Farmers demands regarding MSP

• Recently, farmers have presented a 12-point agenda to the government, of which legalizing MSP is one of the demands.

Minimum Support Price (MSP)

• The Minimum Support Price (MSP) is a minimum price for any crop at which the government purchases it from farmers and is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers. 
• It is declared before the sowing season for farmers.
• Commission for Agricultural Costs & Prices(CACP) recommends MSP for 22 crops, but the final decision is taken by Cabinet Committee on Economic Affairs(CCEA).

22 Crops:

• 14 Kharif Crops
• 6 Rabi Crops
• 2 Commercial Crops
• Though, MSP is declared for 22 crops, govt. procurement is biased in favour of a few crops only :

• Wheat & Rice by Food Corporation of India(FCI)
• Cotton by Cotton Corporation of India(CCI)
• Pulse & Oilseeds by National Agricultural Cooperative Marketing Federation of India(NAFED).
• MSP does not have any legal basis but has been implemented since the 1960s with the following objectives:

• Ensuring food security;
• Protecting farmers from price drop; and
• Incentivise desirable cropping patterns

3 Methods for Calculating Cost of Production

• A2(Actual Cost) : Covers all cash expenses and in-kind expenses by farmers on seeds, fertilizers, chemicals, hired labour, fuel, irrigation etc.
• A2 + FL : Actual Cost plus imputed value of unpaid family labour.
• C2 : It includes A2+FL, along with revenue foregone on land(rent) and capital(interest).
• Farmers are demanding that the govt. calculates their production cost as per C2 formula, but govt. uses A2+FL formula.

Problems with MSP Regime

• Lack of legal guarantee: Farmers cannot demand MSP as a matter of right. The only crop where MSP payment has some statutory element is sugarcane.
• Issues with the cost of production: Farm activists say that the 1.5-times MSP formula— originally recommended by the National Commission for Farmers headed by agricultural scientist M S Swaminathan should have been applied to the C2 costs.
• Highly unequal across states: In 2019-20 roughly 90% of the rice produced in Punjab, and Haryana was procured by the government whereas roughly 1% was procured in Karnataka and Gujarat.
• Ineffective coverage: Though government announces MSP for 22 crops only.
• Ineffectively Implemented: The Shanta Kumar Committee, in its report in 2015, stated that only 6% of farmers receive MSP, which directly means that 94% of the farmers in the country are deprived of the benefit of the MSP.

Issues with Legalizing MSP

• High subsidy burden for the government.
• Problems with other countries in the WTO, as there is no permanent solution to this matter.
• Market distortion as the natural cycle of demand-supply would be disturbed.

Practice Questions for Prelims

Consider the following statements regarding MSP :
1. It is declared by CACP for 22 crops.
2. Minimum MSP for any crop is 50% more than its cost of production.
3. The cost of production is calculated by C2 formula, as per the recommendations of Swaminathan Commission.

Select the correct option from below:
a) Only one statement is correct
b) Only two statements are correct
c) All three statements are correct
d) None of the above statement is correct

Ans. a)

Mains Practice Question

Discuss the issues with the current MSP regime in India, along with some solutions. (Answer in 150 words)

Chetan Bharat Learning is the best institute in Chandigarh for UPSC IAS ,PCS preparation. To know more about Chetan Bharat Learning’s Online & Classroom Courses, click on the following links: