04 April 2025 : Daily Answer Writing

Q1) The sole point of MSP is to protect farmers from sudden price shock”. Do you think legalization of MSP can insure farmers from sudden price shocks? What are the other measures which can be taken to make MSP-led procurement effective? (15 marks, 250 words)

ANSWER

Minimum Support Price (MSP) is a form of market intervention by the Central Government to insure agricultural producers against any sharp fall in farm prices, that protects the producer- farmers against distress sale during bumper production years. The Union Government sets MSP for 23 crops before the sowing period every year, based on a formula of one-and-a-half times production costs. It is implemented mostly for rice and wheat mainly because India has vast storage facilities for these grains and uses the produce for its public distribution system (PDS). However, there is currently no statutory backing for these prices, nor any law mandating their enforcement.

DEMAND FOR LEGAL GUARANTEE

• Farmers have been demanding a legal guarantee for MSP by arguing that without such a price, farmers will become bankrupt and leave farming, which will have serious consequences for our food security, adversely affecting consumers.

The demand for a legal guarantee for MSP has two parts:

• MSP should be based on the comprehensive cost of production (C2), as determined by the Commission for Agricultural Costs and Prices (CACP), plus 50%, as recommended by the Swaminathan Commission.
• The 23 crops for which MSP is announced should be legally purchased at or above the MSP price by anyone who ‘willingly enters’ the market.

ARGUMENTS FAVOURING LEGALISING MSP

1. Agricultural Crisis: The agricultural sector has been squeezed in many ways over the past 30 years, and there is a need for a legal guarantee for MSP to address this crisis.
2. Nutrition Security: As India shifts from food security to nutrition security, a legal guarantee for MSP for 23 crops could be a way to achieve this.
3. Legalising MSP can incentivize the adoption of sustainable agricultural practices by providing price incentives for crops that are environmentally friendly and resource-efficient.
4. Price Stabilisation: The government is not expected to buy all produce from the listed 23 crops. But if at least 5-10% of the produce is purchased, it would be a marginal intervention to stabilise the prices in times of adversities.
5. Support to Farmers: The government’s price policy is to ensure remunerative prices to farmers by offering to procure their produce at MSP. According to a 2019 National Bank for Agriculture and Rural Development (NABARD) report, the average debt burden on a farmer’s family is over Rs 1 lakh. This is despite the central and state governments providing farmers a subsidy of Rs 3.36 lakh crore.
6. Farmers Receiving Lower Prices: Despite the government announcing MSPs for various crops, farmers often end up selling their produce at prices below the MSP due to several market factors. Legalizing MSP would give farmers the legal right to sell their crops at the minimum price guaranteed by the government.
7. Addressing Disparities: The Shanta Kumar Committee concluded in 2015 that only 6% farmers benefited from the support price scheme. In 2019-20 alone, three states — Punjab, Haryana and Madhya Pradesh — accounted for 85% of the wheat procurement. Legalizing MSP can help mitigate these disparities by providing a guaranteed uniform price directly to farmers.
8. Risk Mitigation: No other business has to deal with so many unpredictable factors and risk like farming — extreme heat, floods, fire, frost, untimely rain, etc; which makes farmers to remain uncertain and apprehensive about their income. MSP saves the farmer from debt and bankruptcy and therefore, it needs to be secured with a legal guarantee.

ARGUMENTS AGAINST LEGALISING MSP

1. Distorted Crop Selection: The MSP regime often focuses on a few crops, such as rice and wheat, leading to imbalanced crop selection. Selective crop development and marketing will lead to negative implications for food security, dietary diversity, and nutritional outcomes, particularly among vulnerable populations.
2. Exacerbate Water Scarcity: MSP-supported crops like paddy and sugarcane are water-intensive, leading to overexploitation of water resources in regions where they are cultivated extensively. Legalising MSP may exacerbate water scarcity issues by promoting the cultivation of water-intensive crops, further distorting cropping patterns.
3. Fiscal Burden: Procuring crops at guaranteed prices and managing surplus stocks require substantial financial resources, impacting the government’s budget and fiscal health. It will cost the Centre around Rs 10 lakh crore.
4. Market Distortions: MSPs create market distortions by influencing the cropping pattern and leading to surplus production of certain crops. This surplus will lead to storage challenges, market inefficiencies, and distortions in price signals.
5. Storage and Logistics Challenges: MSP operation will require effective storage and logistics infrastructure to handle the procurement of large quantities of crops. Inadequate facilities can lead to wastage and storage-related losses.

WAY AHEAD

1. Encourage Private Sector Involvement: The government should incentivize the private sector to develop efficient value chains for agriculture, following a cluster approach.
2. Price deficiency payments (PDP): It entails the government to not physically purchase or stock any crop, but simply pay farmers the difference between the market price and MSP, if the former is lower. PDP was tried out in Madhya Pradesh and Haryana through Bhavantar Bhugtan Yojana and Bhavantar Bharpai Yojana (BBY) respectively.
3. Expand the scope of existing schemes: The government disburses Rs 6,000 annually to eligible farmers through PM-KISAN. Expanding the program’s scope to include more landholdings could address issues effectively.
4. Cash transfers can incentivize farmers in water-stressed regions to shift from water-intensive crops, thereby promoting sustainability.
5. True MSP Intervention: A genuine MSP should involve government intervention when market prices fall below a predefined level, especially in cases of excess production, oversupply, or price collapse due to international factors.
6. Need for Policy Review: There is a need for a detailed, thorough review of agricultural trade policies and production and also what will happen to agriculture in the next 20-25 years.
7. Enforce Swaminathan Committee Recommendation: The commission recommended that the MSP should at least be 50% more than the weighted average cost of Production (CoP), which it refers to as the C2 cost.
8. Contract Farming: Promoting contract farming with adequate safeguards for farmers, ensuring assured returns and market access.

The Union government has repeatedly asserted that a legal guarantee for MSP will not be possible by arguing that MSP is a minimum price that the farmer must get to remain in business. The debate around the legality of MSP in India is complex and multifaceted. It involves considerations of economic policy, agricultural sustainability, and social justice. Striking a balance that ensures fair returns for farmers while maintaining market efficiency is crucial for the sustained growth of India’s agricultural sector.

Read More – 03 April 2025 : Daily Answer Writing