Legalising MSP
Context:
Justice (Retired) Nawab Singh, heading a Supreme Court (SC) appointed committee, has made sweeping observations regarding India’s agrarian crisis, emphasising the need to seriously consider granting legal sanctity to minimum support prices (MSP).
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- While the committee’s recommendations may not be binding, they could influence the Supreme Court’s perspective as it deliberates on resolving the ongoing farmers’ protests.
- The viability crisis in India’s agrarian economy—tragically epitomised by farmer suicides—is well-documented.
Agrarian Crisis in Data
Farmer Suicides: In 2022, a total of 11,290 individuals involved in agriculture (5,207 farmers and 6,083 agricultural laborers) committed suicide in India. This figure represents 6.6% of the total suicides in the country for that year. The states with the highest number of suicides in the farming sector included: Maharashtra (4,248), Karnataka (2,392), Andhra Pradesh (917), Tamil Nadu (728) and Madhya Pradesh (641). These five states accounted for approximately 80% of all farmer suicides in India.
Trends Over Time: Between 1995 and 2014, approximately 296,438 farmers committed suicide. From 2014 to 2022, an additional 100,474 suicides were reported.
Economic Factors: The agricultural sector contributes about 15% to India’s GDP and employs around 45.5% of the country’s labour force.
About Minimum Support Price (MSP)
- Definition: MSP is the minimum price at which the government purchases specific agricultural products directly from farmers. It aims to prevent distress sales and ensure a stable income for farmers, especially during periods of bumper production when market prices may fall below production costs.
- Crops Covered: The government announces MSP for 22 major agricultural commodities, which include both Kharif, Rabi and commercial crops.
- Determination: The Commission for Agricultural Costs and Prices (CACP) plays a pivotal role in recommending MSPs. It considers various factors, including: Cost of production, Changes in input prices, Demand and supply dynamics, Trends in market prices, Inter-crop price parity and Effects on the cost of living and inflation.
- Government Approval: The final MSP recommendations from the CACP are approved by the Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister.
- Annual Announcement: MSPs are announced twice a year, before the sowing seasons for Kharif (summer) and Rabi (winter) crops, allowing farmers to plan their production accordingly.
Pros of Legalising MSP
- Income Security for Farmers: Legalising MSP would provide a guaranteed minimum price for farmers’ produce, protecting them from market fluctuations and ensuring stable incomes.
- Reduction of Debt Burden: A legally guaranteed MSP could alleviate the rising debt burden on farmers by ensuring they receive fair compensation for their crops.
- Support for Small Farmers: Legalising MSP would particularly benefit small and marginalised farmers who are more vulnerable to market uncertainties.
- Encouragement of Agricultural Investment: With a legal guarantee, farmers may feel more secure in investing in their agricultural practices, knowing they have a fallback option if market prices drop.
- Addressing Disparities: Currently, only about 6% of farmers benefit from MSP due to systemic issues.
Cons of Legalising MSP
- Financial Burden on Government: Implementing a legal MSP could impose a substantial fiscal burden on the government, potentially requiring an allocation of up to ₹11 lakh crore annually for procurement alone.
- Market Distortion: A legally binding MSP might distort market dynamics by discouraging private investment in agriculture.
- Risk of Crop Overproduction: Farmers may prioritise growing crops with higher MSPs, leading to overproduction of certain commodities while neglecting others that may be more suitable for their regions or beneficial for crop diversity.
- Increased Food Inflation: Higher procurement costs associated with legalising MSP could lead to increased food prices, negatively impacting consumers, particularly those from lower-income backgrounds.
- International Trade Implications: Legalising MSP might conflict with World Trade Organisation (WTO) rules regarding subsidies, potentially leading to trade disputes and affecting India’s agricultural exports if domestic prices exceed international market rates.
Way Forward
- Balanced Approach: Develop a comprehensive policy framework that balances the interests of farmers, consumers, and the government.
- Incorporation of Global Best Practices: Learn from international models of agricultural support systems that effectively balance farmer welfare with fiscal responsibility.
- Pilot Programs: Initiate pilot programs in select states to test the feasibility and effectiveness of legalising MSP for various crops.
- Enhance Infrastructure: Invest in improving agricultural infrastructure, including storage facilities and transportation networks, to facilitate efficient procurement processes.
- Digitalisation of Transactions: Promote digital platforms for procurement to ensure transparency and reduce corruption.
- Budgetary Provisions: The government needs to assess the financial implications of legalising MSP, which could require substantial budget allocations.
- Establish Monitoring Mechanisms: Create robust monitoring systems to ensure compliance with MSP regulations among private buyers and government agencies.
Awareness Campaigns: Launch awareness campaigns to educate farmers about their rights under a legalised MSP system and how they can benefit from it.
