Farmers protest for MSP (GS Paper 3, Economy)
Why in news?
- The ‘Delhi Chalo’ march organised by farmers aims to emphasise their key demands, particularly the enactment of legislation to guarantee a Minimum Support Price (MSP) for agricultural produce.
- The participating farmers predominantly hail from the states of Punjab, Haryana, and western Uttar Pradesh, highlighting the widespread concern and solidarity within the agricultural community regarding MSP and other related issues.
Details:
- The farmer's unions assert that the Centre has failed to fulfill its promise of providing a legal guarantee for MSP, as agreed upon at the conclusion of the massive protests in 2021.
- In the interim Budget presentation, Finance Minister Sitharaman stated, "Minimum support prices for the produce of 'Annadata' (farmers) are periodically increased appropriately."
What is Minimum Support Price (MSP)?
- MSP is the minimum rate at which the government procurement agencies purchase agricultural commodities from farmers. It serves as a safety net for farmers, ensuring them a minimum income for their produce, particularly during times of market fluctuations or distress.
- The MSP system in India is a crucial mechanism for ensuring remunerative prices to farmers for their produce. The MSP is determined based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
- The CACP assesses various factors such as the cost of production, demand and supply dynamics, market trends, and price parity among different crops to arrive at MSP recommendations.
- Operating as an attached office of the Ministry of Agriculture and Farmers Welfare, the CACP has been functioning since January 1965.
How is the MSP Calculated?
- When determining the MSP, farmers' incurred costs, both implicit and explicit, are carefully considered. Implicit costs, such as family labour and rent paid by farmers, are factored into the calculation alongside explicit costs. These variables are represented by A2, FL, and C2:
A2:
- This includes expenses incurred by farmers for purchasing chemicals, fertilisers, seeds, and hiring labour for crop growth, production, and maintenance.
A2 + FL:
- This includes actual costs along with implicit costs in the form of family labour.
C2:
- This includes A2 + FL along with fixed capital assets and rent paid by farmers.
Additionally, the CACP considers several other factors when deciding the MSP:
- Cost of cultivation per hectare and crop costs in other regions for comparison.
- Cost of production per quintal and regional variations.
- Market prices of concerned crops and any fluctuations.
- Other production and labour costs and associated changes.
- Prices of commodities sold or purchased by farmers and their fluctuations.
- Information on produce supply, including area, yield, production, imports, exports, and stocks with public agencies or industries.
- Demand information across regions, including total and per capita consumption, processing industry trends, and capacity.
CCEA makes final decision on MSP:
- Once the CACP submits its recommendations, the final decision regarding the MSP levels is taken by the Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister of India.
- The panel plays a key role in approving the MSPs, ensuring that they are aligned with the overall economic and agricultural policies of the government.
Key Benefits of the MSP for farmers
- Income Security: MSP gives farmers with a guaranteed minimum price for their crops, ensuring a stable and predictable income, especially during times of market volatility.
- Price Stability: By setting a floor price for agricultural commodities, MSP helps stabilise market prices, preventing sharp fluctuations that could negatively impact both farmers and consumers.
- Boosts Production: MSP serves as an incentive for farmers to raise production of crops covered under the MSP regime, as they are assured of receiving a remunerative price for their efforts.
- Food Security: MSP plays a vital role in ensuring food security by incentivising farmers to cultivate essential food crops. This helps maintain a steady supply of food grains in the market, cutting the dependence on imports and enhancing domestic food security.
Demand to legalise MSP is rooted in several key factors:
Farmers Receiving Lower Prices:
- Despite the government announcing MSPs for various crops, farmers often end up selling their produce at prices below the MSP due to several market factors.
- Legalising MSP would give farmers the legal right to sell their crops at the minimum price guaranteed by the government, thus protecting their interests and ensuring fair remuneration.
Limited Government Procurement:
- While the government announces MSPs for a wide range of crops, the actual procurement at MSP rates is limited to a few commodities such as wheat, rice, and some pulses and oilseeds.
- This leaves a large number of farmers without the benefit of MSP-based procurement, leading to income disparities and financial insecurity.
- Legalising MSP would ensure that all farmers have equal access to government procurement at MSP rates, thereby enhancing their income security.
Challenges Ahead:
- Experts are of the view that the current extent of the MSP system suggest that expanding its scope significantly would be challenging for the government. The Centre is already procuring more than it can effectively distribute through the public distribution system.
- Additionally, there are limitations in the government's fiscal capacity to provide guaranteed prices for all crops. Any expansion of the MSP system, therefore, would need to be carefully assessed and balanced with the government's existing resources and capabilities.
- The government disburses Rs 6,000 per year to eligible farmers through the PM-KISAN scheme. The central government could consider expanding the programme's scope to include a wider range of landholdings in a sincere effort to address the issue.
- Furthermore, cash transfers could be utilised as incentives for farmers in water-stressed regions to shift away from water-intensive crops.
- Additionally, steps should be taken to integrate landless labourers and tenant farmers into support systems to ensure comprehensive coverage across all segments of the agricultural community.
Diverse Strategies in Agricultural Sector amid Caution Over MSP:
- Experts emphasise the importance of adopting a multi-pronged approach to address concerns in the agricultural sector. While guaranteed prices may appear to offer a solution, they could also introduce complexities and unintended consequences.
- Therefore, it is crucial to explore a diverse range of strategies and policies that can contribute to sustainable development and growth in agriculture.
- The increases in MSP for wheat and paddy in major producing states can potentially put pressure on the central government to replicate similar hikes nationwide.
- MSPs are announced at the national level, and while states have the flexibility to offer bonuses on top of them, the central MSP sets a benchmark for procurement across the country.
Arbitrary MSP hikes spark concerns:
- The arbitrary hikes in MSP could potentially have adverse impacts on both state and central government fiscal deficits. These announcements overlook the role of organisations like the Commission for Agricultural Costs and Prices (CACP), which conduct detailed calculations to determine appropriate MSP levels.
- India's procurement of more than 60 million tonnes of rice and around 40 million tonnes of wheat over the past three marketing seasons exceeds the annual requirement of 55 to 60 million tonnes for both grains under the National Food Security Act, according to a newspaper report.
- In one of its recent price policy reports, the CACP said that the economic cost of rice and wheat is 25 to 30 percent higher than the MSP. Additionally, it highlighted that excess stocks lead to economic losses and pose challenges for storage facilities.
Recent hikes:
- In October 2023, the government hiked in the MSP of wheat by Rs 150 to Rs 2,275 per quintal for the 2024-25 marketing season. It was the highest quantum of increase in MSP for any marketing season since the Modi government came to power in 2014.
- Besides, the MSP for five other rabi crops -- gram, barley, lentil (masur), rapeseed-mustard seed and safflower were raised.
- The MSP for gram has been raised by Rs 105 to Rs 5,440 per quintal compared to Rs 5,335 per quintal in the previous season (2023-24).
- Similarly, the MSP for lentil (masur) has been increased by Rs 425 to Rs 6,425 per quintal from Rs 6,000 per quintal. These adjustments in MSP aim to provide better remuneration to farmers for their produce and support their livelihoods.
What’s next?
- Union Agriculture Minister has said the implementation of a law guaranteeing MSP for crops cannot be rushed without comprehensive consultations with all stakeholders, urging the protesting farmer groups to engage in structured discussions with the government regarding this crucial issue.
- The minister emphasised the need for a comprehensive approach in formulating a policy guaranteeing MSP, taking into account the perspectives of all stakeholders, including state governments.
