MSP demand - What the government can do - An analysis

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A comprehensive look at what changes are needed in the MSP system now

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MSP demand - What the government can do - An analysis

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  • The story: The PM announced the repeal of three new farm laws, but agitating farmers said they were to protest unless a firm guarantee on MSP was given in writing. In the past one year, the government has made some big changes in the manner in which the Minimum Support Price (MSP) mechanism was being administered.
  • The goal: Government is focused on ensuring that only genuine farmers get the benefit of MSP and most of them fall under the ambit of procurement. There could now also be some reforms in the manner in which fertiliser subsidies are delivered to the farmers.
  1. Though the mandate of the Committee promised by PM Modi in his address, while announcing the repeal of the three acts, is yet to be spelled out, but it might look at more reforms in the sector that can be accomplished with the active cooperation of states.
  2. The Agriculture Minister has mentioned that the new panel will consider the next set of reform measures for the sector.
  3. Meanwhile, on MSP, the government has already aligned its paddy purchases to the average yield of a district from 2021. This system, which has been in place in most of the paddy and wheat procurement states since the last few years, will now be extended to the entire country, including Punjab.
  4. The system has also made it mandatory for all states to upload land records of farmers on the state procurement portals, which will now be integrated with a central database.
  5. The government has also laid down some minimum threshold parameters that each procurement portal designed and developed by the state governments need to have.
  6. Each state portal will now be integrated with a centralised system through which it can be monitored centrally how much grain has been procured from each field and how the MSP is transferred into the bank account of farmers.
  • Demands from the PM: After the PM's repeal promise, members of the Samyukta Kisan Morcha (SKM) announced that protests would go on till the government addressed their demand for a legal guarantee on MSP and other issues including - no changes in the subsidy of electricity, withdrawal of cases against protesting farmers, compensation to grieving families whose members died during the protest, and also a resolution on the Lakhimpur Kheri violence with the sacking and arrest of MoS Ajay Mishra. The SKM in its open letter to the PM called the repeal a "one-sided announcement".
  1. The farmers are demanding a government guarantee in writing for the the MSP system, assuring them of a fixed price for their crops, 1.5 times of the cost of production
  2. The SKM has earlier planned a march to Parliament on November 29, the first day of the winter session.
  • Technical suggestions: Protestors also say that the Centre along with states could consider guaranteeing some sort of profitable price for each crop in each region. The CACP does calculate the Cost of production region wise, but the cost of production of each crop in each place is different. That pre-determined profitable price can then be paid by anyone who plans to purchase. Broad-basing and including more items into the PM-ASHAA scheme could be tried to ensure that some sort of assured purchase to the farmers. Under the PM-ASHAA scheme, only oilseeds and pulses are included.
  1. The Pradhan Mantri Annadaata Aay Sanrakshan Abhiyan or PM-AASHA broadly has three components, which are the Price Support Scheme (PSS), the Price Deficiency Payment Scheme (PDPS) – modeled on the lines of erstwhile Bhawantar Bhugtan Yojana of Madhya Pradesh and Private Procurement and Stockiest Scheme that was launched on a pilot basis.
  2. Under it, the Centre’s total procurement is capped at 25 per cent of the total production of a crop in the state, which can be expanded up to 40 per cent if the commodity is used for PDS or for any other state welfare scheme. Previous attempts at deficiency price payment in case of Madhya Pradesh’s Bhawantar Bhugtan Scheme wasn’t very successful over allegations that traders formed cartels to artificially keep the prices down.
  3. There could also be an option to explore something like a minimum reserve price for private traders to buy based on the production cost as estimated by the Commission for Agriculture Costs and Prices (CACP). But this could be applicable only for the 23 crops for which CACP determines the production cost. The Committee for Doubling Farmers’ Income has indeed talked about such a reserve price.
  4. It said there was a need for setting a minimum reserve price, distinct from the MSP such as to protect the interests of the farmers without distorting the market forces as whenever market prices fall before the notified MSP, there is no minimum reserve price for the private trade that is conducted at the markets. In laying down a benchmark, care has to be taken to protect the free trade practices since MSP based procurements cannot become universal. It is therefore suggested that the cost of production can become such a reserve price.
  • One district one crop: Farmers say that a policy like one district one crop will hurt the farmers of western UP the most, as they will be at the mercy of corporate pricing. Industrial pricing can never be compared to agricultural pricing, which is why a legal guarantee on MSP is necessary. Not only should the government put a mechanism for procurement in place for MSP, but also give the farmer a backup so that they are not exploited. A legal guarantee on MSP has been an old demand of farmers that the government had rejected even during talks, citing fiscal constraints.
  1. For 50 years, the so-called MSP regime has been in operation but the reality is, according to government data, only 6% of farmers get what it calls minimum support. (some experts reckong the figure is more like 25%)
  2. What is needed is converting that into a legal guarantee so that farmers are not dependent on executive orders and the whims of governments. Without infrastructure and funds, MSP is just on paper.
  • What MSP would mean: A legal guarantee on MSP does not mean that the government was responsible for the procurement of all crops but for putting in place a mechanism that will ensure that the farmers get MSP for their entire crop, no matter who buys. The government can do this whichever way it wants – by procurement, by deficit payment or by market intervention and raising the price itself.
  • EXAM QUESTIONS: (1) Explain the technical issues involved in ensuring a fixed Minimum Support Price for crops produced by Indian farmers. (2) What was the key reason the government decided to repeal the three farm laws? Explain. (3) If you were the policymaker, what ten steps would you take to ensure that farmers of India adopted productive practices, and a large no. were moved into other sectors of the economy?
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                    PT's IAS Academy: MSP demand - What the government can do - An analysis
                    MSP demand - What the government can do - An analysis
                    A comprehensive look at what changes are needed in the MSP system now
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