Is legal assurance of MSP for farmers viable? What are its implications?

Farmers in India face significant challenges in negotiating remunerative prices for their crops, particularly when dealing with traders. This, combined with the rising production costs, loss of soil fertility and climate change has pushed India’s farming sector into deep trouble.

In an effort to assist them in securing fair prices for their produce, the farmers are asking for a legally binding provision for the Minimum Support Price (MSP).

As of now, the Commission for Agricultural Costs and Prices recommends MSPs for 23 commodities, including sugarcane. The Union Ministry of Tribal Affairs also provides MSP for 87 minor forest produce.

However, announcing MSP for crops is not the same as giving a legal guarantee of procurement whenever the farmers wish to sell them. And the 14,000 farmers protesting in Punjab, Haryana and Uttar Pradesh are demanding just that.

But here is the real question — is a legal guarantee of MSP feasible? A legal guarantee means that there will be legal provisions for farmers to get the MSP for all 23 crops when they sell them.

There are different sides to the debate. One of the sides of the argument is that it is not viable. India’s total budgeted expenditure in 2023-24 is around Rs 45 lakh crore. According to this opinion, as per 2020 data, India would have to allot as much as Rs 10 lakh crore for the combined value of all crops covered under MSP. Now, even if we assume 25 per cent of the total production of these crops is used for personal consumption, it would still require a provision of Rs 7.5 lakh crore to be created in the budget just for procurement. Many economists say this will have a huge impact on the exchequer and other welfare and development activities won’t be possible to carry out.

The other opinion is that there are different alternatives to providing legal guarantees for MSP other than creating budgetary provisions. The first alternative is to legally obligate private parties to buy the products at a price at or above MSP and to set up systems and processes to monitor and take punitive measures if this is violated. Currently, this happens in the case of sugarcane procurement by private mills.

The second option is to provide direct compensation to farmers if they are compelled to sell their produce below MSP. In that case, the government can reimburse for the difference between the MSP and the price the farmers actually receive. Various estimations suggest that the amount will be around Rs 30,000 to 50,000 crore, way less than the Rs 7.5 lakh crore budget allocation.

Any progress from the current stalemate can happen when government and farmer groups engage in effective dialogue and see the current situation as an opportunity to take decisions on structural reforms in agriculture.

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