Weighing the pros and cons of the call for making MSP a legal right

Making purchases below the minimm support price unlawful might at best help a limited set of farmers, but it could also end up hurting a large section of the population

As farmers in several parts of the country protest against the new farm bills, a key demand many of them are making is the inclusion of minimum support price (MSP) as a legal right in legislation. Such a move would prohibit any purchase below this level, both inside and outside the mandis, and would regard all such transactions as unlawful.

The MSP or minimum support price is the floor price that the Central government fixes every year for the kharif and rabi seasons, for as many as 23 crops.

The floor price is fixed in order to provide scope for intervention in the market, should the contracted price of any f the 23 commodities fall below this level.

The system, which was first developed in the 1960s, has over the years led to a situation in which MSP has become the de-facto procurement price for the crops the government intends to buy in a year. Wheat and rice usually take the lion's share of the crops procured for the Central pool under this mechanism.

Over the years, however, the government has stepped up its MSP procurement in crops other than wheat and rice and in the 2019-20 rabi marketing season, a variety of pulses and oilseeds along with cotton and onions were lifted by the Centre at MSP.

That said, the quantities of crops (except for wheat and rice) purchased are much lower than their production or marketable surpluses. Yet these purchases have played an important role in stabilising markets in difficult times.

During the Covid-19 pandemic, the buffer stocks of pulses created over the past few years, which at present are estimated to around 3.9 million tonnes, played a vital role in the free pulses distribution scheme. Readers would recall this scheme was an intrinsic part of the Centre’s Garib Kalyan Rozgar Abhiyan that was launched to provide relief to the poor during the crisis.

However, latest data from the Commission for Agriculture Costs and Prices (CACP), the a main rate setting panel for the government, shows that while 800,000-900,000 farmers in Punjab and Haryana have benefitted from MSP in the case of wheat in 2020-21 season, it is in states such as Madhya Pradesh and Uttar Pradesh from where procurement has risen exponentially.

In MP, around 530,000 farmers gained from wheat MSP in the 2016-17 rabi marketing season. This number rose by as much as 33 per cent over five years, to 1.6 million farmers in the 2020-21 season.

In UP too, procurement has risen manifold durinng the past five years, and the number of farmers who have got MSP for wheat because of enhanced procurement has grown from 160,000 to over 1.07 million.

In fact, a recent Indian Express report shows that as on date, 15-25 per cent of farmers have gained from the MSP mechanism. This includes cotton growers and even milk farmers who supply at preset rates to dairies and cooperatives.

Who pays for higher MSP and enlarged procurement?

As the demand grows for making MSP a legal right and ensuring that more crops are procured under the mechanism, a big question is who pays for the burgeoning food subsidy bill that such a system entails and whether it is prudent to pre-fix a floor price for crops.

A recent example points towards the contrary.

In August 2018, the then Maharashtra government under Chief Minister Devendra Fadnavis decided to amend the state APMC Act, making it illegal for a private trader to purchase any agriculture produce below the government-fixed MSP.

The amendment said that any trader who fails to purchase farm goods at MSP could attract a jail term of a year or fine of Rs 50,000.

The decision which was cleared by the state cabinet found strong objection from traders who said such a rule would make their business unviable forcing them to quit the business altogether.

Before the 2018 attempt, the Maharashtra government had tried to do a similar thing with soybean by fixing a floor rate below which any private was not allowed to purchase soybeans from the state.

The result was that traders just purchased high-quality produce leaving the remaining inferior quality ones saddled with farmers.

IN 2018 itself, the Commission for Agriculture Costs and Prices (CACP) in its non-price recommendations for kharif 2018-19 had suggested bringing a legislation titled, ‘Right to Sell at MSP’ which would give legal backing to the entire exercise and ensure that no one purchased any crop below the fixed mandate.

Maharashtra’s decision was also seen as an attempt to follow CACP’s recommendations, but it met with strong backlash from various quarters.

That apart, several experts said if MSP is made a legal right and the government ends up procuring all the commodities because private trade will be reluctant to purchase at a predetermined rate, then it will end up inflating the subsidy burden to the point where everything will collapse.

Food inflation will climb to unmanageable levels if procurement under MSP is expanded unreasonably, hurting the poor more, unless a more efficient distribution system is developed to distribute the surplus food.

Studies show that the poor, who spend large shares of their income on food, are most adversely affected by rising food prices.

Since rising food prices command a larger share of a limited budget, the poor are forced to shift their expenditure to cheaper diets with less proteins and micronutrients.

All this means that making MSP a legal right might help a limited section of farmers, but it might end up hurting more people. 

Table: Number of farmers who benefitted from wheat MSP over the years (in ‘000)

Rabi Season	Haryana	MP	Punjab	UP	Rajasthan
2016-17	472	533	835	166	39
2017-18

690 739 843 801 110

2018-19

884 958 898 1,070 124 2019-20 903 961 831 750 102 2020-21* 782 1,594 1,050 66 218

*Till June 07, 2020; Rabi marketing season runs from April to March; Source: CACP