Answer:
Core Demand of Question
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Minimum Support Price (MSP) is the guaranteed price paid by the government for farmers’ produce. It is determined by the Commission for Agricultural Costs and Prices (CACP), which considers factors like production costs, demand and supply, market price trends, and inter-crop price parity. The CACP sets MSPs for 22 specified crops and fair and remunerative prices (FRP) for sugarcane, which includes 14 kharif crops, 6 rabi crops, and 2 commercial crops. The recent 2024 farmer protests saw farmers from Punjab, Haryana, and Uttar Pradesh march towards Delhi in the ‘Delhi Chalo’ protest, demanding legal guarantees for MSP to ensure fair compensation and economic stability
Potential Implications of Legalising MSP on India’s Agricultural Sector, Food Inflation, and International Trade Commitments:
| Parameter | Benefits | Drawbacks |
| Agricultural Sector | 1. Higher Farmer Incomes: Legal MSP ensures a minimum price for crops, leading to more stable and increased incomes for farmers. For example: The MSP for wheat and rice has significantly supported farmers in Punjab and Haryana. 2. Better Livelihoods: Guaranteed prices can provide financial security, reducing agrarian distress and improving overall living conditions for farmers. 3. Increased Investment in Farming: With assured incomes, farmers may invest more in better seeds, technology, and sustainable practices, enhancing productivity. |
1. Risk of Monocropping: Farmers may prioritise MSP-supported crops, reducing crop diversity and harming soil health. For instance: The dominance of rice and wheat cultivation in Punjab due to MSP has led to soil degradation and water depletion. 2. Increased Fiscal Burden: Implementing MSP across many crops could significantly strain government finances due to higher procurement and subsidy costs. 3. Overproduction and Wastage: MSP can lead to overproduction of certain crops, resulting in waste and inefficiency in resource utilisation. |
| Food Inflation | 1. Price Stability for Farmers: MSP can stabilise farmers’ incomes by protecting them from volatile market prices. For instance: During market crashes, MSP has helped maintain stable farmer incomes for crops like cotton and pulses. 2. Consumer Price Stabilisation: MSP can help maintain stable food prices by preventing sharp declines in crop prices during surplus periods. |
1. Higher Retail Prices: Legalising MSP may lead to increased food prices for consumers as guaranteed prices for farmers push up retail costs.
2. Market Inefficiencies: MSP may distort natural supply-demand dynamics, leading to inefficiencies and higher overall food inflation. |
| International Trade Commitments | 1. Improved Export Quality: Stable and higher incomes can lead to better investment in quality, enhancing the competitiveness of Indian agricultural exports. For example: The quality of Basmati Rice has improved due to better farming practices incentivized by MSP. 2. Stronger Global Position: An effective MSP system can showcase India’s support for its farmers, improving its stance in international trade negotiations. |
1. Trade Compliance Issues: MSP might be seen as a trade-distorting subsidy by the WTO, risking disputes and penalties. For example: The ongoing WTO disputes regarding India’s rice and wheat subsidies exemplify this issue. 2. Competitive Disadvantage: Higher domestic prices due to MSP can make Indian exports less competitive in the global market, negatively affecting trade volumes. |
Balanced Approach to Address Farmers’ Concerns while ensuring Long Term Sustainability:
A comprehensive policy emphasising the FIVE ‘Cs’ – Conservation of water and soil, Climate change resistance, Cultivation, Consumption, and Commercial viability – is essential for sustaining farmers’ livelihoods and ensuring the long-term sustainability of the agricultural sector.
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July 3, 2024
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