MSP crops like pulses often sell below cost, forcing distress sales. MSP acts as a floor price against such shocks.
- Rising input costs: High prices for diesel, seeds and fertilisers make farming unsustainable. A guaranteed MSP offers financial stability.
- Uneven procurement: FCI procurement is concentrated in states like Punjab. This excludes most farmers and deepens regional disparities.
- Lack of income alternatives: Schemes like PM-KISAN and Rythu Bandhu exist. But they aren’t enough to counter market failures.
- Rural economic distress: Events like COVID-19 and demonetisation hurt rural incomes. Legal MSP could boost consumption and demand.
Arguments in favour of Legal Guarantee to MSP
- Income security and risk protection: Legal MSP provides stable income. It shields farmers from climate shocks and price crashes.
- Rural distress alleviation: It boosts rural purchasing power. This reduces financial vulnerability in times of crisis.
- Benchmark price for the market: MSP signals a minimum price to the market. This ensures traders do not exploit farmers during gluts.
- Crop diversification and sustainability: With assured returns, farmers may diversify. This could promote millets and pulses.
Arguments Against Legalising MSP
- Huge fiscal burden: Universal MSP procurement may cost over ₹5 lakh crore annually. This could worsen fiscal health.
- Market distortion and storage issues: Government may be forced to procure even unwanted crops. This would worsen warehousing woes.
- Inflationary pressure: Higher procurement costs could raise food inflation. This affects poor and middle-income consumers.
- WTO concerns and export competitiveness: Legal MSP risks violating WTO norms. It may hurt India’s farm exports.
- Demand spill over effect: Allied sectors like dairy and horticulture may also demand MSP. This strains policy capacity.
- Regional imbalance in production: Farmers may grow MSP-covered crops unsuited to their ecology. This distorts cropping patterns.
- Political and administrative complexity: Enforcing legal MSP across 22+ crops is difficult. It needs massive institutional capacity.
Way Forward
- Price Deficiency Payment Schemes: As recommended by NITI Aayog and the Economic Survey, compensate for price gaps without enforcing procurement. 2. Strengthen FPOs and cooperatives: Empower farmer collectives to boost bargaining power and market presence.
- Gradual MSP crop expansion: Widen MSP coverage gradually to ensure balance and promote diversification.
- Invest in market and storage infrastructure: Build mandis, logistics, and storage to reduce distress selling.
Conclusion
Rather than blanket legalisation of MSP, a farm-to-market approach grounded in the National Commission on Farmers vision of income assurance and market support would better address rural distress sustainably.
