The recent increase in Minimum Support Prices (MSPs) for 14 kharif crops has disappointed protesting farmers and those hoping to double farmers’ income. The announced increase in prices is being dismissed because it does not consider the price inflation in various farm inputs that farmers have had to deal with. The nominal increase in MSP limits farmers’ ability to receive fair compensation as it does not proportionally reflect the rise in input costs.
The hike in paddy MSP from ₹2,183 per quintal to ₹2,300, a difference of only ₹117, reflects an insignificant increase of around 5 per cent. This seems unfair to millions of paddy growers as their input costs have increased by over 20 per cent in the past year.
The MSP announcement seems to be more of a routine seasonal price revision rather than a step towards doubling farmers’ income, as recommended by the government’s expert committee report in August 2017. There is no effective measurement of the progress made towards doubling farmers’ income, and the government has been cautious in legalising the MSP, fearing it could trigger inflation and make agricultural exports less competitive.
The MSP regime was established in 1965 with the setting up of the Agricultural Prices Commission (APC) as a form of market intervention to enhance national food security and shield farmers from sharp market price declines. Despite objections from market supporters, MSP is not against the principles of free markets; instead, it helps to minimise extreme market fluctuations and volatility.
The current remuneration for farmers does not align with the MS Swaminathan committee recommendations, which suggested a cost calculation incorporating total input costs of production plus 50 per cent (the C2 formula). This formula accounts for paid-out costs, the imputed value of family labour, interest on owned capital assets, rent for leased-in land, and the rental value of owned land. The announcement of MSP plus 50 per cent in the 2018 Budget seemed more like a gimmick than a sincere commitment to the farmers.
Farming in India is becoming increasingly unprofitable due to rising production costs, stagnant yields caused by soil fertility loss, declining groundwater levels, and the government’s corporate-centric approach. When there is a choice between what consumers pay and what farmers receive, governments tend to prioritise the interests of profit-making corporations engaged in agri-produce processing, which are already enjoying legalised MRP (Maximum Retail Price) on their products. While intermediaries often claim a significant portion of the margin between farm and end-consumer prices, the corporate-centric approach has significantly impacted the farmers.
The agricultural sector has faced numerous challenges over the years, and there is a pressing need for a legal guarantee for MSP to address this crisis. Despite the agreement reached with protesting farmers, the Central Government has not taken concrete action in the past two years. The government should have promptly addressed the demand for a legal guarantee for MSP and other issues to transform the country’s focus from food security to nutrition security.
There is a growing argument against legalising MSP, claiming that creating legal provisions is practically impossible. The combined value of all crops covered under MSP may exceed ₹11-lakh crore, while India’s total budgeted expenditure in 2023-24 was around ₹45-lakh crore.
Therefore, it seems impractical for the government to allocate ₹11-lakh crore solely to purchase crops from farmers. However, farmers do not sell their entire produce and use approximately 25 per cent of it for personal and livestock consumption.
Obligation on private players
The argument in support of the legality of MSP is clear and strong. Instead of government procurement agencies being enforced for the purchase of crops, private players must be legally obligated to buy products at or above MSP. Strict monitoring systems should be in place with punitive measures for violations. Currently, there are systems in place to ensure that the private mills have to procure sugarcane from farmers at prices equal to or above the Fair and Remunerative Price (FRP) announced by the Cabinet Committee on Economic Affairs (CCEA) from time to time. Similar measures should be implemented for other crops covered under MSP.
Furthermore, direct compensation must be provided to farmers if they are compelled to sell their produce below MSP. The government should reimburse the difference between the MSP and the price the farmers receive.
Finally, the legal guarantee for MSP must be introduced and implemented as Fair and Remunerative Price, inclusive of labour costs, expenses, fertilizers, irrigation, and interest paid on working capital and ground rent in case of leased land. The cost of labour of the farmer or any other person of his family who contributes to agricultural work must also be factored into the cost of production.
A holistic national agriculture policy, embodied with effective and efficient procurement policy of every grain as well vegetables and fruits on FRP, is needed. The FIVE ‘Cs’ — Conservation of water and soil, Climate change resistance, Cultivation, Consumption, and Commercial viability — are crucial for the livelihoods of farmers across the country.
The writer is former CM Haryana, and Convener Farmers & Agriculture Committee AICC
Despite objections from market supporters, MSP is not against the principles of free markets; instead, it helps to minimise extreme market fluctuations and volatility.