Understanding MSP and Its Importance

Source: This article on Understanding MSP and Its Importance has been created based on article “Why guaranteeing MSP is essential for farmers and India” published in The Indian express on 26^th December 2024.

UPSC Syllabus topic: GS Paper 3– Issues related to Direct and Indirect Farm subsidies and Minimum Support Prices

Context: The article focuses on the critical issue of guaranteeing Minimum Support Price (MSP) for farmers in India through legal measures. MSP has long served as a safety net to protect farmers from market fluctuations, ensuring that they receive a fair price for their crops. However, over the decades, the growing gap between production costs and MSP, coupled with systemic inefficiencies, has led to widespread exploitation of farmers, mounting debts, and alarming rates of farmer suicides.

What is MSP, and why was it introduced?

1. MSP, or Minimum Support Price, was introduced approximately 60 years ago as a safety net for farmers when India faced challenges feeding its growing population.
2. It guarantees a minimum price for crops, ensuring that farmers are not exploited by market forces.
3. Initially, MSP aimed to encourage agricultural production but did not factor in production costs.

How has MSP evolved, and what challenges have emerged?

1. Over time, the costs of production increased while MSP lagged behind.
2. Farmers became reliant on the market, leading to exploitation and financial distress.
3. This disparity has contributed to rising farmer suicides, with reports suggesting 4,00,000 suicides officially recorded in the last three decades, while unofficial estimates place the number closer to 7,00,000.

Why do some argue that farmers in Punjab do not need MSP?

1. Critics claim that groundwater depletion, particularly due to water-intensive crops like rice (which consumes 3,000–3,500 liters of water per kilogram), is a major issue.
2. They argue that MSP encourages unsustainable farming practices

Counterarguments:

1. Farmer unions suggest that a guaranteed MSP for 23 crops could promote crop diversification, encouraging farmers to grow less water-intensive and more profitable crops.
2. This would address groundwater concerns and provide long-term solutions.

How could a guaranteed MSP law promote sustainability?

1. Diversifying crops under MSP guarantees would reduce electricity consumption in agriculture by 60%, conserve groundwater, and ensure more efficient use of resources.
2. Additionally, Punjab could lead the way in producing oilseeds, pulses, and other crops, reducing India’s reliance on imports and saving nearly ₹2 lakh crore annually.

How does MSP relate to public health and national wealth?

1. Guaranteeing MSP could reduce reliance on imported palm oil, which is often processed with harmful chemicals, thereby safeguarding public health.
2. It would also stabilize the agricultural economy and reduce farmers’ financial distress, preserving national wealth.

Are farmers currently receiving the promised MSP?

1. In states like Bihar, Uttar Pradesh, and Rajasthan, farmers often sell crops below MSP due to inadequate procurement systems.
2. For instance, despite an MSP of ₹2,325 per quintal for paddy, farmers sell it for ₹1,000–1,400 in many cases. Similarly, procurement caps force farmers to sell surplus crops at lower rates.
3. An OECD report highlights that India’s farmers have faced losses amounting to ₹60 lakh crore over the years due to underpriced MSP rates. In 2023 alone, these losses were estimated at ₹14.72 lakh crore, exacerbating farmer debt and distress.

How does guaranteeing MSP address critical issues? What steps must the government take?

1. MSP guarantees can prevent farmer suicides, reduce inflationary pressures, conserve water, and promote sustainable farming.
2. They also strengthen India’s self-reliance by reducing dependency on imports and protecting public health.
3. The government should urgently enact a legal guarantee for MSP across 23 crops, invest wisely in agriculture, and establish effective procurement mechanisms.
4. This will stabilize the agricultural sector, ensure fair incomes for farmers, and contribute to national development.