Debate surrounding MSP
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This post on Debate surrounding MSP has been created based on article “MSP is not enough. Government should become key player in markets to relieve farmer distresspublished in The Indian Express on 28th January 2025.

Debate surrounding MSP

UPSC Syllabus topic: GS Paper 3- Indian Economy

Context: The article discusses the ongoing debate surrounding the demand for a legally binding Minimum Support Price (MSP) for farmers in India, particularly in light of farmer protests and distress. It critiques the singular focus on MSP as a solution, arguing that it is a narrow and potentially counterproductive approach to addressing farmers’ challenges.

What is the current debate about MSP in India?

  1. The debate centers around making the Minimum Support Price (MSP) legally binding.
  2. While this aims to address farmers’ distress, it is seen as a narrow and counterproductive solution that may exacerbate rural poverty and destabilize agricultural markets.
  3. Legally binding MSP overlook overlooks challenges like climate-induced production shocks, the need to align agricultural production with changing dietary preferences, and the broader livelihood issues of rural citizens beyond cultivation.

Why is focusing solely on MSP problematic?

  1. Focusing solely on MSP ignores the reality that rural livelihoods extend beyond farmers, including traders and supply chain workers.
  2. Additionally, MSP doesn’t protect farmers from climate-induced yield shocks and may lead to inefficiencies in market dynamics.
  3. The risks of combining high MSP with depressed retail prices undermines the livelihoods of traders and other rural workers, destabilizes markets, and may create inefficiencies in the agricultural supply chain.

What are the two key alternatives to an MSP-centric approach?

The two alternatives are:

  1. Income Support: A quasi-Universal Basic Income (q-UBI) for rural households.q-UBI extends income support beyond cultivators. Setting the payment higher than PM-Kisan payouts (e.g., at the average income of a five-acre farmer) ensures better protection against price and quantity shocks.
  2. Price Deficiency Payments: Compensating farmers for price shocks while maintaining market discipline.

How do price deficiency payments work?

  1. When crop prices in a district drop drastically, farmers are compensated for a fraction (e.g., 30%) of their average losses.
  2. This shields farmers from extreme volatility while incentivizing market adaptability.

 How should public procurement evolve?

  1. Public procurement should be decentralized and include a broader range of crops to reflect changing demand patterns.
  2. It should align with welfare schemes like the Public Distribution System (PDS) and mid-day meals.

The key suggestions for improving public procurement are:

  1. Expand crop coverage in welfare schemes while narrowing beneficiary targeting to manage subsidies.
  2. Encourage states to take the lead in implementing decentralization under frameworks like PM-AASHA.
  3. Ensure states are fiscally responsible to minimize wastage.

How can strategic reserves benefit farmers and consumers?

  1. Strategic reserves should include essential crops like pulses and onions, in addition to rice and wheat.
  2. This would shield farmers and consumers from price shocks, stabilizing demand and fostering a resilient food system.

How should the government support farmers instead of stipulating MSPs?

  1. The government should actively participate in markets by rationalizing procurement at market prices.
  2. Procurement should reflect demand conditions and existing inventories to prevent overstocking and wastage.
  3. The focus should move from setting fixed MSPs to stabilizing demand through diversified procurement and dynamic market participation.

Why is it important to move beyond MSP?

  1. A sole focus on MSP risks missing the opportunity to implement a comprehensive policy framework.
  2. An integrated approach can safeguard rural livelihoods, foster dynamic markets, and align agriculture with future demands.

What infrastructure and experiences support this shift?

  1. The proposed reforms build on existing systems like PM-Kisan, PM-AASHA, and lessons learned over the past decade.
  2. Careful planning and collaboration are essential to implement these changes effectively.
  3. The approach aims to create a sustainable and equitable system that supports farmers, stabilizes agricultural markets, and aligns policies with future demands, ensuring resilience against economic and climate challenges.

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