MSP: An Outdated Concept

Farmers are demanding a law for the minimum support price but MSP seems to be an outdated idea

-Prof Rakesh Goswami

Prime Minister Narendra Modi announced on November 19 during a televised address to the nation that his government will repeal the three farm laws over which farmers had been staging protests near Delhi. With this U-turn, the government hoped that the protesters would call off the agitation and go home. But this did not happen. Instead, the farmers put forward some new demands, a law for minimum support price (MSP) being one of them. The farmers said they will not end the protest until these ‘new’ demands are met. The softening of the Modi government on the farm laws emboldened the protesters.

But MSP is an outdated idea. To understand this, we need to look at the history of MSP.

There was famine in India for two consecutive years in 1964 and 1965. The country’s economy, which was already reeling under the 1962 war with China, crumbled as Pakistan launched another war in 1965. Two wars in a space of three years and two years under famine had a debilitating impact on the country’s finances. India was dependent on the USA for food grains. The USA supplied grains to India under its PL-480 programme but was erratic. Lal Bahadur Shastri, who was the prime minister during that time, was unhappy with the fact that India couldn’t grow enough grains to make the country self-sufficient. His successor Indira Gandhi was also a woman of self-respect. The Green Revolution was started during her regime to raise the production of grains to a level where the country didn’t need to import its food.

American agronomist Norman Borlaug and Indian agricultural scientist and plant geneticist scientist MS Swaminathan designed the green revolution by introducing high-yielding varieties of seeds and use of fertilisers and pesticides to increase yield in Indian farms. Areas selected for the green revolution were those which had good irrigation facilities. Punjab, Haryana and some areas of western Uttar Pradesh, which had a good network of irrigation canal systems, were the obvious choice for the experiment.

There was a thinking in the government that in order to motivate the farmers to grow more, the government needed to give them a guarantee of the price of their produce. This is how the concept of minimum support price or MSP came into being. Seeds of high-yield varieties, use of fertilisers and pesticides and announcement of MSP led to bumper crop production and by the late 1980s, India became a net exporting country of agricultural produce. In other words, India became ‘atmanirbhar’ in grains about 40 years ago. 

Before the sowing of Rabi and Kharif crops every year, the Commission for Agricultural Costs and Prices (CAPC) recommends MSP on the basis of expenditure on cultivation and cost of family labour. The Cabinet Committee on Economic Affairs announces the MSP on the basis of the CAPC recommendations through a gazette notification.

Data shows that only farmers in Punjab, Haryana and some parts of western Uttar Pradesh benefit from this guarantee of price. For example, about 88 percent of paddy and 70 percent of wheat grown in Punjab is sold at the MSP. According to a government report, only six percent of farmers get the benefits of MSP.

When the country has become self-sufficient in food production, what is the need for MSP? When the reason for which MSP was introduced does not exist now, why should this system then persist? In which other industry is there a guarantee of price? Is MSP not against the rules of the market? Can the government tell the manufacturers of shoes that it will buy the products at a minimum support price?

One of the reasons why the government needs MSP is its massive food security programme under which more than 80 million people are provided subsidised grains through the fair price shops. The programme is called the targeted public distribution system. For this, the government procures wheat and paddy through the Food Corporation of India at the marketplace maintained by agricultural produce market committees (APMCs). Sale and purchase of crops at MSP cannot be done outside APMCs in most parts of India. One of the farm laws, the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, was to declare areas outside the APMCs also as agricultural marketplaces.

FCI is a den of corruption. Farmers who go to the FCI procurement centres often face raw deals. The middlemen and commission agents exploit the farmers. There’s another level of corruption: good-quality grains procured by the FCI are sold in the open market and poor-quality grains get into the PDS. For the lack of covered warehouses, every year tonnes of FCI grains rot when it rains. This is a waste of the taxpayers’ money.

Even the FCI procurement favours farmers from only the three states mentioned above. More than 35 percent of paddy, 62 percent of wheat and 50 percent of coarse grains procured by the FCI come from Punjab and Haryana alone.

MSP is declared for 21 crops of cereals, pulses and oilseeds. There is no MSP for flowers, vegetables and dairy products. This means that MSP is only for a very small group of farmers in its present form. More than 80 percent of farmers in India are small or marginal with small landholdings. They seldom go to the APMCs to sell their produce.

Economists feel the MSP regime is detrimental to innovation in agriculture. Punjab and Haryana farmers are heavily into the cultivation of wheat and paddy, the two crops procured by the government for the targeted PDS and midday meal scheme. This has adversely affected the crop pattern and prevented farmers from experimenting with commercial crops. The new farm laws were meant to bring about the much-awaited reforms in the agriculture sector. Unfortunately, the government failed to bring home the benefits to the farmers. During the farmers’ protest, the Modi government has assured several times that there was no plan to do away with the MSP but the farmers want a guarantee in the form of a law. The government should not yield to the pressure. On the contrary, the MSP regime should be gradually done away with. Gradually, so that the farmers of Punjab and Haryana get time to shift to other crops.

MSP has already outlived its relevance and it is high time the government decided to do away with it.

(The writer is regional director of Jammu centre of Indian Institute of Mass Communication.)

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