Context:

• This article is based on an Editorial “MSP calculations still continue with old formula & not on comprehensive cost” which was published in DownToEarth. Recently, the Union government announced an increase in the Minimum Support Price for six Rabi crops for the 2024-25 marketing season.

What is MSP?

• MSP: The minimum price that the government considers remunerative, introduced in the 1960s to support farmers. However, the government is not legally bound to pay MSP. It is run entirely on executive directions.
• Significance: It is one of the most important measures to ensure Food Security and alleviate rural poverty, procure food grains for Public distribution, etc.

Current status of MSP

• At present, MSP is declared for 23 agricultural commodities by the government on the recommendation of Commission for Agricultural Costs and Prices (CACP) before cropping season, apart from this Fair and Remunerative Price (FRP) for sugarcane is also declared.
  • 7 Cereals (paddy, wheat, maize, bajra, jowar, ragi and barley)
  • 5 Pulses (chana, arhar/tur, urad, moong and masoor)
  • 7 Oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and niger seed)
  • 4 Commercial crops (cotton, sugarcane, copra and raw jute)

What are the benefits and significance of MSP regime?

• Betterment: Safety net and higher investments in agriculture and adoption of technology
• Protection: From fluctuation in global markets and food security
• Poverty Reduction: Alleviation of Rural poverty, hence prevents urban migration for jobs
• Stability: Acts as a benchmark for private buyers and counters price volatility of agricultural commodities and also improves economic access of food to people
• Crop Diversification: Slightly higher increases in the Minimum Support Price for pulses, oilseeds and coarse cereals helps in achieving the motive of diversifying crops.
• Forward Chain: Higher farm profits from MSP encourage farmers to spend more on inputs.
• Atma-Nirbhar Bharat: The government has focussed on increase in production per acre to fulfill the objective of Atma-Nirbhar Bharat. 
  • Example: MSP for lentils (Masur) increased by 9% to encourage farmers to crop lentils.

What are the challenges associated with the MSP regime?

• Cropping Pattern: Distortion of cropping pattern by adopting monocultural practices.
• Agricultural Ecosystem: Crops which are not aligned with the agro-climatic region lead to depletion of water table, soil degradation and deterioration in water quality.
• Challenges in World Trade Organization (WTO): India’s MSP scheme has been challenged by many countries in the WTO, claimed to be highly trade-distorting and face international criticism for breaching the 10 percent norm for subsidy on farm production set by the WTO.
• Economically Unsustainable: It can cause inflation, detriment to competition and the economic cost of procured rice and wheat is much higher for the FCI than the market price of the same.
• Other Challenges: Stubble burning, low awareness, accessibility, regional imbalance, excess storage, delay in Payments, debt obligations and market distortion.
  • The Shanta Kumar committee’s report on agriculture estimates that just around 6% of the country’s farmers benefit from the MSP system.

Also read: Sugarcane Production In India

The Path Ahead

• Need to follow the recommendations of NITI Aayog: Improved facilities at procurement centers, setting up and proper maintenance of godowns, development of procurement centers in the village itself,  and a complete overhaul of MSP scheme in those states where the impact of the scheme is nil.
• Need to think upon the NITI Aayog’s Price Deficiency Payment System (PDPS): Under PDPS, farmers are compensated for the difference between MSPs (for select crops) and prevailing market prices via subsidy and the subsidy will be paid via Direct Benefit Transfer (DBT).
  • The extent of the subsidy may be capped by the Centre. 
  • NITI Aayog suggests that differences up to 10% may be compensated.
• Need to implement the recommendation of the National Farmers Commission- MS Swaminathan Committee: MSP should be at least 50% more than the weighted average cost of production, inclusion of many crops other than paddy and wheat and millets and other nutritious cereals should be permanently included in the PDS.

Also read: How Does Monsoon Rainfall Impact the Indian Economy?