DAILY EDITORIAL BASED QUIZ

MSP

This editorial is based on “Farmers back on road to

Delhi” which was published in The Indian Express on
13/02/2024. The article delves into the protesting farmers'
call for a legal assurance of Minimum Support Price (MSP)
in India.
For Prelims: Minimum Support Price (MSP), Commission for
Agricultural Costs and Prices (CACP) , National Commission of
Farmers, Shanta Kumar Committee, NABARD, Price deficiency
payments (PDP), Mahatma Gandhi National Rural Employment
Guarantee Scheme (MGNREGS).

For Mains: Demand for Law on MSP, Key Challenges in Legalising

MSP
In recent events, farmers primarily from Punjab, Haryana, and
Uttar Pradesh, initiated their 'Chalo Delhi' march following an
inconclusive meeting with the Union government.

The legal guarantee of Minimum Support Price (MSP) is the

prime reason for the farmers' protest. Apart from this, the farmers
have also demanded the implementation of the Swaminathan
Commission’s recommendations (2006), as well as farm debt
waiver.

What is the Minimum Support Price (MSP)?

 About :
o The MSP is a guaranteed price for their produce from
the Government.
o MSP is a form of market intervention by the
Government of India to insure agricultural producers
against any sharp fall in farm prices.
o MSP in India is a price floor set by the government to
ensure that farmers receive a minimum price for their
 agricultural produce, thereby safeguarding their
income and encouraging agricultural production
 Crops Under MSP:
o The government announces MSPs for 22 mandated
crops and Fair and Remunerative Prices (FRP)
for sugarcane. The mandated crops are 14 crops of
the kharif season, 6 rabi crops and two other
commercial crops.
o The list of crops is as follows :
 Cereals (7): Paddy, wheat, barley, jowar, bajra,
maize and ragi
 Pulses (5): Gram, arhar/tur, moong, urad and
lentil
 Oilseeds (8): Groundnut, rapeseed/mustard,
toria, soyabean, sunflower seed, sesamum,
safflower seed and nigerseed
 Raw Cotton
 Raw Jute
 Copra
 De-husked Coconut
 Sugarcane (FRP)
 Virginia flu-cured (VFC) Tobacco
o Presently, MSPs are notified for 23 crops, but
procurement is done for wheat and paddy, which
meets the requirements of the public distribution
system.
How MSP has been Calculated?
 The government bases its announcement on the
recommendations given by the Commission for
Agricultural Costs & Prices (CACP), which details
three major formulas to arrive at MSP:
o A2: Costs incurred by the farmer in the production of
a particular crop. It includes several inputs such as
expenditure on seeds, fertilizers, pesticides, leased-in
land, hired labour, machinery and fuel.
o A2+FL: Costs incurred by the farmer and the value of
family labor.
 o C2: A comprehensive cost, which is A2+FL cost plus
imputed rental value of owned land plus interest on
fixed capital, rent paid for leased-in land.
 The government maintains that the MSP was fixed at a
level of at least 1.5 times of the all-India weighted
average Costs of Production (CoP), but it calculates
this cost as 1.5 times of A2+FL.
Why is There a Demand for Law on MSP?
 Ensuring Financial Viability of Agriculture:
o Legalising MSP guarantees that farmers receive a
minimum price for their produce, protecting them
from market fluctuations and ensuring fair returns on
their investments and labor.
o MSP is the minimum price of agricultural produce that
is necessary to keep agriculture financially viable. If
the farmers do not get even this, then they will be
pushed into debt.
 Reducing Debt Burden on Farmers:
o According to a 2019 National Bank for Agriculture
and Rural Development (NABARD) report, the
average debt burden on a farmer’s family is over Rs 1
lakh. This is despite the central and state
governments providing farmers a subsidy of Rs 3.36
lakh crore.
o The total outstanding loan on farmers
increased from Rs 9.64 lakh crore on March 31,
2014, to Rs 23.44 lakh crore in 2021-22.
o The debt burden on farmers is rising due to minimal
increase in MSPs and because they do not receive the
declared MSP.
o If the farmer has to sell his produce at a price lower
than the promised MSP, the latter becomes
meaningless for the farmers. Therefore, a legal
guarantee of MSP is necessary.
 Supporting Farmers' Livelihoods:
 o Legalising MSP helps support the livelihoods of
millions of farmers, particularly small and
marginalized farmers who are vulnerable to market
uncertainties.
o The livelihood of about 50% of the country’s
population depends on agriculture and
agriculture-related activities.
 Risk Mitigation:
o No business has to deal with so many
unpredictable factors and risks — extreme heat,
floods, fire, frost, untimely rain, etc. Farmers remain
uncertain and apprehensive about their income. MSP
saves the farmer from debt and bankruptcy.
Therefore, it needs to be secured with a legal
guarantee.
o Natural disasters and market forces are hurting
farmers. Climate change is increasing the
complexity of farming. The farmer cannot be left at
the mercy of weather and market forces.
o Legalising MSP provides a safety net, reducing
the risk of income loss for farmers during unfavorable
market conditions.
 Addressing Market Imperfections:
o The burden of providing cheap grains to protect
consumer interests can’t solely rest with the farmer.
Often, even when farmers sell their produce at low
prices, consumers buy them at exorbitant rates. This
is because of middlemen which need to be regulated.
o Legalising MSP can help mitigate these issues by
providing a guaranteed price directly to farmers.
 Promoting Agricultural Growth:
o Legalising MSP encourages farmers to invest in
agricultural production by providing price stability and
income security. This, in turn, promotes agricultural
growth and contributes to overall food security in the
country.
 o Legalising MSP can incentivize the adoption of
sustainable agricultural practices by providing price
incentives for crops that are environmentally friendly
and resource-efficient.
 Addressing Disparities:
o The Shanta Kumar Committee concluded in 2015
that only 6% farmers benefited from the support
price scheme.
o In 2019-20 alone, three states — Punjab, Haryana
and Madhya Pradesh — accounted for 85% of the
wheat procurement.
o Legalizing MSP can help mitigate these issues by
providing a guaranteed uniform price directly to
farmers.
o Farmer-centric policies centered around MSP
legalization contribute to poverty alleviation, rural
development, and social inclusion.
What are the Key Challenges in Legalising MSP?
 Financial Burden:
o Procuring crops at MSP requires substantial financial
resources, and sustaining such procurement
operations may strain government finances.
o Balancing the budgetary allocation for MSP with other
essential expenditures such as infrastructure
development, social welfare programs, and defense
spending poses a challenge.
o Legal MSP cannot work if not supported by demand
and supply side factors.
 Disincentive for Investment:
 o MSP legalization may discourage private investment
in agriculture, particularly in crops covered under
MSP.
o Private players may hesitate to invest in sectors
where government intervention in pricing is prevalent,
limiting innovation and modernization efforts.
 Exacerbate Water Scarcity:
o MSP-supported crops like paddy and sugarcane are
water-intensive, leading to overexploitation of water
resources in regions where they are cultivated
extensively.
o Legalising MSP may exacerbate water scarcity issues
by promoting the cultivation of water-intensive crops,
further distorting cropping patterns.
 Neglect of Non-MSP Crops:
o Legalising MSP may result in the neglect of non-MSP
crops, leading to decreased cultivation of nutritious
food crops, pulses, and oilseeds.
o This can have negative implications for food security,
dietary diversity, and nutritional outcomes,
particularly among vulnerable populations.
 Reduced Export Competitiveness:
o Legalizing MSP may lead to higher procurement prices
for MSP-supported crops, making them less
competitive in the international market.
o Elevated domestic prices could result in reduced
export competitiveness, especially for crops with high
MSP rates.
 Trade Disputes:
o Legalizing MSP may lead to trade disputes with
importing countries, especially if the government
provides subsidies or other forms of support to
maintain MSP prices.
o Such disputes can result in retaliatory measures,
tariffs, or trade barriers, affecting export volumes and
 market access. With a legally guaranteed higher MSP,
India will face stiffer opposition at the World Trade
Organization (WTO).
What Should be the Way Forward?
 Balanced Agricultural Pricing Policy: The government
must come up with a suitable transition to agricultural
pricing policy to ensure remunerative prices for
agricultural produce through mechanisms like MSP and
direct income support schemes.
o Enforce Swaminathan Committee
Recommendation: The commission recommended
that the MSP should at least be 50% more than
the weighted average cost of Production (CoP),
which it refers to as the C2 cost.
o Expansion of MSP Criteria: The average
expenditure incurred by the farmer on education and
health services for his family must also be factored in
when MSP is determined.
o Price Deficiency Payments (PDP): It entails the
government not physically purchasing or stocking any
crop, and simply paying farmers the difference
between the market price and MSP, if the former is
lower. Such payment would be on the quantity of crop
they sell to the private trade.
 Enhancing Farmers' Income:
o The government should not only bring agriculture
activities within Mahatma Gandhi National Rural
Employment Guarantee Scheme (MGNREGS) but
also increase the daily wages.
o Encourage crop diversification and promote high-
value and climate-resilient crops to increase farmers'
income opportunities.
o Strengthen agricultural marketing infrastructure,
including farm-to-market linkages, storage facilities,
and market information systems, to reduce post-
 harvest losses and improve price realisation for
farmers.
 Investing in Agricultural Infrastructure:
o Increase public investment in rural infrastructure such
as irrigation facilities, roads, electrification, and
storage capacities to enhance agricultural productivity
and market access.
o Promote technology adoption and innovation in
agriculture through research and development,
extension services, and access to modern farming
inputs and practices.
o Facilitate access to credit, insurance, and other
financial services for smallholder farmers to mitigate
production risks and improve resilience to market
fluctuations.
 Improving Land and Water Management:
o Implement sustainable land and water
management practices to conserve natural
resources, prevent soil degradation, and enhance
agricultural resilience to climate change.
o Promote efficient water use through the adoption
of drip irrigation, rainwater harvesting, and
water-saving technologies to address water scarcity
challenges in agriculture.
 Empowering Farmers:
o Strengthen farmers' organizations, cooperatives, and
producer groups to enable collective bargaining,
access to markets, and participation in decision-
making processes.
 Ensuring Social Protection:
o Expand social safety nets and insurance schemes to
provide income and livelihood support to vulnerable
farming households during periods of distress, such as
crop failures, natural disasters, or market shocks.
 Improving Governance:
 o Improve governance and regulatory frameworks to
reduce bureaucratic hurdles, corruption, and market
distortions that hinder agricultural development and
farmer welfare.
Conclusion
Prioritising the needs of farmers in India is essential for ensuring
food security, stimulating economic growth, and fostering social
equity in India. By investing in agriculture and ensuring farmers'
welfare, India can build a more resilient and prosperous future for
all its citizens.