Legalization of MSP

Published on 11 Mar 2025

In February 2024, farmers from Punjab, Haryana, and Uttar Pradesh were marching towards Delhi in the 'Delhi Chalo' protest, demanding legal guarantees for the MSP. In 2020, farmers protested against three farm laws passed by the government, at Delhi borders, leading to their repeal in 2021.

Issues in the legalization of MSP

• Budgetary Strain:

• The combined value of crops covered under MSP could exceed a staggering ₹11 lakh crore. This represents a significant portion of India's total budgeted expenditure for 2023-24, which stood around ₹45 lakh crore.

• Allocating such a large sum solely for government procurement of crops appears unrealistic, especially considering that farmers retain around 25% of their produce for personal and livestock consumption.

• Implementation Complexity: India's diverse agricultural landscape, encompassing a vast array of crops, poses a logistical and administrative challenge to creating effective legal provisions for MSP. 

• Market Demand Mismatch: Lack of effective mechanisms for farmers to anticipate market demand often leads to misalignment between planting decisions and actual market needs. 

• Example: In the 2016 kharif season, government efforts to encourage farmers to switch from cotton to pulses resulted in excess supply of pulses and a steep fall in their prices, while those who continued with cotton cultivation benefitted from higher market prices.

• Distorted Market Dynamics: Critics argue that a poorly implemented MSP system could distort market dynamics and hinder agricultural market efficiency.

• Example: It can disincentivize private investment and innovation in agriculture due to guaranteed prices.

• Limitations of the APMC Act:

• The APMC Act restricts farmers to selling their produce only at designated mandis, leaving them vulnerable to middlemen and vested interests.

• This also limits farmers' access to cost-efficient technologies and information systems that could improve their bargaining power and competitiveness compared to farmers in other countries.

• Only 15% of APMC markets have cold storage facilities.

• Weighing facilities are available in a mere 49% of the markets.

• This highlights the limitations of the current infrastructure and challenges in reaching all farmers effectively.

Way forward for sustainable MSP system in India

• Implementing the Swaminathan Commission Recommendations:

• C2+50% Formula: This formula, proposed by the Swaminathan Commission, recommends setting MSP at least 50% higher than the weighted average cost of production (C2) which includes imputed cost of capital and rent on land. 

• This would ensure a guaranteed 50% return for farmers. Establishing a legal guarantee for MSP based on this formula could provide greater income security for farmers.

• Ashok Dalwai Committee Recommendations:

• Model Agricultural Land Leasing Act, 2016: Implementing this act, as suggested by the Dalwai Committee, could offer some relief to tenant farmers. 

• The act aims to protect them from eviction and regulate rent, addressing issues related to exploitative contracts and land ownership. 

• Comprehensive National Agriculture Policy: A policy that encompasses effective and efficient procurement policies for all grains, vegetables, and fruits. 

• This policy should consider the "FIVE Cs": Conservation of water and soil, Climate change resistance, Cultivation, Consumption, Commercial viability.

• Amending the APMC Act:

• State-Level Reforms: States should amend their APMC Acts to align with the Model APMC Act and promptly notify the necessary rules. 

• Empowering Farmers: To maximize the benefits of these reforms, states should encourage the formation of Self-Help Groups, Farmers/Commodity Interest Groups, and similar organizations. 

• Assured Price to Farmers (APF): Combine MSP with a profit margin to ensure farmers receive a fair return and set MSP based on production costs and market conditions.

•  Comprehensive Cost Inclusion: Calculate MSP based on all production costs, including labour, inputs, and capital.

• Utilizing Technology: Employ technology to enhance market transparency and decision-making.

• Example: Karnataka's example, where uniting all mandis on an electronic platform reportedly improved farmers' selling prices by 38%, demonstrates the potential of technology for market efficiency. 

Tags:
Economy

Keywords:
Agriculture Minimum support price legalization of MSP APMC

Syllabus:
General Studies Paper 3

Topics:
Indian Economy