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Legalizing MSP in India: Challenges, Benefits & Way Forward for Farmers

 

Legalizing MSP in India: Challenges, Benefits & Way Forward for Farmers


Introduction

The recent farmers’ agitation at the Khanauri border between Punjab and Haryana has reignited the debate on the necessity of a legal guarantee for Minimum Support Prices (MSP). Farmers argue that without legal backing, MSP leaves them vulnerable to market fluctuations, exploitative middlemen, and agribusiness firms. Successive governments have hesitated to provide a legal framework, citing fiscal burdens, WTO compliance, and market distortions. This article explores the demand for legalizing MSP, its challenges, and possible solutions.

Understanding Minimum Support Price (MSP)

What is MSP?

MSP is the price set by the government at which it procures certain crops from farmers, ensuring a minimum income regardless of market price variations. The Commission for Agricultural Costs and Prices (CACP) recommends MSP based on cost of production, market trends, and demand-supply dynamics.

Current Status of MSP in India

  • MSP is announced for 22 crops, but procurement is primarily confined to wheat and rice.

  • The Swaminathan Commission recommended fixing MSP at 1.5 times the cost of production (C2 formula), but it remains inconsistent across states.

  • A significant percentage of small and marginal farmers do not benefit from MSP due to lack of direct procurement access.

Rising Demand for a Legal MSP

Growing Political and Farmer Support

  • Political parties and the Parliamentary Standing Committee on Agriculture have backed legal MSP.

  • State governments like Maharashtra and Karnataka have attempted MSP enforcement at the state level.

  • Andhra Pradesh enacted the Farmers’ Produce Support Price Act, 2023, mandating that no crop be sold below MSP, providing a potential national model.

Issues Faced by Farmers Without a Legal MSP

  • Market fluctuations: Farmers suffer losses when market prices drop below MSP.

  • Exploitative intermediaries: Traders and middlemen often hoard produce and dictate prices.

  • High retail markups: Farmers receive a fraction of the final consumer price:

    • Rice in Karnataka: 120% markup

    • Gram in Tamil Nadu: 130% markup

    • Onion in Madhya Pradesh: 210% markup

  • Inadequate procurement: Government procurement only covers a small fraction of total produce, leaving many farmers dependent on market forces.

Challenges in Legalising MSP

Fiscal Burden and Procurement Constraints

  • A legal MSP would require massive financial outlays for procurement, storage, and distribution.

  • Government procurement currently covers only 6% of farmers; expanding it would strain fiscal resources.

  • Increased procurement could inflate food prices, impacting consumers, especially the poor and middle class.

WTO Compliance and Global Trade Issues

  • The World Trade Organization (WTO) caps agricultural subsidies at 10% of total production value.

  • A legally backed MSP would likely exceed WTO limits, leading to international trade disputes.

Supply-Demand Distortions

  • Farmers may prioritize MSP-backed crops, neglecting horticulture, pulses, and oilseeds.

  • Overproduction of certain crops could disrupt market equilibrium, leading to waste and inefficiencies.

Marginal Farmers’ Accessibility

  • 86% of Indian farmers are small and marginal landholders who lack direct market access.

  • Large landholders with better storage facilities can monopolize procurement benefits, widening income disparities.

The Way Forward

Strengthening Agricultural Market Reforms

Amendments to the APMC Act

  • Ensure state-level APMC Acts mandate no crop is sold below MSP.

  • Introduce penalties for traders purchasing below MSP.

  • Expand e-NAM (National Agricultural Market) to provide transparent price discovery.

Enhancing Government Procurement

  • Procure at least 25% of total production under the Price Support Scheme (PSS).

  • Establish a Price Stabilisation Fund (PSF) to mitigate post-harvest price crashes.

  • Expand procurement to 21 MSP-covered food crops and key vegetables like potatoes, tomatoes, and onions.

Revisiting Food Security Policies

  • Revamp the National Food Security Act (NFSA), 2013 to cover a broader procurement basket.

  • Diversify the Public Distribution System (PDS) beyond rice and wheat to include pulses, millets, and oilseeds.

  • Utilize government procurement to support nutritional programs like mid-day meals and Anganwadis.

Investing in Post-Harvest Infrastructure

  • Build cold storage, warehouses, and logistics hubs to reduce post-harvest losses.

  • Provide pledge loans to farmers, preventing distress sales post-harvest.

  • Expand PM Fasal Bima Yojana to include price fluctuation coverage.

Strengthening MSP Support Schemes

The Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA), launched in 2018, aimed to bridge MSP shortfalls through:

  • Price Support Scheme (PSS): Direct procurement at MSP.

  • Bhavantar Bhugtan Yojana (BBY): Compensation for price differentials.

  • Market Assurance Scheme (MAS): Empowering states to procure when prices crash.

  • Improving Implementation: These schemes require better monitoring and execution.

Ensuring Fiscal Feasibility

  • A ₹5 lakh crore nationwide fund can sustain MSP at Swaminathan Commission levels.

  • Redirecting subsidies from inefficient schemes can offset much of this cost.

Conclusion

The demand for a legal MSP reflects the broader need for agrarian reforms in India. While fiscal and trade challenges exist, structural solutions such as regulated procurement, diversified PDS, and market assurance schemes can bridge the gap. Balancing farmer income security with fiscal sustainability is key to India's food security and rural development.

MCQs for UPSC CSE

  1. Which of the following bodies recommends MSP in India?
    a) NITI Aayog
    b) Commission for Agricultural Costs and Prices (CACP)
    c) Food Corporation of India (FCI)
    d) Ministry of Agriculture
    Answer: b) Commission for Agricultural Costs and Prices (CACP)

  2. What percentage of farmers in India are small and marginal landholders?
    a) 60%
    b) 72%
    c) 86%
    d) 94%
    Answer: c) 86%

  3. Which of the following is NOT an MSP support scheme?
    a) Bhavantar Bhugtan Yojana
    b) Price Stabilization Fund
    c) Market Assurance Scheme
    d) Pradhan Mantri Kisan Samman Nidhi
    Answer: d) Pradhan Mantri Kisan Samman Nidhi

Mains Practice Question

Critically analyze the role of Minimum Support Price (MSP) in ensuring farmers’ income security in India. Should MSP be given legal backing? Discuss the challenges and implications of such a move. (250 words)

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