Is legalising MSP a panacea for India's agri-troubles?

With the repeal of the three farm laws, farmer unions believe that they have won a battle of sorts. But, according to them, another one is waiting. And this one will drag a tad longer. They want a law to legalise the minimum support price for crops. In a bind, the government has formed a committee to look into the matter. Let us understand if legalising MSP will help farming in the long run.
 
MSP is the minimum floor price at which the government procures from farmers. It is calculated on the average cost of production. In a letter to Prime Minister Narendra Modi, farmer union coalition ‘Samyukta Kisan Morcha’ has said that MSP based on 1.5 times the cost of production should be made a legal entitlement for all agricultural produce. Currently, MSP does not extend to fruits and vegetables.
 
The Centre notifies MSPs for 23 crops every year. But procurement largely happens only in wheat and paddy, since they are the primary foodgrains distributed under the public distribution system. An analysis by PRS Legislative shows that Madhya Pradesh, Punjab, and Haryana accounted for 85 per cent of wheat procurement in 2019-20, but the three states produce only 46 per cent of the country’s wheat.
 
In case of paddy, six states – Punjab, Telangana, Andhra Pradesh, Chhattisgarh, Odisha and Haryana – which are responsible for 40 per cent of the production, have a 74 per cent combined share of procurement. A 2015 report by the Shantha Kumar Committee said that MSP benefits just six per cent of India’s farmers. The MSP value of paddy and wheat procured during 2020-21 was Rs 2.53 trillion.
 
According to a national daily, the MSP value of the total production of the 23 crops was about Rs 12 trillion in 2020-21. But the value of production actually sold by the farmers, has been estimated at Rs nine trillion.
 
With MSP being already enforced on Rs 3.8 trillion worth of produce, providing a legal guarantee for the entire marketable surplus of the 23 MSP crops would cost an additional Rs 5 trillion to the government. Taking up such a costly expenditure could be fiscally disastrous.

GV Ramanjaneyulu, executive director, Centre for Sustainable Agriculture recently told Down To Earth that a guaranteed MSP will kill Indian agriculture. He said it would also increase distortion in cropping patterns. 
 
Experts are advocating for deficiency price payments as a more feasible alternative to MSP. Under this, the government would make direct payments to farmers. The amount which would be credited to the farmers’ accounts would be the difference between the MSP and the selling price.

However, not all experts are opposed to legalising MSP. Professor Sukhpal Singh of IIM Ahmedabad believes that with certain caveats, the government can legalise MSP, but not on the exact terms that the protesting farmers might want it to. 

The Centre has assured that the MSP system is here to stay, but farmers are still sceptical. In a bid to assuage their concerns, PM Modi announced the formation of a committee to make the MSP regime more effective and transparent as well as suggest ways to promote zero-budget agriculture.

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