The common apprehensions on the operation of MSP legal guarantee are irrational, promoted by administration & business lobbies
The absence of MSP legal guarantee is a tool to exploit the farmers. Photo: iStock The minimum support price (MSP) is an advisory price under the agricultural policies that is recommended by the Union government. The mechanism aims to safeguard the interest of farmers — by ensuring a minimum profit for their produce — as well as of consumers against corrupt manipulative market inflation and maintains food security in India.
MSP was introduced in 1966-67, when India was desperately in a food deficit. The government was keen to boost domestic food grain production through input-intensive ‘Green Revolution technology’, which included improved high-yielding varieties of wheat and rice with chemical fertilisers and pesticides, better irrigation systems, mechanisation, among other methods.
The adoption of these input-intensive technologies needed guaranteed financial support of MSP to the farmers. Thus, the food security of India is ensured by adoption of Green Revolution technologies supported by MSP since 1967 onwards. Now, weakening of MSP policy will prove to be a potential threat to food security for 1.4 billion Indians, with reduced agriculture production.
The implementation of MSP resulted in the adoption of input-intensive agricultural technology in the semi-arid zone states of Punjab and Haryana, which regularly recorded high productivity of over 5 tonnes per hectare for major cereal crops (wheat and rice) and total productivity of 10-12 tonnes per hectare annually, which is nearly double the national average and also one of the highest globally.
Similar remarkable progress was also achieved by Madhya Pradesh and Chhattisgarh during the last decade by effective adoption of MSP regimes. The MSP policy helped increase the production of wheat by 10 times and rice by four times in comparison to 1960.
The areas and production of oilseeds, pulses and coarse grain crops drastically reduced because these crops proved uneconomical to the farmers in the absence of an effective MSP regime.
Food security by self-reliance or import is a big concern for India. MSP regimes have not only ensured food security but also proved to be market intervention mechanisms to control the prices of farm produce. The Indian government has successfully implemented its programme to distribute free food grains to nearly a billion poor people (equivalent to about 12 per cent of the global population) since 2020 because of procurement of food grains at MSP prices, which otherwise was not possible in global free trade regimes.
Food security through self-reliance is the stability and pride of a nation, just like having strong defense services; food security by import may be a viable model for a nation with a small population and strong industrial and economic base like Qatar and Bahrain.
Australia and the United States can produce and supply wheat at very competitive prices required for the rest of the world in free trade regimes. However, then half of the world’s population, including Indians who engage in agriculture activities, will become unemployed.
The biased policy of huge duty-free imports of cheap palm oils proved detrimental to the interests of oil seed farmers and industries in India. Thus, agriculture should not be the subject matter of the world-free trade regimes of multinational corporations and resourceful countries, because all cultures are born out of agriculture, which is the first social and business activity of all native societies needed for their survival and employment.
The National Commission on Farmers, chaired by MS Swaminathan, submitted five reports during December 2004-October 2006 that focused on causes of farmer distress and the rise in farmer suicides and recommended addressing them through a holistic national policy for farmers and improved calculations of MSP that ‘MSP should be at least 50 per cent more than the weighted average cost of production’.
The absence of MSP legal guarantee is a tool to exploit the farmers. MSP is determined by the Commission for Agricultural Costs and Prices (CACP) as a key government intervention to protect farmers and consumers from sharp fluctuations in farm prices. According to some estimates, MSP benefits less than seven per cent of farmers, and procures around 11 per cent of total agricultural output in the country, according to the NITI Aayog data for 2020.
In the absence of MSP legal guarantee, the major share of agricultural crops produced (over 90 per cent) are sold at 20-50 per cent lower prices than MSP, which caused average losses of Rs 20,000 per acre and about Rs 10 lakh crore annually to the farmers.
A study done by the Indian Council for Research on International Economic Relations and the Organization for Economic Cooperation and Development showed that Indian farmers have been harvesting losses continuously since 2000 due to biased government policies to keep farm prices artificially low, which has kept farmers in perpetual poverty.
The report further pointed out that Indian farmers lost Rs 14 lakh crore ($169 billion) in the year 2022 alone and Rs 45 lakh crore at 2017 prices during 2000-2017 due to low farm prices maintained through biased government policies. Thus, the government policy has exploited the farmers by not implementing the recommendations of the Swaminathan report (2006).
Further, in the absence of the MSP legal guarantee since 1967, the farmers are regularly exploited by the middlemen to sell farm produce at 20-50 per cent less than declared MSP prices. These biased government policy-based exploitations caused regular unrest and suicides among the farmers of India’s North West Plain Zone (most intensive agriculture zone globally, with food grains productivity of 10-12 tonnes per hectare annually).
Instead of MSP only for public procurement, a more meticulous approach is needed because MSP fundamentally is a price guarantee mechanism to ensure the food security of India, which should be ensured both by the government and the markets. To make MSP as a legal guarantee, necessary amendments are needed in the Agricultural Produce & Livestock Market Committee (APMC) Act by incorporating a clause that ‘auction of farm produce in APMC’s markets is legally not permitted below the declared MSP prices’.
The apprehensions on the operation of MSP legal guarantee are:
1) Most of the sales of farm produce are not in APMCs
2) Traders may boycott the purchases of farm produce
3) The government does not have physical and economical resources to purchase, store, market the procured farm produce;
These are irrational arguments promoted by vested interests lobbyists of the administration and business communities. Currently, India has marginal surpluses in wheat and rice production against the domestic demand in a favorable climatic year but still highly deficient in production of oilseeds, pulses and other crops. The consumption demand of wheat was about 103 million tonnes and rice was 109 million tonnes in 2022 in the country.
Climate change is a critical factor impacting demand and supply of critical grains, particularly in monsoon rain-fed agriculture of India. The Indian government was compelled to ban wheat exports in May 2022 to manage the high domestic demand and fall in wheat production due to sudden rises in temperatures during February 2022.
In an effort to increase local supply in light of a decrease in the area planted with paddy during the Kharif season of 2023 due uncertainty of monsoon rains, the Centre also barred the export of broken rice and placed a 20 per cent export levy on all non-basmati rice, with the exception of parboiled rice.
Thus, the potential boycott of farm produce in MSP legal regimes by the traders is an irrational argument because the commodity’s supply is tight against the demand for farm produce. This was also evident from the facts that the government could manage to procure only 26 million tonnes of wheat against the target of 44.4 million tonnes fixed for the 2023 season.
Further, according to official information, over Rs 2.26 crore was transferred to the farmers for the procurement of over 60 million tonnes of paddy (65 per cent of national marketable surplus) and 26 million tonnes of wheat.
India imported edible oil worth Rs 1.38 lakh crore and pulses worth Rs 20,000 crore in 2022–23. This means India is already spending over Rs 5 lakh crore on procurement and imports of farm produce. Therefore, the claims that the MSP legal guarantee will cause fiscal disasters for India are irrational arguments because the MSP values of the total production of the 23 crops worked out to be around Rs 17 lakh crore, according to government estimates, but only Rs 10 crore rupees, as estimated by SKM (Sanyukta Kisan Morcha). Further, only 70 per cent of the farm produce comes to markets as a marketable surplus, and the rest is consumed by farmer’s families for household purposes.
Thus, the MSP legal guarantee will cost the government about Rs 8 lakh crore if traders totally boycott the APMC’s markets, which is the rarest event in the near future.
Virender Singh Lather is former principal scientist (genetics and cytogenetic), Indian Agricultural Research Institute, New Delhi.
Views expressed are the author’s own and don’t necessarily reflect those of Down To Earth.
We are a voice to you; you have been a support to us. Together we build journalism that is independent, credible and fearless. You can further help us by making a donation. This will mean a lot for our ability to bring you news, perspectives and analysis from the ground so that we can make change together.
.png)
Comments are moderated and will be published only after the site moderator’s approval. Please use a genuine email ID and provide your name. Selected comments may also be used in the ‘Letters’ section of the Down To Earth print edition.