What true MSP means

News: Farms laws have been repealed by the Govt. Further, it has also conceded to the demand of the unions to set up a committee to ensure minimum support prices (MSP) for all farmers along with other assurances. Amongst them, perhaps the most controversial and ambiguous is the demand for a guarantee of MSP.

As to what a legal guarantee for MSP entails, there are two prevailing opinions:

– As a mandatory enforcement of trade in agricultural produce, including private trade to be necessarily at or above the MSP for that crop, or

– The nationalisation of agricultural trade, whereby the government promises to buy all the crop produced at MSP.

Both these formulations are not correct.

Implementing MSP in the true sense requires the government to intervene when market prices fall below a pre-defined level, not buy all the produce.

What is the context in which farmers’ demand for a statutory MSP needs to be seen?

– twin droughts of 2014 and 2015

– declining commodity prices since 2014.

– The twin shocks of demonetisation and hurried rollout of GST: It crippled the rural economy, primarily the non-farm sector, and also agriculture.

– The slowdown in the economy after 2016-17, followed by the pandemic: This has ensured that the situation remains uncertain for the majority of the farmers.

– With rural wages declining in real terms since 2014 and lack of employment opportunities, the crisis in the rural economy has actually worsened.

– Higher input prices for diesel, electricity and fertilisers

In this context, the demand for ensuring remunerative prices is only a repeat of the promise made by successive governments to implement the Swaminathan Committee report in letter and spirit.

What are the issues with current MSP regime?

Presently, the current MSP regime has no relation to prices in the domestic market. Political interventions have meant that actual procurement is way more than actual requirements for NFSA, leading to excess stocks. Apart from being a waste of resources, this is also inefficient and counterproductive, contributing to price distortions.

Despite repeated demands, there has not been any progress in including pulses, edible oils and millets in PDS.

What is the way forward?

A policy for market intervention: Govt should intervene whenever the market prices fall below a pre-defined level, primarily in case of excess production and oversupply or a price collapse due to international factors. It should buy only to stabilise prices at the MSP level. A mechanism to monitor the prices already exists, a policy for requisite market intervention is missing.

Boosting nutritional security: MSP can also be an incentive price for many of the crops which are desirable for nutritional security, such as coarse cereals, and also for pulses and edible oils for which we are dependent on imports. This will also

–  ensure geographical balance, as most of these are grown in rained and arid regions.

– increase the pool of farmers likely to benefit from MSP interventions to include small and marginal farmers who grow millets, pulses and edible oil.

Less financial burden: A true MSP may also not cost much, given that the market intervention is needed only in the case of a price collapse and only for the commodity for which it occurs. The cost of such an operation is unlikely to be significant as long as the Govt has a mechanism to sell the grain procured in the open market or the export market.

Source: This post is based on the article “What true MSP means” published in The Indian Express on 11th Dec 2021.