What is MSP?
The idea of Minimum Support Price (MSP) was first proposed in 1966, inspired by the Green Revolution. The government maintains MSP to regulate key agricultural commodities annually, affecting both Kharif and Rabi crops. MSP acts as an insurance for farmers against price fluctuations, preventing market prices from falling below the fixed level, thus ensuring farmers receive optimal returns.
Importance of Minimum Support Price:
- Fixed Remunerations: Secures farmers against price instability, crop failure, and low production.
- Informed Decisions: MSP announced before sowing helps farmers choose crops for maximal economic benefit.
- Crop Diversification: MSP, starting with wheat in 1966-67, now covers 24 crops, promoting diverse crop cultivation.
- Market Benchmark: MSP sets a price floor, ensuring market prices stay above it, benefiting farmers.
- Targeted Crops: Encourages production of specific, short-supply crops.
- Enhanced Purchasing Power: MSP boosts farmers’ purchasing capacity, addressing farm growth and distress.
Issues associated with MSP
- Non-proportional Increase: MSP increases lag behind the cost of production. CRISIL noted a decline in MSP growth from 2014-17.
- Limited Reach: Benefits do not reach all farmers or crops due to lack of awareness and weak implementation in regions like the north-east.
- Excess Storage: Insufficient storage leads to stockpiling beyond requirements for PDS and Buffer stock.
- Market Distortion: Favors certain crops, distorting the free market.
- Fiscal Burden: Open-ended procurement at MSPs, especially for paddy and wheat, causes fiscal strain.
- Impact on Exports: Higher MSPs make Indian farm goods uncompetitive in international markets.
- Ecological Problems: Encourages non-scientific practices, stressing soil and water, leading to groundwater depletion and soil salinization.
- Crop Diversity: Affects India’s crop diversity, as farmers prefer MSP-supported crops for guaranteed returns.
What needs to be done?
- Alternate Income Models: Explore horticulture and other models to boost farmers’ income beyond MSP.
- Market Intervention Scheme: State governments procure perishable commodities like vegetables under this scheme.
- Price Deficiency Payment (PDP): Recommended by NITI and Economic Survey, PDP pays farmers the difference between the modal rate and MSPs. Examples include Madhya Pradesh’s Bhavantar Bhugtan Yojana and Haryana’s Bhavantar Bharapai Yojana.
- Income Support: Shift from price to income support, integrating subsidies into the PM-KISAN scheme.
- Stock Diversification: Stock a variety of essential food items, not just rice and wheat, to enable effective market intervention and support poor consumers through targeted cash transfers.
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