Explained | Will a hike in MSP help farmers?

The story so far: Last week, the Centre announced the Minimum Support Price (MSP) for this year’s summer (kharif) season crops, hiking prices between 5-10% from last season, “to ensure remunerative prices to growers for their produce and to encourage crop diversification.” A section of farmer representatives have expressed unhappiness over what they term as a ‘meagre’ hike in the MSP, defeating the government’s intent of securing a “remunerative price”. On the other hand, agriculture domain experts believe that an increase in the MSP may give a slight respite to growers, but argue that in the absence of any dependable or assured market mechanism of procurement-purchase for crops on the MSP in most parts of the country, the purpose of encouraging “crop diversification” gets defeated.

How does the MSP work?

The MSP, which is a part of the government’s agricultural price policy, is the price at which the government offers to procure farmers’ produce during the season. It works as a tool to stabilise production and to control consumer prices, yet farmers across the country have been facing problems of selling their produce at the MSP. Delays in establishing procurement centres, exploitation at the hands of commission agents, who most of the time buy the produce from farmers below the MSP, and a lack of awareness about the MSP among a large section of farmers, are some of the challenges growers have been facing for years now. Against this background, farmers have been demanding a ‘legal status’ to the MSP. The government, including the Centre and States, ought to come up with a system to set up an ‘assured market mechanism,’ point out farmers. The MSP has little meaning unless farmers’ produce is procured/purchased at the assured price.

What is the government’s announcement?

On June 7, the government announced the MSP for 17 ‘kharif’ crops, like paddy, pulses (moong, arhar, urad), oilseeds like groundnut and soyabean and cotton, for the marketing season of 2023-24. These were approved at a meeting of the Cabinet Committee on Economic Affairs (CCEA). According to the government statement, the increase in MSP is in line with the Union Budget 2018-19 announcement of fixing the MSP at a level of at least 1.5 times the all-India weighted average cost of production, which aims at a reasonably fair remuneration for the farmers. Food Minister Piyush Goyal said the increase in MSP of kharif crops for this year is the highest compared to previous years.

The below charts show the MSP for select kharif crops for the marketing season 2023-24 and their difference from the last season.

Why are farmers worried?

Several farmers’ outfits have expressed their discontentment over the latest MSP for the summer crops, terming it as insufficient. According to the All India Kisan Sabha, the declared MSP is “unfair, belies the hopes of the farmers and inflicts huge losses in their incomes.” Rising input costs coupled with unfair MSP will push large sections of farmers, especially the small, marginal, and middle-level farmers, as well as tenants into indebtedness, says Ashok Dhawale, president of AIKS. The longstanding promise made by the Bharatiya Janata Party in 2014 that the MSP will be given according to the Swaminathan Commission recommendation of C2+50% (C2 or comprehensive cost of production) remains an unfulfilled election promise, he adds.

The Bharatiya Kisan Union (Ekta-Ugrahan), one of the largest farmer unions in Punjab and a member of the Samyukta Kisan Morcha (SKM), the umbrella body of around 500 farmer outfits, has dismissed the MSP hike, saying that the government’s notion of ensuring 1.5 times the cost of production on crops does not help in addressing the farmers’ plight as it does not provide remunerative price. “It’s merely an eyewash,” says the outfit leader Sukhdev Singh Korikalan, as he adds that MSP should be based on the Swaminathan Commission’s formula of C2+50%. “Also, the government needs to make MSP a statutory right of the farmers. Farmers need to have an assurance that their crops will be purchased at the MSP to survive in the otherwise economically-unsustainable agricultural sector,” he points out.

What are agriculture experts saying?

Noted economist Dr. Ranjit Singh Ghuman, currently a professor of eminence (Economics) at Guru Nanak Dev University in Amritsar, points out that the past track record shows that only three to four crops (mainly wheat, paddy and cotton and at times some pulses), were being procured at MSP while the remaining crops were being procured at much below the MSP.

“This is mainly because the farmers are left at the mercy of market forces and the private players. Non-implementation of MSP and below-MSP-procurement of a large number of crops, inter alia, has been one of the major hurdles in ‘crop diversification’ which is so vital for Indian agriculture and in saving the environment. Ineffective implementation of MSP and ‘non-procurement’ of all the crops at the MSP is also one of the main concerns of farmers. Such a scenario builds a strong rationale for giving ‘legal status’ to MSP as it is the floor or reference price. This does not imply that the government should procure all those crops but would certainly bind the private players to procure those crops at least at the MSP. While facilitating crop-diversification it would raise farmers’ income which is being propagated by the government,” he says.

What about foodgrain stock?

As per third advance estimates for 2022-23, total foodgrain production in the country is estimated at a record 330.5 million tonnes which is higher by 14.9 million tonnes compared to 2021-22. This is the highest increase in the last five years, according to government data. The total stocks of rice and wheat held by Food Corporation of India (FCI) and State agencies as on May 1, 2023, was 555.34 lakh tonnes comprising 265.06 lakh tonnes of rice and 290.28 lakh tonnes of wheat.

Former professor at the Ludhiana-based Punjab Agricultural University, M.S. Sidhu, asserts that the delay in monsoon would impact cropping in non-irrigated regions of the country. “Around 51% area in the country is rain-fed, so if rains are delayed some impact is bound to be seen. But the country’s foodgrains stocks are at a comfortable level, there’s nothing to worry as of now,” he adds.

What lies ahead?

The MSP attempts to strike a balance between the interest of growers and consumers. The government’s price support policy attempts to provide a fair return to farmers while keeping in view the interest of consumers in a way that prices of food and other agricultural commodities are kept at a reasonable level. Farming over the years, for the majority, especially small and marginal farmers, has not turned out to be remunerative. A rise in their income could be the long-term answer to farmers’ financial distress. To ensure this rise in income, the government should focus on setting up an effective system to provide assured purchase and returns to farmers for all major crops at the MSP, as is done in the case of wheat and rice or extend subsidies on input costs.