Context

Amid the demand for a guarantee of MSP, many commentators fail to understand the true spirit of the demand for a legal MSP.

How demand for legal backing for MSP is misinterpreted?

• Mandatory enforcement of price above MSP: The demand has been interpreted as a mandatory enforcement of trade in agricultural produce, including private trade to be necessarily at or above the MSP for that crop.
• Nationalisation of agricultural trade: Another interpretation is the nationalisation of agricultural trade whereby the government promises to buy all the crop produced at MSP.
• Commentators have been using these two interpretations to project large estimates of government expenditure needed to implement.
• They fail to understand the true spirit of the demand for a legal MSP.

Current nature of MSP

• It is not an income support program: By definition MSP is not an income support programme.
• Intervention to stabilise prices: It is designed to be used as government intervention to stabilise prices, to provide remunerative prices to farmers.
• Public procurement program to meet requirements of NFSA: Currently, it is no more than a public procurement programme to meet the requirements of the National Food Security Act (NFSA).
• Only rice and wheat procured: As against the official announcement of MSP for 23 crops, only two, rice and wheat are procured as these are distributed in NFSA.

Larger context of demand for legal backing to MSP

• Droughts and declining commodity prices: In addition to the twin droughts of 2014 and 2015, farmers have also suffered from declining commodity prices since 2014.
• Impact of demonetisation and GST: The twin shocks of demonetisation and hurried rollout of GST, crippled the rural economy, primarily the non-farm sector, but also agriculture.
• Impact of pandemic: The slowdown in the economy after 2016-17 followed by the pandemic has ensured that the situation remains precarious for majority of the farmers.
• Increased input prices: Higher input prices for diesel, electricity and fertilisers have only contributed to the misery.
• In this context, the demand for ensuring remunerative prices is only a reiteration of the promise by successive governments to implement the Swaminathan Committee report.

What should be the true nature of MSP?

• Intervene to stabilise price: A true MSP requires the government to intervene whenever market prices fall below a pre-defined level, primarily in case of excess production and oversupply or a price collapse due to international factors.
• It does not require the government to buy all the produce but only to the extent that creates upward price pressures in the market to stabilise prices at the MSP level.

Way forward

• Mechanism for market intervention: What is needed is a mechanism to monitor the prices.
• While such a mechanism already exists, a policy for requisite market intervention is missing.
• Use MSP as incentive to achieve nutritional security and reduce import dependence: MSP can also be an incentive price for many of the crops which are desirable for nutritional security such as coarse cereals, and also for pulses and edible oils for which we are dependent on imports. 
• Include pulses, edible oil and millets in PDS: Despite repeated demands from food activists, there has not been any progress in including pulses, edible oils and millets in PDS.
• A guaranteed MSP then is nothing more than restoring the true spirit and functions of MSP, applicable to a broad range of crops and all sections of farmers.

Issues

• The current MSP regime has no relation to prices in the domestic market.
• Its sole raison d’être is to fulfil the requirements of NFSA making it effectively a procurement price rather than an MSP. 
• It is basically a lack of understanding of what agriculture needs and above all a lack of political commitment to ensure remunerative prices to farmers.

Conclusion

An efficient and functional MSP is certainly the least that the government can do to protect a sector which remains the largest employer and a refuge for the poor and vulnerable as was seen during the pandemic.

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