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The Cost of Guaranteed MSP

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Syllabus: GS 3

Synopsis: Farmers want to guarantee MSP which has no legal backing as of now. It is feasible and won’t cost very high for the government. 

Introduction 

Farmer unions are protesting to achieve two fundamental demands. 

  • The first demand is to take back the three agricultural reform laws enacted by the Centre. 
  • The second demand is to provide a legal guarantee for the minimum support prices (MSPs).  

How can MSP be made legally mandatory?

This can be done in 2 ways:

    • First, the private buyers are enforced to pay it and then no crop can be bought below the MSP. It would also act as the floor price for bidding in mandi auctions. 
      • For instance, in sugarcane, mills have to pay farmers the Centre’s “fair and remunerative price” within 14 days of supply as per the law. 
    • Second, the government itself has to buy at MSP, the entire crop that farmers grow.

How much of farmers’ produce can the government buy at MSP?

MSP is currently applicable on 23 farm commodities including 7 cereals, 5 pulses, 7 oilseeds and 4 commercial crops. The MSP value of all 23 commodities was around Rs 10.78 lakh crore in 2019-20.

    • However, the entire produce is not marketed as farmers retain a part of it for self-consumption, as a seed for the next season’s sowing and for feeding their animals.
    • Therefore, the MSP value for the marketable crop which farmers actually sell would be around Rs 8 lakh crore. 

What would be the government expenditure to ensure MSP?

The earlier mentioned amount will not be the amount the government has to spend because of the following reasons: 

  • Firstly, sugarcane should be excluded from the calculations. MSP for sugarcane is paid by sugar mills and not the government.
  • Secondly, the government is already buying several crops like paddy, wheat, cotton, pulses and oilseeds which made the combined MSP value of these crops more than Rs 2.7 lakh crore in 2019-20.
  • Thirdly, the Government need not buy the entire produce of farmers. Even if the government buys a quarter or third of the crops available in the market, it is enough to lift the prices. 
    • For example, CCI has so far bought 87.85 lakh bales of cotton out of the current year’s projected crop of 358.50 lakh bales. This has led to open market prices crossing the MSPs. 
    • Fourthly, the crop bought by the government also gets sold. The profits gathered from sales would partially balance the costs from MSP procurement.
  • Lastly, the maximum amount the government has to spend on buying crops to guarantee MSP to farmers, will not be more than Rs 1-1.5 lakh crore per year.

Government buying crops at MSP is a better option rather than forcing private buyers.

Way forward

Economists suggest guaranteeing minimum incomes instead of minimum prices to farmers. This can be done by direct cash transfers either on a flat per-acre like done in the Telangana government’s Rythu Bandhu scheme or per-farm household basis, under the Centre’s Pradhan Mantri Kisan Samman Nidhi. 

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