Is There A Need For Change In Minimum Support Price System In India?

To safeguard the interests of farmers and minimize their losses in case of a fall in crop prices, the Minimum Support Price (MSP) system in India was introduced. The MSP is based on various factors such as production cost, demand and supply position, market prices, variable costs, and international market prices. However, the policy needs to be updated to benefit farmers better. In this article, we will explore the basics of the current MSP system and the ways how it can be improved so that farmers’ interests can be safeguarded to a certain extent.

MSP: An Overview

Here’s an overview of the current MSP system and the suggestive changes to make it even better:

• State-Wise Crops Cost Variation

The crop cultivation cost varies from state to state in India. The Minimum Support Price for a crop is established after the Commission for Agricultural Costs and Prices (CACP) aggregates the cost price of several regions for that crop. However, this method fails to consider the actual cultivation cost in a particular region. For instance, the total cost of paddy cultivation over a hectare is Rs 90,303 in Andhra Pradesh, Rs 78,429 in Uttar Pradesh, and Rs 67,073 in Punjab. The MSP, in this case, is fixed based on the average cost, which is unfair to farmers in regions where the actual cost of cultivation is higher.

• Agricultural Wage Rate And MSP

State-to-state differences in the agriculture wage rate are significant. However, the average agricultural pay rate of just Rs 190.78 was added when the CACP established the Minimum Support Price of Kharif crops in the calendar year 2019–20. This addition is insignificant when compared to the actual cost of cultivation, which includes labour expenses. The MSP must reflect the actual cost of production, including labour expenses, to benefit farmers.

• State Government’s Role In MSP

According to the Constitution of India, agriculture is a matter of the state list. Even state governments have the authority to raise the Minimum Support Price. However, the central government buys crops only at its fixed MSP. If the state government increases the MSP of a crop, which we call bonuses, the central government buys that crop only at its fixed MSP. This policy restricts state governments from supporting farmers and offering better MSP, leading to losses for the state governments and farmers.

• MSP’s Implication On Farmers

The current Minimum Support Price policy fails to protect the interests of farmers. It results in the state governments incurring losses. The policy is also wheat and paddy-dominated, which affects crop diversity and nutrition security. The MSP must be more than just a procurement price. In simple words, it must be an incentive price for farmers to grow crops that are desirable for nutrition security. A step in the right direction to invest is to incentivize the private sector to form efficient value chains on the basis of a cluster approach. A deficiency payments system could be one way to achieve the goal of having agricultural pricing that is both state-supported and partially market-driven. 

Insight 

The Minimum Support Price system in India needs to be revisited to benefit farmers in a better way. The price system must consider the actual cost of cultivation, including labour expenses, and should incentivize farmers to grow crops that are desirable for nutrition security. The policy must also allow state governments to increase the MSP without incurring losses and restricting farmers from receiving better rates. It is time to adopt a policy that reflects the changing dynamics of agriculture and the needs of the farming community.

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