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Demand for Legalization of MSP

Why is it in the news?

  • Farmers from Punjab and Haryana are currently marching to Delhi to demand the legalization of Minimum Support Price (MSP).


About MSP

·       MSP is crucial for farmers as it provides them with a safety net against sharp falls in farm prices, especially during bumper production years.

·       However, MSP currently lacks statutory backing, meaning that farmers cannot legally demand it as a guaranteed right.

·       The MSP is announced for 22 crops, encompassing a variety of kharif, rabi, and commercial crops. These include:

·       14 kharif crops (paddy, jowar, bajra, maize, ragi, tur/arhar, moong, urad, groundnut, soyabean, sunflower, sesamum, niger seed, cotton),

·       6 rabi crops (wheat, barley, gram, masur/lentil, rapeseed and mustard, and safflower) and

·       2 commercial crops (jute and copra).

·       In addition, MSP for Toria and de-husked coconut is also fixed on the basis of MSPs of rapeseed & mustard and copra respectively.

·       Additionally, a Fair and Remunerative Price (FRP) is set for sugarcane, which ensures that farmers receive a minimum price for their sugarcane produce.

·       The Cabinet Committee of Economic Affairs decides on MSP at the beginning of each sowing season based on recommendations from the Commission for Agricultural Costs and Prices (CACP). The CACP considers various factors such as demand-supply dynamics, production costs, market trends, inter-crop price parity, and implications for consumers while making its recommendations.

·       The CACP calculates different costs (A2, A2+FL, C2) for each crop in different states based on production cost estimates.

·       A2 cost covers all paid-out costs directly incurred by the farmer, while A2+FL includes an imputed value of unpaid family labour. C2 cost is the most comprehensive, incorporating rentals and interest for owned land and fixed capital assets. However, the government announces MSP based on A2+FL, not the recommended C2+50% proposed by the National Commission for Farmers.


Benefits of MSP

·       Price Stability: MSP helps stabilize agricultural prices, preventing extreme fluctuations and ensuring affordability for consumers.

·       Production Encouragement: It motivates farmers to increase agricultural production by offering a fair price for their produce.

·       Food Security: MSP promotes a steady food supply by encouraging the production of staple crops, reducing dependence on imports, and enhancing domestic food security.

·       Income Security: It provides farmers with a guaranteed minimum price for their crops, ensuring a stable and predictable income, particularly during market volatility.

 Demand to Legalize MSP:

  • Farmers often end up selling their produce below MSP due to various market factors. Legalizing MSP would give farmers the legal right to sell their crops at the government-guaranteed price, providing them with financial security and stability.

 Issues Associated with Legalizing MSP:

  • Distorted Crop Selection: MSP often focuses on specific crops like rice and wheat, leading to imbalanced crop selection and neglect of others, affecting agricultural diversity and sustainability.
  • Market Distortions: MSPs can distort market dynamics by influencing cropping patterns and leading to surplus production of certain crops, resulting in storage challenges, market inefficiencies, and price distortions.
  • Storage and Logistics Challenges: Implementing MSP requires robust storage and logistics infrastructure to handle large quantities of procured crops. Inadequate facilities can lead to wastage and storage-related losses.
  • Fiscal Burden: Procuring crops at guaranteed prices and managing surplus stocks require significant financial resources, impacting the government’s budget and fiscal health.

Way Ahead

  • Encouraging Private Sector Involvement: Incentivize the private sector to develop efficient value chains for agriculture, following a cluster approach.
  • Implementing Price Deficiency Payments (PDP): Instead of physical procurement, the government can pay farmers the difference between market price and MSP, ensuring income support without market distortions.
  • Expanding Existing Schemes: Expand the scope of schemes like PM-KISAN to include more landholdings, providing direct income support to farmers.
  • True MSP Intervention: Introduce genuine MSP interventions where the government steps in when market prices fall below a predefined level, especially during times of excess production or international price collapses.

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