New Delhi: Agricultural stakeholders participating in the ‘Chalo Delhi’ protest are advocating for legislation to ensure a Minimum Support Price (MSP) for all 23 designated agricultural crops. The MSP serves as a benchmark at which the government procures crops from farmers, providing them with a guaranteed income for their produce. This mechanism is vital for safeguarding farmers against market fluctuations and ensuring they receive fair compensation, particularly during periods of price volatility or when market rates fall below the MSP. But it has its economic challenges during a bumper crop season, and inflationary trends it could push.
This MSP proposition hinges on the assumption that the government possesses the logistical capacity at each state or district level to procure, store, and market substantial quantities of produce in the event of a lack of buyers willing to pay the MSP. This logistical challenge presents significant barriers and raises concerns of potential exploitation. There is a risk of intermediaries exploiting the situation, whereby they purchase crops from farmers below the MSP, yet above the prevailing market rate, and subsequently sell them in regions with MSP infrastructure at a profit, thereby depriving the actual farmers of their rightful benefits.
Another obstacle lies in the fact that a substantial portion of crops covered under the MSP are not transacted through Agricultural Produce Market Committees (APMCs). Consequently, there is a lack of transactional records, making it challenging to enforce MSP guarantees. Many small and marginal farmers opt to sell their produce to village-level traders who operate outside the purview of APMCs, further complicating the tracking and enforcement of MSP regulations.
What makes the concept of MSP guarantee appear straightforward, yet harbours the deep potential to disrupt the financial integrity of the Indian economy? Put simply, the projected cost of implementing the MSP guarantee ranges from Rs 10 lakh crores to Rs 17 lakh crores annually. To contextualise, this expenditure bracket could cover the entire year’s capital expenditure on infrastructure projects in India, accounting for approximately 50 per cent of the annual Union budget expenditure . It means that any farmer MSP guarantee by Law would come at the cost of building newer physical infrastructure across the country.
However, it’s essential to note that while MSP is officially announced for all crops, its effective implementation predominantly benefits rice and wheat farmers. This probably stems from the government’s extensive storage infrastructure tailored specifically for these grains, which play a crucial role in the public distribution system. Nonetheless, this approach often results in excessive procurement, with the government acquiring twice the required amount for buffer stock. Over the years, concerns have mounted regarding the decay of grains stored in Food Corporation of India (FCI) warehouses, originally established during times of conflict and food shortages. Some argue that given the availability of modern food storage facilities, the FCI’s operations are outdated and susceptible to corruption, suggesting the need for its restructuring or even closure.
Reflecting on past government data, paddy and wheat farmers have received nearly Rs 18 lakh crore over the past decade through MSP schemes, marking a significant 2.5-fold increase compared to the preceding decade before 2014. Additionally, farmers engaged in oilseed and pulse production have collectively received over Rs 1.25 lakh crore in MSP payments during the last decade under the current government.
The primary concern within the discourse surrounding MSP is the potential escalation of food inflation, which poses a risk to overall economic growth by constraining consumer spending. Any form of agricultural support must ensure that it does not exacerbate wealth disparities among farmers at the expense of national economic stability. One must note that there are larger number of wealthy farmers with far lavish lifestyles, who don’t share the pain and issues that bulk of Indian farmers – small or marginal farmers – face. It should compel us to think of comprehensive agricultural reform being imperative, encompassing land reforms and income taxation targeting affluent farmers beyond a specified threshold. It is essential to recognise that other economic sectors (non farming) also contribute significantly to nation-building efforts, with hard work and strain.
Additionally, the demand for full debt waivers for farmers presents challenges beyond purely financial considerations, as it can incentivise non-productive use of loans in anticipation of future waivers. Similarly, the proposition for pensions for farmers and agricultural labourers lacks justification from a labor-effort perspective and could set a precedent for similar demands from workers in other sectors. Given that the government already allocates a considerable portion of its total revenues towards pensions, opening this avenue further could result in unsustainable fiscal strains.
Another demand from farmers is the extension of employment under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) to 200 days per year, doubling the current 100-day limit. This demand reflects the pressing need for increased rural employment opportunities amidst a slowdown in other sectors. While this could alleviate rural distress and bolster employment, it would entail an additional cost of Rs 75,000 crore to the exchequer.
Despite India’s emergence as the world’s fifth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP), with agricultural exports surpassing USD 50 billion in 2021-2022, it is concerning to witness calls from farmers for India to withdraw fully from the World Trade Organization (WTO). Such a move would isolate India from international markets and disrupt global supply chains, posing significant geopolitical risks and undermining India’s position in the global economic order.
(The author is a Policy Researcher & Corporate advisor. Dr Sridharan tweets at @ssmumbai )
(Disclaimer: The views expressed in this article are those of the author alone. The opinions and facts in this article do not represent the stand of News9.)
Full coverage on Farmers’ Protest Around MSP
Agri and the aggrieved: What’s the price of MSP guarantee?
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14.02.2024
New Delhi: Agricultural stakeholders participating in the ‘Chalo Delhi’ protest are advocating for legislation to ensure a Minimum Support Price (MSP) for all 23 designated agricultural crops. The MSP serves as a benchmark at which the government procures crops from farmers, providing them with a guaranteed income for their produce. This mechanism is vital for safeguarding farmers against market fluctuations and ensuring they receive fair compensation, particularly during periods of price volatility or when market rates fall below the MSP. But it has its economic challenges during a bumper crop season, and inflationary trends it could push.
This MSP proposition hinges on the assumption that the government possesses the logistical capacity at each state or district level to procure, store, and market substantial quantities of produce in the event of a lack of buyers willing to pay the MSP. This logistical challenge presents significant barriers and raises concerns of potential exploitation. There is a risk of intermediaries exploiting the situation, whereby they purchase crops from farmers below the MSP, yet above the prevailing market rate, and subsequently sell them in regions with MSP infrastructure at a profit, thereby depriving the actual farmers of their rightful benefits.
Another obstacle lies in the fact that a substantial portion of crops covered under the MSP are not transacted through Agricultural Produce Market Committees (APMCs). Consequently, there is a lack of transactional records, making it challenging to enforce MSP guarantees. Many small and marginal farmers........
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