MSP as a legal guarantee

What is the Minimum Support Price (MSP)?

The MSP is a price which the government guarantees that a farmer will get for his or her crop, if they are unable to get a higher market rate. For example, if the price of a quintal of wheat is 1,300 in the market but the MSP is Rs 1,500, the government guarantees that the farmer will get at least Rs. 1,500 per quintal.

Why do farmers need any help from the government?

Farming in India is facing a major crisis because costs of cultivation have increased over time while crop prices have not increased as much. In addition, farmers have faced a series of very major problems over 10 year, including droughts, the effects of demonetization and the GST rollout, the impact of lockdowns and stagnant rural demand.

Agriculture is already a very high-risk economic activity, because it has three kinds of risk. Farmers don’t know which crop to pick, and how much they will get after harvest. They don’t know how much crop will grow, because of weather, pests, etc. They don’t know how much it will cost, because of changes in prices and availability of inputs and difficulty to get loans.

Volatile crop prices are perhaps the biggest risk. Most Indian farmers are smallholders, with around 85% having less than 3 acres of land. They can neither store their harvest for long, or transport it very far. They usually have high-interest loans which need immediate payment. When all the crops reach market in harvest season, prices fall – and small farmers have no choice but to sell their price very low.  

When farmers have higher costs of cultivation than the prices they get, they incur losses. This means that farming is no longer financially viable for hundreds of millions of farmers. This is obviously bad for the farming community, but also for the country, since around 60% of Indians still depend on farming for their livelihood.

What can a legally guaranteed MSP do?

MSP provides small-scale farmers, who often struggle with limited resources, a safety net against market uncertainties. By ensuring a guaranteed minimum income, it empowers them to sustain their livelihoods and contributes to rural economic stability. By offering a stable pricing mechanism, it shields farmers from abrupt changes in market conditions – in India and the world – that might adversely affect crop prices.

Using the MSP, the government can incentivise the cultivation of certain crops, such as food grains, which are essential for food security. An MSP which covers a wide range of crops can also be used to encourage crop diversity and a shift to more sustainable and nutritious crops, such as traditional staples like millets; and those that India currently has to import, such as pulses and edible oilseeds.

Why is a legal guarantee necessary?

The current system of public crop purchase is really designed to purchase basic food grains (rice and wheat) for the public food distribution system, to give food security under the National Food Security Act. It is oriented to providing cheap food for consumers, especially in urban areas. The current system does not do enough to ensure that farmers receive a remunerative price for their crops, because the MSP is often set too low or the procurement of the crops does not take place.

Does a legal MSP guarantee mean that all crops will have to be purchased by the government?

No, not at all. Procurement is only one way to ensure that prices are stable. Congress’ legal MSP guarantee will use different methods to ensure that farmers receive MSP, namely: 

    • Using imports and exports to effectively manage market prices
    • Strategic Purchase, ie. the Govt will buy just enough crops – e.g. 15% – to raise market prices. Nothing will be wasted – crops will mostly be resold. Some – rice, wheat, etc. will be supplied through the PDS. 
    • In exceptional cases where farmers have to sell below MSP, the government will make up the difference.

Our scheme coherently brings together tactics which have already been tried by various Governments.

Can the government afford it?

Depending on the exact prices, experts have estimated an outlay of between 50,000 crores to 2 lakh crores. This is just 1-4% of the Union budget today.

Many excessive numbers are being bandied about by critics of the proposal, such as Rs 10 lakh crore. This is completely misleading, because market intervention is needed only if the price collapses, and only for the crop where price has fallen, in the market where it has fallen. Any crops procured will also be resold to cover most of the expenditure incurred. The critics ignore this reality, and instead calculate the cash needed to buy each and every crop and then never sell them!

In addition, a stable MSP will reduce the financial burden on banks and taxpayers due to non-payment of loans, which need loan waivers. This would reduce another major concern currently plaguing Indian agriculture and the economy.

What is the Swaminathan Commission?

The Swaminathan Commission was a committee headed by Dr MS Swaminathan, the famous agricultural scientist, to investigate how to strenghten Indian farmers. It had recommended an MSP of 50% over the costs of cultivatio to provide a reasonable income for farmers. It is difficult to measure costs, but the Commission defined several measures, which variously include input costs, costs of capital and rental income of land.

Why is PM Modi opposing a legally guaranteed MSP?

Your guess is as good as ours! Remember that PM Modi has repeatedly already promised farmers MSP – when he was Gurajat CM, when he was PM, and also to the farmers when they called off their agitation two years ago. Since “Modi ki guarantee” is being broadcast across poster, radio and TV, it is worth asking what the value of such a guarantee is, given this record of failed promises.

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Comments (8)

  1. Rohan Sharma

    A very comprehensive idea on MSP and right that the claims about stretching the exchequer budget are completely baseless as we will be intervening as and when required. One interesting thing to note is that MSP will definitely provide a safety net for farmers but not for long. This cannot be the long term vision of India. With MSP provisions India must ensure to develop manufacturing and other transition sectors that can accomodate a lot of farmers under disguised unemployment.

  2. Shaik Karimullah

    KISAN nahi tho khana nahi. Khana nahi tho jeena nahi, jeene ke liye khana padta hai, kisano ke liye Sarkar Kitna bhi karle kam hai, so MSP jayez hai

  3. Dr M Radhakrishna

    After having read the text of legal MSP envisioned by Congress, I sincerely hope that the promise is fulfilled to the farmers community, unlike any of the previous governments, and more so the present disposition who has been very unkind. This rightly so, would improve the economy as farmers get money to spend, and importantly reduce the tax payers burden. However, I hope the alliance partners also agree to congress, and don’t hit a spoke later after formation of government and also while running the government

  4. RP Ravindran

    The article on MSP was excellent It is the farmer’s issue that Congress and AIPC should take up on a war footing We should actively involve in introducing and familiarising new technologies and practices for increasing the income from agriculture As a state secretary of Kerala Karshaka Congress I am prepared to take up any assignment in this direction and towards any cause of farmers in the country I am e retired Chief Manager of Kerala Gramin Bank having 700 branches in Kerala Please consider my name whenever a vertical on Agriculture is constituted With love and regards
    RP Ravindran


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  6. Sheri

    Thanks for finally talking about > MSP as a legal guarantee – Nyay News IPL betting apps for Moto Style

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