22-October-2024-Special-Article

IMPACT OF MINIMUM SUPPORT PRICE (MSP) ON INDIAN AGRICULTURE

The Minimum Support Price (MSP) is a crucial policy in India’s agricultural framework, designed to protect farmers from price fluctuations.

Recently, the Cabinet Committee on Economic Affairs (CCEA) announced an increase in MSP for several rabi crops.

This decision has reignited discussions about the potential legalization of MSP and its implications for the agricultural ecosystem in India.

What is the Cabinet Committee on Economic Affairs (CCEA)?

• Leadership: The CCEA is chaired by the Prime Minister.
• Function: It sets priorities for public sector investments and continuously reviews economic trends to develop an integrated economic policy framework.
• Oversight: The committee oversees policies related to economic activities, including foreign investment that require high-level decisions.

About Minimum Support Price (MSP)

The MSP system was initiated in 1965, with the Agricultural Prices Commission (now the Commission for Agricultural Costs and Prices, or CACP) created to manage market interventions for national food security.

MSP Calculation

Cost Categories:

• A2: Includes direct costs incurred by farmers such as seeds, fertilizers, and labor.
• A2 + FL: Adds the value of unpaid family labor to A2 costs.
• C2: A comprehensive cost that also factors in land rental and interest on owned assets.

Government Stance: MSP is set at a level of at least 1.5 times the all-India weighted average Cost of Production (CoP), calculated as 1.5 times A2 + FL.

Concerns Surrounding MSP in India

• Limited Reach: The Shanta Kumar Committee’s 2015 report indicated that only 6% of farmers benefit from MSP, primarily those in states like Punjab and Haryana.
• Narrow Crop Focus: The system is heavily skewed towards a few crops, mainly rice and wheat, discouraging farmers from diversifying their crops.
• Procurement System Strain: Large-scale government procurement leads to storage issues and puts a financial strain on the Food Corporation of India (FCI).
• Environmental Concerns: Emphasis on water-intensive crops like rice contributes to groundwater depletion, especially in regions such as Punjab.
• Dependence on Intermediaries: Farmers often rely on middlemen for accessing MSP, which can lead to exploitation and lower prices.

Need for Legalizing MSP in India

• Income Security: Legalizing MSP would guarantee a stable income for farmers, safeguarding them against market fluctuations, particularly during bumper harvests.
• Investment in Agriculture: A legally guaranteed MSP can encourage farmers to invest in modern techniques and sustainable practices, enhancing productivity.
• Poverty Alleviation: A stable price could help reduce rural poverty and improve living standards for small and marginal farmers.
• Market Stability: MSP acts as a price stabilization tool, reducing the volatility of crop prices and consumer inflation.
• Prevention of Distress Sales: A legally enforced MSP could reduce instances of distress sales due to inadequate pricing.

Challenges of Legalizing MSP

• Fiscal Burden: Implementing a legal MSP across all crops would significantly increase the government’s financial responsibilities, estimated to exceed Rs 10 lakh crore annually.
• Market Distortion: A legal MSP might discourage private market participation, impacting competitiveness in both domestic and international markets.
• Infrastructure Issues: Expanding procurement under MSP requires substantial improvements in storage and logistics, which are currently insufficient.
• Implementation Complexity: Uniform implementation of MSP across diverse agricultural practices and climates is challenging, complicating the determination of appropriate MSP levels.
• Environmental Risks: Legalizing MSP may lead to overproduction of already supported crops like wheat and rice, contributing to environmental degradation.

Way Forward

• Reforming MSP Implementation: The government should refine the MSP system to target crops based on regional needs and market demand while encouraging crop diversity.
• Promoting Crop Diversification: Incentivize the cultivation of pulses, oilseeds, and millets to support sustainable farming and alleviate pressure on water resources.
• Direct Benefit Transfers (DBT): Implement DBT for farmers, allowing them to receive the difference between the MSP and market price directly to their bank accounts if they cannot sell at MSP.
• Encouraging Allied Activities: Promote supplementary agricultural activities such as horticulture, dairy, and fisheries, providing additional income streams for farmers.
• Skill Development: Expand training programs for rural populations, particularly youth and women, to equip them with skills for manufacturing and technical jobs, thereby creating alternative income sources beyond agriculture.

Conclusion

The debate around MSP and its legalization is essential for ensuring the welfare of farmers and the sustainability of agriculture in India. Addressing the challenges while enhancing the benefits of MSP can lead to a more resilient agricultural sector.

Mains Question:

1. Discuss the implications of legalizing the Minimum Support Price (MSP) for farmers in India, considering its potential benefits and challenges for the agricultural sector. (150 WORDS)