Context: Ineffective implementation of MSP and ‘non-procurement’ of all the crops at the MSP is one of the main concerns of farmers. Such a scenario builds a strong rationale for giving ‘legal status’ to MSP as it is the floor or reference price.
Present Status of MSP
- Presently, MSP does not enjoy statutory recognition. This means that there is no onus on the private sector to buy at MSP.
- Legalisation of MSP would ensure that the private sector would buy commodities at MSP. Failure to do so would attract a penalty.
Need For Legalisation of MSP
- Enhancement in Income Levels: Even though the Government declares MSP; procurement is quite limited to certain crops and certain regions. Most of the farmers sell commodities below MSP in the open market to the traders and middlemen.
- Promote Crop Diversification: Only three to four crops (mainly wheat, paddy and cotton and at times some pulses), were being procured at MSP while the remaining crops were being procured at much below the MSP. Hence, absence of any dependable or assured market mechanism of procurement-purchase for crops on the MSP in most parts of the country discourages efforts towards crop diversification.
Challenges and Concerns
- Goes against Interest of Farmers: Legalisation of MSP will encourage over-production of Rice and Wheat. This may have severe environmental costs such as decline in soil fertility, depletion of ground water etc. In the long term, this would negatively affect income levels of farmers.
- Adverse Impact on Economy: Higher costs of procurement due to a statutory MSP will increase the food prices, leading to inflation in the economy. Higher prices of commodities would adversely affect exports of agricultural commodities.
- Financing needs: According to some estimates, if the Government were to procure all the 23 crops at MSP, it would amount to half of the Government’s Budget.
- Unsustainable Food grain Management Policy: The Food subsidy bill has already become quite unsustainable at around Rs 2 lakh crores. The excess procurement of food grains by the FCI has led to surplus buffer stocks leading to higher storage costs and wastages. Legalisation of MSP would further worsen the scenario.
- Administrative Challenge: Lack of government machinery to procure all crops that are under the MSP system.
- Violation of WTO Agreement on Agriculture (AoA): Legalisation of MSP would further violate the limit on the subsidies under AoA and it can be challenged by other countries. India’s quest for Permanent solution on public stockholding could be in jeopardy.
- Promote Inequality: Only 6 percent of farmers are able to benefit from the MSP. Similarly, most of the Rice and Wheat are sourced from states such as Punjab, Haryana, MP etc. Hence, legalisation of MSP could worsen socio-economic inequality and promote regional disparity.
- Environmental cost: Encourage farmers to grow more rice and wheat leading to further environmental problems.
- Adverse Impact of Government’s Intervention: In any free-market economy, the price of any goods and services produced in the country must be decided by market forces and not by the state. As highlighted by Eco Survey 2019-20, Government’s intervention, sometimes though well intended, often ends up adversely affecting the market. For example, the regulation of prices of drugs through the DPCO 2013, has led to an increase in the price of a regulated pharmaceutical drug vis-à-vis that of a similar drug whose price is not regulated.
Conclusion
- The MSP attempts to strike a balance between the interests of growers and consumers. The government’s price support policy attempts to provide a fair return to farmers while keeping in view the interest of consumers in a way that prices of food and other agricultural commodities are kept at a reasonable level.
- Farming over the years, for the majority, especially small and marginal farmers, has not turned out to be remunerative. A rise in their income could be the long-term answer to farmers’ financial distress.
- To ensure this rise in income, the government should focus on setting up an effective system to provide assured purchase and returns to farmers for all major crops at the MSP, as is done in the case of wheat and rice or extend subsidies on input costs.
