• The farmers of Punjab are currently leading a protest, demanding a law from the Centre to ensure guaranteed Minimum Support Price (MSP) on 23 crops.

Background

• Farming in India is becoming less profitable due to rising production costs, stagnant yields resulting from soil fertility loss, insufficient irrigation in extensive regions, particularly the central plateau, and other factors, including the government’s consumer-centric approach.
• The contribution of the agriculture sector to India's GDP in 2020-21 was 20.3%, 19.0% in 2021-22, and 18.3% in 2022-23. The agriculture sector's share of India's GDP is around 18-19%.

Need of MSP

• Farmers face significant challenges in negotiating remunerative prices for their crops, particularly when dealing with traders.
• Factors such as market fluctuations due to overproduction and farmers’ necessity to sell crops to meet household expenses play a pivotal role in determining the prices they receive.
• The Shanta Kumar Committee (2015) report, revealed that only 6% of the MSP was actually received by farmers.

Minimum Support Price (MSP) 

• MSP is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices.

Current Mechanism of MSP

• In an effort to assist farmers in securing fair prices for their produce, the government of India implemented the Minimum Support Price (MSP).
• The determination of MSP falls under the purview of the Commission for Agricultural Costs and Prices (CACP), initially established in 1965 as the Agricultural Prices Commission and later renamed in 1985.
• CACP considers various factors such as cost of production, demand and supply, market price trends, inter-crop price parity, etc in determination of MSP.

Kinds of Production Cost projected by CACP

• For every crop, CACP projects three kinds of production cost at state and all-India average levels
• A2’: Covers all paid-out costs directly incurred by the farmer in cash and kind on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.
• ‘A2+FL’: Includes A2 plus an imputed value of unpaid family labour (FL).
• ‘C2’: more comprehensive cost that factors in rentals and interest for owned land and fixed capital assets, on top of A2+FL.
• CACP considers both  A2+FL and C2 costs while recommending MSP and for cost for return it considers only A2+FL.
• Operating within the Ministry of Agriculture and Farmers Welfare, the CACP forwards its recommendations to the Cabinet Committee on Economic Affairs (CCEA), presided over by the Prime Minister of India, which ultimately makes the final decisions regarding MSP levels.
• As of now, CACP recommends MSPs for 22 commodities which include 14 crops of the kharif season, 6 rabi crops and 2 other commercial crops.:-

• Union Ministry of Tribal Affairs (MoTA), under the scheme “Mechanism for Marketing of Minor Forest Produce through Minimum Support Price and Development of Value Chain for MFP”, provides MSP for 87 minor forest produce (MFP). This excludes tendu leaves, which are procured by the forest department in most of the states and sold to traders.  

Feasibility Legal guarantee of MSP 

• A legal guarantee means that there will be legal provisions for farmers to get the MSP for all 23 crops when they sell them.
• The combined value of all crops covered under MSP, produced in 2020, was Rs 10 lakh crore. India’s total budgeted expenditure in 2023-24 is around 45 lakh crores; so, it is practically impossible to spend 10 lakh crores only to buy crops from farmers.
• This will have a huge impact on the exchequer and other welfare and development activities won’t be possible to carry out.

Other Options

• Government could legally obligate private parties to buy the products at a price at or above MSP and to set up systems and processes to monitor and take punitive measures if this is violated.
• As Government has placed systems in place to ensure that the sugarcane factories procure sugarcane from farmers at prices equal to or above the FRP announced by CCEA from time to time. Similar measures can be taken for other crops covered under MSP as well.
• Government could provide direct compensation to farmers if they are compelled to sell their produce below MSP and the difference between the MSP and the price the farmers actually receive could be reimbursed.

Major Government Initiatives for Agriculture