Why a legal guarantee of MSP is fraught with challenges

Why a legal guarantee of MSP is fraught with challenges

On November 19, 2021, Prime Minister Narendra Modi announced the repeal of the three farm laws. Thus ended the thirteen-month long farmers’ agitation on the borders of Delhi.

It took the Government about nine months to take the next step on the promise made to agitating farmers’ unions. It was only on July 12, 2022, that the Union Government set up an expert committee under the chairmanship of former Agriculture Secretary Sanjay Agarwal. The committee has 29 members of which four are Secretaries to the Government of India and four represent the states.

However, Punjab, Haryana and Uttar Pradesh are not represented in the committee. Several economists and experts had opposed the farm laws but none of them was included in the committee.

The MSP Demand

Due to the complexity of the issues involved it is not surprising that the committee has not been able to submit a report. Now that general elections are only about ten weeks away, it is unlikely that the committee will be able to submit even an interim report.

The terms of reference of the committee do not specifically mention legal guarantee for MSP. Instead, it mandates the committee to give suggestions of the following issues relating to MSP:

• Suggestions to make available MSP to farmers of the country by making the system more effective and transparent.
• Suggestions on practicality to give more autonomy to the Commission for Agricultural Costs and Prices (CACP) and measures to make it more scientific.
• To strengthen the Agricultural Marketing System as per the changing requirements of the country to ensure higher value to the farmers through remunerative prices of their produce by taking advantage of the domestic and export opportunities.

On the recommendation of the Commission for Agriculture Costs and Prices (CACP), the Government announced a minimum support price for 22 agricultural crops.

For sugarcane the MSP is called fair and remunerative price (FRP). The primary idea is that farmers growing these crops should be able to realise at least the MSP.

However, the Government procurement at MSP is limited to wheat and rice which is basically required for meeting the commitment under the National Food Security Act 2013.

In addition to wheat and rice, the Government has also been occasionally procuring cotton, mustard, chana, groundnut and some other pulses. But these purchases are sporadic, and the quantity so procured is not distributed through PDS.

Sugarcane is the only crop for which the farmers are assured of MSP across India as the sugar mills are legally required to pay the same. The farmers of other crops are justified in demanding a law which will guarantee them MSP even when they sell to private trade.

Why Legal Guarantee For MSP Is Tough

There are four major difficulties due to which the Governments have been reluctant to a legal guarantee:

• Most of the sale of crops covered under MSP are not sold in the APMCs. So, there is no record of purchaser or seller farmer. For these transactions, it is not possible to guarantee the MSP. Many small and marginal farmers sell their produce to village traders who are outside the ambit of APMCs. This is why Price Deficiency Payment has not made much headway but it needs to be experimented for some crops which are predominantly sold in APMCs
• It is true that the prices are the lowest at the time of peak arrivals and the private trade benefits from this. Therefore, it will oppose any legal guarantee of MSP. It was tried in Maharashtra in 2018 and violators were faced with fines up to Rs 50,000 and imprisonment. The traders boycotted the purchase and the Government had to withdraw the order.
• The Government does not have the physical resources to purchase, store and market large quantities of produce, if it must procure the same due to absence of buyers willing to pay the MSP.
• The purchases by the Government agencies are very expensive as the regulatory orders are often ignored by the private trade but the Government agencies must follow them.

It is true that the farmers face violent fluctuation in prices, especially at the time of peak harvest and market arrivals. The Government’s anti-inflationary policies of low import duties also depress the prices. In addition, the stock limits under the Essential Commodities Act and restrictions under Foreign Trade (Development and Regulation) Act keep the farm gate prices low. Recent decisions on wheat, rice, sugar, onion and kinoo are examples of this.

Fine tuning these policies to protect the MSP for farmers is not that difficult. But keeping food inflation low gets a higher priority.

For wheat, the Governments’ resolve to deliver MSP to even wheat farmers will be tested. If private trade is discouraged to purchase wheat the prices may well fall below MSP. It may help the Government to procure about 35 million tonnes, but it will prevent the farmers from realising a price higher than MSP.

Siraj Hussain is a former Union Agriculture Secretary. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.

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