Introduction:
Agriculture is the primary source of livelihood for more than 50% of India’s population but its contribution to the GDP is less than the contribution made by the industrial and service sector. To meet the deficiency in food grains and to boost agricultural productivity, the Government of India introduced Minimum Support Price or MSP in the year 1966-67.
MSP guarantees ‘minimum price’ to farmers for their produce in order to protect them from price volatility in the market and encourage them to adopt modern technologies to boost production. Every year before the sowing season begins, the government on the recommendations of the Commission for Agricultural Costs and Prices (CACP) announces a list of Rabi and Kharif crops to which the Minimum Support Price scheme will extend. This policy holds great significance for farmers as it provides them a sense of security by setting a benchmark on the price of the crops.
History and Meaning
India faced severe drought in the 1960s due to a failed monsoon and as a result, there was an acute shortage of food grains in the country. Consequently, the government decided to constitute a Food Grain Prices Committee under the chairmanship of Shri LK Jha to recommend measures and reforms in the field of agricultural price policy. On the Jha committee’s recommendations, the central government gave approval to the policy of Minimum Support Price or MSP for two crops namely; wheat and paddy for the year 1966-67.
The name of the Food Grain Prices Committee was changed to Commission for Agricultural Costs and Prices (CACP) in the year 1985 and it is responsible for recommending MSP to the central government every year before the sowing season. The policy of Minimum Support Price sets a benchmark price which the government offers for certain major crops to the farmers in case there are no other buyers in the market thereby, insulating them from unpredictable market sentiments. The main idea behind MSP was to incentivize the farmers to boost productivity and shield them in case there is a bumper harvest and the prices fall.
How is the Minimum Support Price Calculated?
The Commission for Agricultural Costs and Prices calculates MSP by taking into account various costs incurred by farmers. These costs have been briefly divided into three categories:
A2: This is the cost that is directly incurred and paid by the farmers for the production of their crops such as cost incurred on fuel, irrigation, seeds, fertilizers, hired labor, pesticides, etc.
A2+FL: This cost includes all the costs incurred under A2 as well as the unpaid value of imputed family labor.
C2: This cost includes the amount forgone by way of rent on owned land and interest on machinery and other fixed assets over and above the cost incurred under A2+FL.
The government adopts A2+FL cost structure for deciding the MSP. However, Swaminathan Committee which was formed in 2004 advocated in its report the adoption of the C2 cost structure for deciding MSP. The recommendations made by the Swaminathan Committee were not implemented.
The government has announced MSP for 17 Kharif crops and 6 Rabi crops for the year 2020-21 the MSP of which is at least 1.5 times of the All-India weighted average Cost of Production (CoP). The government purchases the food grains through mandis established under the Agricultural Produce Market Committee (APMC) set up by the government of respective states. The government uses the food grains so purchased at MSP for PDS (Public Distribution System).
Drawbacks of MSP
- As per a report submitted by Shanta Kumar Committee in 2015, only 6% of farmers sell their produce at MSP because procurement is not uniform across the country.
- The policy largely benefits wheat and paddy farmers even though it is announced for 23 crops.
- Government purchases almost 70-80% of wheat and paddy thereby, technically eliminating the private sector which leads to a rise in the price of such crops.
- The government’s move of hiking MSP will only benefit the farmers in the short-run and will not deliver any constructive results. It might even cause inflation in the economy.
Suggestions for improving the implementation of MSP
- Merely, increasing the level of MSP is not sufficient and there is a strong need to develop agricultural infrastructure.
- Government also needs to take steps to disseminate timely awareness among farmers regarding the prices introduced under MSP so that maximum farmers get the benefit.
- Payments should be made at the correct time to farmers and especially with the opening of bank accounts under Jan-Dhan Yojana, this shouldn’t be a problem.
- The government needs to take the necessary steps to ensure that the benefit of MSP reaches farmers throughout the length and breadth of the country and is not restricted to just a few states.
- There is also a need to extend MSP for more crops to ensure that farmers do not just focus on the production of these 23 crops only. It will encourage them to undertake the production of other crops as well.
- Government needs to explore more alternative schemes to incentivize farmers such as the Bhavantar Bhugtan Yojana launched by the state of Madhya Pradesh under which the difference between modal rate (average price in the market) and MSP is paid to the farmers.
Dilli Chalo Movement
Parliament recently gave assent to three farm bills namely, Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, and the Essential Commodities (Amendment) Act[1] which received major backlash from the farmers. Farmers in thousands of numbers from mainly 4 states namely, Punjab, Haryana, Rajasthan, and Uttar Pradesh started marching towards New Delhi and organized the ‘Dilli Chalo’ movement to protest against the new bills. The new bill allows farmers to sell their crops to whoever they want including private buyers and big retailers by opting for contract farming.
Since MSP does not have a legal backing and it is merely a scheme deployed by the government, the farmers are worried that MSP will be eventually removed by the government, and allowing them to sell their produce directly to corporates will mark the beginning of the end. The government has tried to break this assumption of farmers through a round of talks but the farmers are persistent on their demand of repealing the three bills.
Conclusion
Agriculture is a major and essential economic activity and involves a lot of risk as several factors are required to work favorably in order to ensure a good harvest. MSP alone will not be sufficient for solving all the issues being faced by the farmers. There is also a need to revisit the single-price policy for crops across the state under MSP as the cost of producing crops differs from state to state. Government needs to enhance and improve procurement mechanisms, logistics, storage, and infrastructural developments which will aid the farmers in the longer run.
The various factors which are limiting the effectiveness of MSP also need to be addressed so that maximum benefit is delivered to the farmers. The policy has been in existence since 1960 and since then a lot has changed in the market and the economy and in the agricultural sector itself. It is high time to realign the policy with the changes in the economy and to ensure that the voice of farmers of the country, the people responsible for feeding a population of almost 140 crores is heard.
Reference:
[1] Parliament passes The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 and The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020, Pib.gov.in (2020), https://pib.gov.in/PressReleasePage.aspx?PRID=1656929 (last visited Dec 6, 2020).
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