The Author, Niharika Kalra is a 2nd Year, B.Com.LLB student of University Institute of Legal Studies, Panjab University. She is currently interning with LatestLaws.com.
It was in the early 1960s when India was facing an enormous shortage of food grains, that new agricultural policies were born marking the start of the Green Revolution.
In 1964, the Government had set up the Food Corporation of India (FCI) to procure foodgrains from farmers at remunerative prices, and through the public distribution system distribute them to consumers and also maintain buffer stock for food security.
In order to buy foodgrains, there had to be a policy to regulate the pricing. In 1965, an Agricultural Prices Commission was set up to advise on the pricing policy for agricultural commodities and its impact on the economy.
It was then that the Price Support Policy of the Government came in, providing a foolproof solution to agricultural producers against a sharp fall in farm prices. The minimum guaranteed prices are fixed to set a floor below which market prices cannot fall. If no one else buys it, the government will buy the stock at this minimum guaranteed prices. This is what came to be known as the minimum support price or MSP.
This policy took its final shape around 1974-76. The MSP serves as a long-term guarantee for investment decisions of producers. It came with an assurance that prices would not fall below a fixed level, even in case of a bumper crop.
MSP was introduced to provide financial stability to the agricultural system and encourage production.
MSPs are announced for 23 commodities on the basis of recommendations of the Commission for Agricultural Costs and Prices (CACP) by the Government of India at the beginning of the sowing season.
Why did MSP gain such importance in agricultural policies?
The major objectives of MSP are to support farmers from distress sales at severely low prices and to procure foodgrains for public distribution.
Ideally, the market price will always remain higher than the MSP fixed by the government. With government guarantee, the farmer can always sell at the MSP if he/she cannot procure a better price elsewhere.
Thus, MSP becomes a very important benchmark for the producer because it helps him estimate the revenue, aiding the financial planning and also influencing borrowing decisions if any.
Therefore, the demand to raise MSP has been one of the major points in most farmer protests given that it directly dictates the farmer’s income.
While there are many other non-price factors which have an long-term impact on agricultural development such as technology, irrigation, development of infrastructure, market reforms, better procurement, and storage facilities and institutions, MSP has always remained contentious as it is directly linked with the farmer’s pocket and is tangible.
Current Status of MSP: Pros, Cons & what can be done better?
The MSP just saw a 50% hike much to the relief of many farmers. The trouble with MSP is that while it is touted as an all-important factor for farmers promising an instant rise in their income and stability, it also has many drawbacks in implementation. The most important goal of any long-term agriculture development policy in India should be to promote agriculture growth along with regional equity and natural resource sustainability. The regional equity and resource sustainability is a precondition for achieving nutritional security and balanced production. However, the system of the MSP has failed to achieve this objective of sustainability.
In order to make MSP relevant and efficient, the government have to revamp the policy.
- MSP is announced for 24 commodities after which starts the operational part of procurement of the commodities. The procurements are made at the MSP price and government has to ensure that farmers do not get the price below MSP. However, it has been found that there exists no mechanism on the ground that ensures that farmers are paid the MSP. It has been noticed that many times farmers are forced to make distress sale at a price below the MSP.
- For instance, it does not matter for producer of pulses or oilseeds anywhere in the country or for paddy and wheat farmers in Chhattisgarh, Orissa, Assam, Bihar and a majority of the other states whether the CACP recommends Rs 500 or Rs 5,000 per quintal for their crop as there is no enforcement of the MSP in these cases. In these cases, the long exercises and recommendations made by the CACP remain only on paper.
- To make MSPs relevant to the country’s present situation requires changes in the criterion used by the CACP to arrive at MSPs and ensuring that MSPs are effectively implemented where they are meant to be implemented.
- The CACP must consider both Demand and Supply factors while deciding the MSP. For instance, CACP main criteria in deciding the MSP is to take into account cost of production. The CACP completely ignores the demand side factors. When the demand for commodities are falling, and if at that time MSP is kept high, then it will lead to excess supplies and increase in government buffers stock which will be kept idle and will get wasted. In all such situation, it is important that MSP should be derived based on demand and supply factors.
- Due to distorted MSP, inefficiency builds in into the system, and the farmers do not bother if growing a particular commodity on land that is unsuitable for its production will raise its cost and make land non-productive in the long run.
For instance, this is exactly what has happened in the case of extension of rice cultivation to the semi-arid regions and sandy soils in states like Punjab and Haryana, which is creating a host of environmental and natural resources problems in addition.
- Fixing MSP for political reasons and under the pressure of the farmer leaders leads to a total neglect of societies preference for commodities. It also leads to serious imbalances where what is being demanded is not being produced and what is not being demanded is being produced in the economy. It would also require the government to buy produce all the time and everywhere if the MSP ignores demand-side factors.
- Everyone in India including political leaders are convinced that the agrarian crisis and farmer distress are mainly because of low levels of MSP. The quick solution reached by them is therefore to increase the MSP. However, a comprehensive analysis and correct understanding of agricultural situation reveal that the problem lies elsewhere.
- The Indian agriculture suffers from twin problems of lack of viability of practising agriculture due to the small and marginal size of land holdings and high volatility in farm sector due to monsoon failures and lack of irrigation.
- The small size of land holdings, low productivity, increasing production costs, shrinking employment opportunities outside agriculture, and declining growth rate in agriculture are all major serious issues which cannot be simply resolved by increasing the MSP.
- For instance, according to the 70th round survey of the NSSO (2014), the estimated number of agricultural households (AHHs) in India is 90.2 million, who constitute 57.8% of the total estimated rural households (156.14 million). Clearly, 42.2% of rural households (RHHs) are without any agricultural land.
Among the AHHs, 2.65% have only 0.01 hectares (ha) of land and are simply notional AHHs. Another 31.89% AHHs have land between 0.1 ha and 0.4 ha, and 34.9% have land between 0.41 ha and 1 ha. These three categories of AHHs account for 69.44% and are classified as marginal farmers. If we add small farmers (17.14%), the proportion of marginal and small farmers comes out to be 86.58% of the total.
The average size of the marginal holdings is only 0.41 ha (one acre), and that of smallholdings is 1.4 ha, much lower than the upper size-class limit of 2 ha. Given their economically unviable holding size, and small quantities of marketable surplus, there will be a marginal increase in the total net income of these farmers from agriculture even if they are given the higher MSP of over and above 50% of crops of production.
The relative economic conditions of the agricultural workforce (cultivators as well as labourers) have gone poorer vis-à-vis their counterparts in the non-agricultural sectors. Taking into account a large number of underemployed and those disguised unemployed workers in agriculture, MSP alone is not going to address the agrarian crisis and farmers’ distress, especially in the case of marginal and small AHHs, who account for 87% of AHHs.
Pros of MSP:
It is a one-price policy guarenteeing assured pay, which directly influences farmer’s pockets. (Prices for all crops from 2009 to 2018.)
It considers various factors when fixing the price and does not leave the farmer at the mercy of the market.
Procurement for public distribution system and buffer stock for food security come from this policy.
It has a heavy influence on market prices and also helps the farmer grow production and match up with other sectors in terms of income.
Cons of MSP & what can be done better:
Hiking the MSP without investing in infrastructure is just a short-term play. While it does deliver immediate results, long-term developments to back-it up are also important.
MSP covers numerous costs such as the cost of sowing (A2) and labour (FL). These considerations are controversial with suggestions that it should be based on comprehensive costs (C2), which also include land rent costs.
Too much of a hike on MSP either paves way for inflationary effects on the economy, with a rise in prices of foodgrains and vegetables, or loss to government treasury if it decides to sell at a lower price as compared to the higher MSP it bought at.
MSP is a nationwide single price policy. However, the actual costing for production varies from place to place, more severely so in areas lacking irrigation facilities and infrastructure. Thus, not all farmers have equal benefits.
Market prices should ideally never be below MSP. If they fall below the MSP, in concept, the farmer can always sell it to the government, which will then resell it or store as buffer. However, practically this does not always happen. The market value in many cases does fall below MSP due to lack of infrastructure and procurement apparatus on the government’s end.
In a programme on June 23 in Lucknow, chief minister of Uttar Pradesh Adityanath was extolling the virtues of his government and boasting about how much his government had done for farmers. Anil Mishra, a member of the audience and a farmer associated with Ram Manohar Lohia Kisan Sabha from neighbouring Unnao District who had been invited by the Department of Horticulture to the meeting, stood up and challenged him. His grievance pertained to mango farmers who, he claimed, were getting a price of only Rs 300 a box compared to Rs 800 last year. He demanded that the government pay at least the cost of irrigation for mango farmers who were suffering losses. He was whisked out of the meeting and then had to spend three hours at the Vibhuti Khand Police Station in Gomti Nagar, Lucknow.
This incident highlights two things – the uncertainty famers face with regard to the price of their produce, and the government’s inability to be held accountable.
On July 5, 2018, the current Bharatiya Janata Party government at the Centre approved a hike in the minimum support price (MSP) of some kharif crops. This announcement comes with the backdrop of the general elections which are scheduled to take place next year, as well as elections before that in some states like Rajasthan, Madhya Pradesh, Chhattisgarh and Mizoram. The BJP hailed this move by saying that the Narendra Modi government actually delivered on the promises made by and that ‘achhe din’ are just around the corner.
But almost all major farmers’ organisations termed this move as yet another ‘jumla’ of the ruling government. The criticism was mainly centred around the method of calculating the MSP which was used by the government. By adopting a lower cost as the base, the government has given the impression of having provided an MSP which is 50% higher than the cost, while in reality it isn’t.
However, only 6% of farmers in India actually sell their crops at the MSP and prevailing market prices are often found to be lower. This defeats the very purpose of the MSP, as it is meant to ensure that farmers are not made to sell at a lower price.
The procurement mechanism of the targeted public distribution system is riddled with difficulties. There is a huge shortage of procurement centres in various parts of country, due to which farmers are forced to sell their produce to traders who exploit the haplessness of farmers and procure at prices which are lower than the MSP. These traders in turn sell this produce at the MSP to the procurement centres, thereby earning a huge profit at the cost of farmers.
It is pertinent to note that in some instances, officers at procurement centres have to be bribed by farmers just to make sure their produce is purchased at the MSP. Apart from these implementation difficulties, the planning of the scheme is also equally faulty. It has been noticed that a majority of the produce is procured from states like Punjab and Haryana, where there exists a robust procurement mechanism, but the northeastern states are completely ignored.
The main body responsible for procuring produce at the MSP all over the country is the Food Corporation of India (FCI), which was established under the Food Corporation Act, 1964. One of the objectives of FCI is to implement ‘Effective price support operations for safeguarding the interests of the farmers’. According to the Agricultural Produce Marketing Committee Act, 2006, it is a duty of the Agricultural Produce Marketing Committee to prevent the sale of produce at below the MSP. Along with that, the FCI is obligated to implement open ended procurement of produce at the MSP.
These provisions have placed enough obligations on government agencies to ensure that no farmer has to sell her produce at a price below the MSP. But without a simultaneous provision conferring a right to sell at MSP on farmers, there is no mechanism in place to enforce the obligations stated under the Act. Without enforcement mechanisms, the obligations are merely toothless directives.
This situation can only be compared to one: if our constitution had a whole chapter of fundamental rights, without Article 32 – which gives individuals the right to constitutional remedy if their fundamental rights are violated. Dr B.R. Ambedkar described this provision as the heart of the constitution.
The demand for the MSP to have legal backing is a longstanding one. However, no steps have been taken by any government in the past, or even the judiciary, to remedy this. This is quite surprising, considering the fact that, post-Maneka Gandhi, the court has mentioned that the right to life and liberty enshrined in Article 21 of the constitution means more than merely an animalistic existence. It includes the right to live with human dignity and bare necessities like adequate nutrition, clothing, shelter, facilities for reading and writing, etc. Also, the jurisprudence relating to Article 21 has shown that the court has not hesitated while recognising new rights under Article 21, according to changing political, social and economic situations. It has even made provisions under the ‘Directive Principles’: under Article 39(a), the state has been directed to provide adequate means of livelihood to all its citizens, and under Article 39(b) and (c) the state is mandated to ensure equality of wealth and welfare. According to Articles 46 and 47, the state is supposed to protect the economic interests of weaker sections of society and strive to improve health and nutrition of its citizens. The state is also supposed to organise and improve the condition of agriculture and animal husbandry in India.
Amongst the Directive Principles mentioned above, the right to adequate means of livelihood and remuneration has already been read into Article 21, as early as 1986. It has also been recognised that Article 21 imposes a positive obligation on the state and not just a negative obligation, meaning that the state is also mandated to strive and protect the rights under Article 21, and not just refrain from infringing upon them.
The question of MSP is a matter of life and death for most farmers in India. The denial of MSP has been cited as a contributing factor to farmer suicides. Without legal protection from the government, the power to decide the prices of crops is transferred from the state to the open market. In this process, the local traders and middlemen earn supernatural profits at the cost of farmers. And by not providing legal protection to MSP for farmers, the state is endangering the fundamental rights of its citizens, and isn’t following the mandate given to it by the constitution.
The opportune time for making the MSP a legal right has long passed, but better late than never. The Committee for Agricultural Cost and Prices has recently in its report made a recommendation for making the MSP a right. Raju Shetty of the Swabhimani Shetkari Saghtana will table two ‘Kisan Mukti Bills’ in Lok Sabha today. One of those Bills pertains to guaranteeing farmers a remunerative MSP for all agricultural commodities. The Bills have the backing of 21 political parties. Also, a divisional bench of the Uttarkhand high court has recently in unequivocal terms recognised the need to give the MSP legal backing.
An Alternative to MSP: Price Deficiency Payment System
The increase in the MSP irrespective of cost consideration is a second-best alternative to make farming viable. Moreover, to make MSPs effective to the country’s present situation requires changes in the criterion used by the CACP to arrive at MSPs.
The CACP mainly considers the cost of production as the main criterion to decide the level of MSPs. This is justified when there is a situation of scarcity and increasing the food supply is the primary objective. However, the country is now facing a situation where the demand is falling short of supply, and there is an increase in surplus. In the present context, it is highly recommended that the demand side factors should get primacy in determining the MSP.
There are several other problems related to cost of production used as a basis for MSPs. Wastefulness gets in-built into production process, and farmers do not have to bother if growing a particular crop on land unsuitable for its cultivation would raise cost of production
Second, fixing MSPs based on the cost of production totally neglects changes in income and society’s preference for a commodity which adversely impacts the functioning of the markets and price discovery. It also causes serious imbalances in what is being produced and what is required or demanded.
Rather than debating on the cost criterion, it is much important to ensure that the farmers do not undertake distress sale of their produce. This would require some mechanism on the ground to see that farmers are not forced to sell their produce below the MSP.
However, there exists no such mechanism on the ground except for few crops like rice and wheat in some states and in the case of sugarcane and cotton in states of Maharashtra and UP. Unfortunately, nobody seems to have raised this issue in public that implementation of the MSP is more important.
