Is a legally guaranteed Minimum Support Price (MSP) to the farmers an idea whose time has come? Today is the 43rd day of the indefinite fast on this issue by farmer leader Jagjit Singh Dallewal. In the midst of this fast, the Parliamentary Standing Committee on Agriculture, Animal Husbandry and Food Processing (with a majority of MPs from the ruling NDA) has made an unprecedented recommendation of “legally binding” MSP. The Samyukt Kisan Morcha, the largest platform of farmers’ organisations, is likely to announce a major action plan with the same demand as the farmers protesting at Khanauri.
However, the Union government seems to be in no mood to consider this demand. Notwithstanding the PM’s repeated assertion — “MSP hai aur rahega” — the government has not even initiated a dialogue with the protesting farmers. The PM’s “New Year gift” to the farmers — a stale declaration about continuing crop insurance and subsidy on fertilisers — bypasses the MSP. On the contrary, the government’s recently released draft “National Framework for Agricultural Marketing” for the next 10 years does not even mention the MSP, let alone consider legally binding MSP.
In the midst of this deadlock, the farmers continue to suffer. Take Merta, an important major agricultural market in Rajasthan where moong (green gram) is a major kharif crop. The officially declared MSP for moong is Rs 8,682 per quintal. However, during December 2024, the average price was only Rs 6,467. The farmers had to sell at a loss of Rs 2,215 per quintal, below the official MSP. Thus, the total income lost by farmers in this one market for this one crop in one month was over Rs 10 crore. In the market at Jalana, Maharashtra, the average price of jowar (sorghum) received by farmers in December was Rs 2,456 per quintal, Rs 915 below the official MSP of Rs 3,371. Maize price in Madhya Pradesh markets was Rs 1,980, whereas the MSP is Rs 2,225. The average market price for soybeans during the three months between October and December was Rs 4,076 in Maharashtra and Rs 4.148 in Madhya Pradesh, while the MSP was Rs 4,892. Herein lies the MSP story and the rationale for the farmers’ demand.
The government officially declares MSP for 23 crops every year with a fanfare that makes public believe that the government has done a great favour to the farmers. In reality, the government does precious little to ensure that farmers get this “minimum” price. If the government does not take any action when the market price goes below MSP, the words “minimum” and “support” become meaningless. Clearly, an MSP that is not guaranteed is no MSP. The farmers simply want the government to redeem its promissory note.
However, every time the farmers’ demand comes up for discussion, an outcry is orchestrated in the mainstream media, portraying it as unreasonable, operationally impossible or a fiscal disaster. Much of this criticism is either directed at an earlier version of this demand that the farmers’ movement has outgrown or is deliberate scaremongering. The demand for legally binding MSP is logically coherent and operationalisable. What is more, the country can afford it. Here is how it can be done. (We draw upon our article ‘A question of how, not why’, Frontline, March 22, 2024).
Let us begin by getting rid of the idea that legally binding MSP entails that the government must procure the entire produce of all the crops, or at least those crops that sell below the official MSP. This is neither feasible nor necessary. It is also not simply a matter of declaring any trade below MSP as illegal and relying on a punitive mechanism. This has been attempted and such a legal provision by itself does not work.
The basic principle of a legally binding MSP is very simple: Farmers must have a legal entitlement to receive — and the state would have a corresponding legal obligation to ensure to farmers — at least a remunerative MSP for all agricultural produce. The point of this definition is that the state’s obligation is to “ensure” that the farmers receive the statutory price for their produce, not necessarily to “purchase” the farmers’ produce. Correspondingly, the farmers’ entitlement is to “receive” the statutory price, irrespective of who they receive it from.
This principle can be operationalised through three main mechanisms: Expanded procurement, effective market intervention and assured deficit payment. Let us examine these three.
Expansion and fine-tuning of the existing procurement operations would be the first step in this direction. Higher procurement of millets, pulses and oilseeds and expanding their inclusion in the food security schemes would help redress the present imbalance in procurement. The second modality can be smart market interventions. This can take multiple forms: Limited purchase whenever prices start dipping below the MSP, setting the floor price in APMC market auctions to MSP, fine-tuning international trade policy, improving the existing warehouse receipt scheme and strengthening the Farmers Producer Organisations (FPO) to bolster the capacity of small farmers to hold their crops until prices rise. Finally, if these methods do not succeed in keeping the market price at or above the MSP level, the government would be legally required to compensate the farmer for the difference between the MSP and average market price. The legal guarantee of a fallback “price deficiency payment” would ensure that farmers’ entitlement to receiving the MSP becomes a legal right.
Is a legally binding MSP affordable? The scaremongers use a deliberately misleading calculation to flash astronomic figures like Rs. 14 lakh crore and paint the MSP demand as a ridiculous or impossible ask. These calculations assume that the government would need to purchase every single quintal of every crop. As we have seen above, that is not what the farmers’ demand entails. Besides, the actual expenditure incurred by the government would be the difference between the price at which the government purchases and the price at which it sells the crop. Moreover, not all commodities require an intervention; any government intervention is required only when the market price is below the MSP.
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We calculated the total cost of legally binding MSP for the top 15 crops (that account for more than 95 per cent of the value of crops for which MSP is declared) for the marketing year 2022-23. The total deficit for all the crops that sold below the announced MSP came to Rs 26,469 crore. This is for the MSP at the rates announced by the government, using a partial cost [(A2+FL)+ 50 per cent)] concept. We also performed the same calculations considering the MSP demanded by farmers (or Swaminathan MSP), which is based on Comprehensive Cost (C2+50 per cent). The total deficit below the demanded MSP came to Rs 2,00,710 crore.
The actual expenditure would be less than that. Timely market intervention and all other measures mentioned above can ensure that market prices would automatically be close to MSP, and thus the deficits would be significantly lower. At the present rates, a legally guaranteed MSP would cost about 0.5 per cent of the Union budget. Even if we consider the higher rates demanded by the farmers, the total cost would be 4.2 per cent of the Budget, about 0.6 per cent of GDP. Considering the additional purchasing power this would put into the hands of agricultural households in the country setting off positive growth in the economy, this expenditure is eminently justified. It is now a matter of political will.
Kuruganti is co-convenor of Alliance for Sustainable & Holistic Agriculture (ASHA), Vissa is co-founder of Rythu Swarajya Vedika, a farmers’ organisation in Telangana and AP, and Yadav is member, Swaraj India, and national convenor of Bharat Jodo Abhiyaan
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