Legal MSP: A right and a necessity

News: The demand for legal guarantee for the MSP has become the subject of much debate since the start of the farmer agitation. Many arguments have been given centred around its economic and legal feasibility. But, most are not supported by data or sound economic logic.

What are the farmers’ actual demands wrt MSP?

Farmers are not demanding that the government or a trader be forced to buy all the market surplus at MSP. Irrespective of the quantity of a crop they are willing to buy, they must not buy it below the declared MSP.

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What is the economics behind the MSP demand?

The total value of the output of the 23 crops at MSP prices for 2020-21 was about Rs 12 lakh crore. This total produce is not sold or marketed.

Farmers retain a big part of their produce for self-consumption, animal feed, and seeds. Some of it is also exchanged within the village and a part is also eaten by rodents or perishes during harvesting, transportation and storage.

Thus, amount of produce consumed = Rs 4 lakh crore

Only about Rs 8 lakh crore worth of MSP crops is actually marketed.

– Out of this, amount purchased by the Govt = Rs 4 lakh Crore

– Amount purchased by pvt sector = Rs 4 lakh Crore (Farmers are seeking the legal enforcement of MSP on this portion as well). Pvt sector purchases this amount at 25% below the MSP, thereby paying Rs 3 lakh crore. Thus, if there was legal status for MSP, the private sector would have paid a maximum of Rs 1 lakh crore more to the farmers for the same quantities in 2020-21.

Thus, the Govt would not be under any added financial burden.

What are the benefits of legalisation of MSP?

By giving legal status to MSP, the extra Rs 1 lakh crore would flow from the private sector to the farmers, who will spend it and create more demand in the economy.

– This will lead to an increase in employment, investment and eventually, government taxes.

For more: Read here and here

A legal backing for MSP is a great instrument to control the production quantities of various crops to match demand.

The country could also become self-sufficient in edible oils and pulses by ensuring remunerative MSPs for these crops. This has been proven in the case of pulses where production has increased substantially, reducing import dependence over the last four years.

Ensuring remunerative prices for our farmers is also essential for food security. And food security is tied to national security and sovereignty.

Why concerns against legalisation of MSP are flawed?

– Some economists argue that if the MSP is legally enforced, the private sector won’t purchase the crops and all the quantities would have to be purchased by the government. Sugarcane prices are prescribed by the government, but private mills have not stopped their procurement.

– Industries have not closed due to the Minimum Wages Act.

– Purchasing of petrol, diesel has not stopped because the government is charging exorbitant taxes.

Source: This post is based on the article “Legal MSP: A right and a necessity” published in The Indian Express on 31^st Dec 2021.