Farmers are out on the streets again, seeking – among other things – revision and legalisation of minimum support price (MSP) for crops. Contrary to what the leaders may want to believe, MSP is neither the cause, nor the remedy to agrarian crisis. It is time to look beyond.
Every crop season, the Union Cabinet fixes MSP for 22 mandated agricultural crops (and Fair and Remunerative Price, or FRP, for sugarcane) on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
Being limited to 23 crops (again, mainly paddy and wheat), less than 12 per cent famers across India benefit from the system.
PACS procurement
Also, not all states conform to the MSP; agriculture is included in State List under Article 246 of the Constitution. In Bihar, where the Agricultural Produce Marketing Committee (APMC) Act was repealed in 2006, farmers sell produce to the state-run Primary Agriculture Credit Society (PACS), which procures at MSP. But procurement by PACS has been extremely low there, and farmers approach commission agents where the major share of crop goes.
Therefore, it is not uncommon to see such farmers – and some agents – travel far, like Punjab, to sell wheat and paddy in the mandis. The system is thus creating regional imparity.
Food subsidy is a means to protect farmers against fall in market prices and provide consumers with affordable foodgrain through Public Distribution System (PDS). It comprises a major part of the total expenditure by the Department of Food and Public Distribution, where around 96 per cent was allotted for this by the department in 2024. The subsidies constitute about oneninth of India’s total Budget expenditure of Rs 45 lakh crore for the current financial year, ending March 31.
MSP calculation
Now, the protesting union leaders are claiming compensation at the rate of C2+50, saying that the Government is giving them a price calculated on A2+FL, and adding 1.5 to it.
Here, A2 stands for input costs in production of a particular crop, like seeds, fertilisers, pesticides, leasedin land, hired labour, machinery, and fuel. A2+FL means adding the value of family labour to input costs. C2 represents comprehensive cost, which is A2+FL added to imputed rental value of owned land, plus interest on fixed capital, rent paid for leased-in land.
Thus, the demand is to revise MSP and offer C2 with 50 per cent added over it as profit against expenses. But land rentals vary from state to state, rendering it almost impossible to assess the actual impact of any MSP revisions after accounting for C2+50. Additionally, revising the MSP equation and making it mandatory may cost the exchequer over Rs 10 lakh crore more.
Harming the soil
MSP is among factors for the distortion of cropping patterns – thus stubble burning. Farmers generally prefer to grow crops that will fetch higher MSP, thus ignoring rotation and harming the soil.
Then there is also the fear of MSP fuelling inflation. Last year, key Central Government ministries and departments conveyed apprehensions to the Union Ministry of Agriculture and Farmers’ Welfare on its proposal to hike MSP for kharif crops in the 2023-24 season.
Agriculture has been ailing. Though it employs more than half of the workforce, average monthly income of farmers is pegged around Rs 10,300. Small and marginal land (less than 2 hectare) holding farmers, however, cultivate around 44 per cent of the area, and produce about 60 pc of the total foodgrain production, accounting for 49 pc of rice and 40 pc of wheat. They lack access to technology, quality inputs at reasonable prices, farming machinery, and most importantly, markets.
Thus, it is time for farmer leaders to go beyond a piecemeal look at issues.
