Demand for Legalising MSP
Source: India Today
GS II: Government policies and interventions for development in various sectors and issues arising out of their design and implementation
Overview
- News in Brief
- What is the Minimum Support Price (MSP)?
- Why Demand for Legalising MSP?
- What are the arguments against the Demand for Legalising MSP?
Why in the News?
Over 200 farmers’ unions, predominantly from Punjab, have begun a march towards Delhi.
News in Brief
- The “Dilli Chalo” march encapsulates the widespread discontent among farmers towards the government’s reluctance to ensure a Minimum Support Price (MSP) by law.
What is the Minimum Support Price (MSP)?
The Minimum Support Price (MSP) is a form of agricultural price support policy implemented by the Government of India to ensure farmers receive a fair price for their produce. The MSP is announced by the government annually for certain crops based on recommendations from the Commission for Agricultural Costs and Prices (CACP), taking into account factors like input costs, demand-supply dynamics, and market prices. It serves as a safety net for farmers, guaranteeing them a minimum price for their crops to protect them from market fluctuations and ensure a stable income.
Mechanism of Minimum Support Price (MSP)
- Crop Coverage
- The MSP is announced for various crops including cereals (such as rice, wheat, and maize), pulses (like chickpeas and lentils), oilseeds (such as soybeans and mustard), and certain cash crops (like cotton and sugarcane).
- Price Determination
- The MSP is determined by considering factors such as production costs, market prices, domestic and international demand, and the need to provide adequate returns to farmers.
- Government Procurement
- The government procures crops from farmers at the MSP through agencies like the Food Corporation of India (FCI) and the National Agricultural Cooperative Marketing Federation of India (NAFED).
- Market Intervention
- MSP acts as a price floor, and when market prices fall below the MSP, the government intervenes by purchasing the produce to support farmers and stabilize prices.
- This procurement is primarily aimed at ensuring food security and maintaining buffer stocks.
Examples:
- Wheat and Rice: Wheat and rice are two major crops for which MSPs are announced every year. For the 2021-2022 crop season, the MSP for common variety paddy (rice) was set at ₹1,940 per quintal, while for wheat, it was ₹2,015 per quintal.
- Pulses and Oilseeds: In recent years, the government has increased MSPs for pulses and oilseeds to incentivize their production and reduce India’s dependence on imports. For example, the MSP for gram (chickpeas) was increased to ₹5,100 per quintal for the 2021-2022 season.
- Procurement Operations: Government agencies undertake procurement operations during harvest seasons to buy crops directly from farmers at MSP rates. These operations are particularly critical in states where market prices fall significantly below the MSP.
Why Demand for Legalising MSP?
- Since the 1960s, the Minimum Support Price (MSP) has been a government policy in India, yet it lacks legal recognition, despite persistent calls for it from farmer unions.
- In 2018, the Commission for Agricultural Costs and Prices (CACP) advocated for legalizing the MSP.
- However, despite these suggestions and demands, the central government has not sanctioned the proposal to confer legal status on the MSP.
What are the arguments against the Demand for Legalising MSP?
- Distortion of Market Forces
- Legalizing MSP could distort market forces by artificially setting a price floor for certain crops.
- This can lead to overproduction of MSP-supported crops and underinvestment in more profitable or environmentally sustainable alternatives.
- It may also discourage farmers from diversifying into crops with higher market demand or better suited to local agro-climatic conditions.
- Fiscal Burden
- Formalizing MSP into law could place a significant fiscal burden on the government, especially during years of bumper harvests when procurement costs escalate.
- This could strain government finances and limit resources available for other crucial sectors such as health, education, and infrastructure.
- Inefficiencies in Procurement
- Legalizing MSP may perpetuate inefficiencies in government procurement systems.
- Procuring crops at MSP rates often involves bureaucratic hurdles, delays, and corruption, leading to wastage and resource misallocation.
- This can undermine the objective of providing timely and adequate support to farmers.
- Market Distortions and Trade Disputes
- Setting MSP as a legal requirement could distort domestic and international trade dynamics.
- It may lead to trade disputes with other countries, especially if MSP-supported crops are exported at prices below international market rates, triggering accusations of dumping or unfair trade practices.
- Inhibiting Innovation and Adaptation
- Legalizing MSP may disincentivize innovation and technological adaptation in agriculture.
- Farmers may become complacent with guaranteed prices, reducing their incentive to adopt modern farming practices, improve productivity, or invest in research and development.
Conclusion and Way Forward
- The Minimum Support Price (MSP) plays a crucial role in ensuring income security for farmers and stabilizing agricultural markets in India.
- However, there have been debates about the effectiveness of MSP in addressing farmers’ issues comprehensively and concerns about the fiscal burden it imposes on the government.
- Moving forward, there is a need for holistic agricultural reforms that address not only price support mechanisms like MSP but also focus on improving market access, infrastructure, and farmer income diversification to foster sustainable agricultural development in the country.
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