Home / News / India /  MSP is no silver bullet to boost farmers' income

Even as the central government has announced its withdrawal of the three farm laws, farmer unions have persisted in their demand to make the minimum support price (MSP) a legal entitlement. The MSP is the minimum price ‘assured’ by the Centre to farmers for 23 crops. However, there is no legal mandate for the Centre to buy whatever a farmer wants to sell. Thus, only paddy and wheat are procured by government agencies in sufficiently large quantities, which feeds into the Public Distribution System (PDS) for foodgrains.

Even if it becomes a legal right, the MSP, in its current form, is unlikely to resolve the woes of Indian farmers across the country. One issue is its quantum of price increase. Over the past 10 years, the compounded annual increase in MSP for most major crops, especially wheat and paddy, has barely matched the rate of general increase in prices.

The second issue is how MSP is calculated. The National Commission on Farmers, headed by eminent agricultural scientist Dr MS Swaminathan, had in 2006 recommended the MSP should be at least 50% more than the weighted average cost of production. At present, this cost of production includes two broad heads: A2 (all paid-out costs for farm inputs) and FL (estimated value of unpaid family labour). Thus, the MSP is determined at 1.5 times A2+FL. Protesting farmers want the 50% markup on comprehensive cost of production (C2): besides A2 and FL, this includes rent and interest foregone on the land and machinery owned. This would mean a 34% increase in the latest MSP for paddy and 13% increase for wheat.

Cost Variance

Further, there are large disparities among states in terms of cost of production of a crop, due to factors such as land, labour costs and scale of production. The projected A2+FL for paddy ranges from 759 a quintal in Punjab to 2,405 in Maharashtra for the 2021-22 kharif marketing season. However, a single MSP is declared for the entire country based on a weighted average. Thus, farmers in some states benefit far more than others from MSP, and some may even lose out if they depend on this mechanism.

In Punjab, for instance, the paddy MSP is a 156% mark-up over its A2+FL cost in 2021-22 kharif. Of the 19 paddy-producing states, Punjab is one of the 10 states where the 50% mark-up is met. In Maharashtra, the MSP for paddy is 19% below A2+FL cost. On C2 levels, the 50% mark-up is met for only one state in paddy, Punjab. Similar disparities are observed for wheat: the 50% mark-up on A2+FL is met for nine of 14 states, and on C2 for none.

Top Heavy

Further, there are disparities in terms of quantum of government procurement as well, but this is in line with production. The bulk of foodgrain procurement pegged to MSP happens from a few states such as Uttar Pradesh, Punjab and Haryana, which have traditionally been large food-producing states. About 80% of such wheat procured in 2020-21 is from Uttar Pradesh, Madhya Pradesh, Punjab and Haryana.

In paddy, West Bengal, Uttar Pradesh and Punjab accounted for over 38% of the total crop procured in 2020-21. These states also account for 37% of the rice production. In Punjab, Haryana and Western Uttar Pradesh, which are unsuitable for paddy cultivation given its considerable water requirements, the assured procurement and sustained income from paddy has led to an increase in their share in total cropped area over the years. This has come at the expense of pulses, maize, oilseeds and coarse cereals.

Farmer Beneficiaries

Even in terms of the number of farmer beneficiaries, there are significant differences among states. For paddy, for some states such as Telangana and Chhattisgarh, a large number of farmers benefit, even though they are not leaders in procurement. This suggests smaller quantities are procured from farmers in these states. For wheat, the largest number of beneficiaries are also from states where the quantity of procurement is the largest.

Considering that the bulk of the procurement happens from a few states, and in largely two crops, a guaranteed MSP would have a limited effect in improving the lot of farmers across India. Also, procurement for all 23 crops will not be feasible as the procurement and warehousing capabilities are largely restricted to rice, wheat and, to a certain extent, pulses. More broad-based measures such as better access to inputs, crop insurance and agro-advisory would be far more beneficial to farmers. The MSP is no silver bullet to resolve India’s farm crisis.

(www.howindialives.com is a database and search engine for public data)


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