One of the key demands of the farmers is a guaranteed minimum support price (MSP) for all produce. A panel of union ministers has offered contract-based assured buying of five crops on MSP for five years, but the farmers have turned it down. In this DH Decipher, Gyanendra Keshri delves on MSP and its impact.
What is MSP?
The MSP is the lowest rate at which government procurement agencies buy crops from farmers. The scheme was first introduced in the mid-1960s as a safety net for farmers, protecting them from the uncertainties of the market. This is seen as a critical step that helped a food-deficit India to become a grain surplus nation.
How many crops are covered under MSP?
Wheat was the first crop for which a MSP was offered in 1965-66. At present, it is extended to 22 Kharif (summer) and Rabi (winter) crops. The MSP mandated summer crops are paddy, jowar, bajra, ragi, maize, tur (arhar), moong, urad, groundnut, sunflower seed, soyabeen (yellow), sesamum, niger-seed and cotton. The winter crops include wheat, barley, gram, masur (lentil), rapeseed and mustard, and sunflower. The regime also covers copra and jute. While the MSP is announced for 22 crops, in practice, it is implemented only for wheat and paddy.
Why are farmers largely from Punjab and Haryana protesting?
The benefits of the MSP mechanism is reaped largely by the wheat and paddy farmers in selected regions. Majority of wheat procurement is done only in three states – Punjab, Haryana and Madhya Pradesh. For Paddy, it is concentrated in Punjab, Haryana, Chhattisgarh and Andhra Pradesh. The government procurement infrastructure in these states are robust while in other states it is largely missing.
How is MSP determined?
It is fixed by the Union government on the recommendations of the Commission for Agricultural Costs & Prices, which consults the state governments and ministries. However, the commission’s recommendations are not binding. The minimum prices are fixed by the central government at the start of the cropping seasons. The MSP for Rabi crops is normally announced in October while for Kharif crops it is announced in June.
What was Swaminathan Commission’s recommendation?
A National Commission on Farmers headed by noted agricultural scientist M S Swaminathan, submitted its report in 2006 in which it recommended that MSP should be at least 50% more than the weighted average cost of production. The then union government headed by Manmohan Singh announced a national policy for farmers in 2007, but Swaminathan Commission’s recommendation on MSP was not incorporated. It has not been implemented yet. The BJP-led government in 2018-19, announced that it would keep MSP at levels of one and half times the cost of production.
What are the agitating farmers’ demands related to MSP?
Farmers demand that MSP should have legal backing and the price should be fixed based on the formula suggested by the Swaminathan panel. While the government announces MSP for selected crops every year, it has no legal backing. This means, the government is not obliged to purchase the crops from the farmers.
What will be the financial cost of MSP?
MSP is the minimum price on which the government agencies procure crops. If the mandi price is higher than MSP then there is no need for procurement as the farmers would prefer selling the produce in the open market. For example, the MSP for wheat is Rs 2,125 per quintal in 2023-24 marketing season, but if the wholesale price of wheat remains at Rs 2,000 per quintal, the government will have to incur a cost of Rs 125 on every quintal of wheat that it procures. According to a CRISIL study, the cost to the exchequer due to MSP is estimated at Rs 21,000 crore for the 2023 marketing season. Also the need of working capital is pegged at Rs 6 lakh crore, as the government does not sell the crops immediately after procurement and warehouses are needed for storage.
How can MSP help in product diversification?
Guaranteeing MSP for all crops can lead to farmers moving to crops other than paddy and wheat. Over 60% of field crop production (excluding sugarcane) in India comes from paddy and wheat. Farmers tend to opt for these two crops given the MSP support and lack of risk appetite for other crops.