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News: Many Political parties and farmer organizations have recently been demanding to legalise the minimum support prices (MSP).
What is the current MSP policy?
Currently, Government declares MSP for 23 crops, although the main procurement happens largely for rice and wheat to feed the public distribution system (PDS).
– Read more here.
Why legalizing MSP is neither good for the economy nor for the farmers?
Prices of commodities are decided by their overall demand and supply: Even if government decides to legalise MSP, if the MSP is above the market clearing price than the farmers will not get any private buyer, who will not be willing to pay a higher amount.
In that case, the government will have to become the buyer of last resort, putting a lot of pressure on already stressed government revenue. In 2020-21, the food subsidy bill was almost 30% of the net tax revenue of the central government.
Not a policy for 21st century India: MSP regime was introduced in 1965 when India was hugely short of basic staples and living in a “ship-to-mouth” situation. But now with granaries overflowing with rice and wheat, there is a need to rethink and redesign the public procurement system.
MSP policy not even showing desired results currently: Government in last fiscal procured more than 50% of the marketed surplus of rice and wheat. But the market prices of rice and wheat remained below MSP in several states due to leakage from the PDS.
What is the way forward?
Research tells us that the best way to support agriculture in a sustainable and competitive manner is to
– invest in Agri R&D, and
– connect farmers to lucrative markets by building efficient value chains.
Source: This post is based on the article “MSP for all crops is fiscally unfeasible” published in Indian express on 20th Dec 2021.