Earlier this month, farmers were on the streets again to demand a legally-guaranteed minimum support price (MSP). The agitation, centred around politics in Punjab, fizzled out as the unions were riddled with factionalism. However, debates about legally-guaranteed MSP or its impracticality continue to linger. In trying to avoid fomenting differences amongst those seeking such an MSP, many unresolved issues have been brushed under the rug. These, I fear, might become contentious later. Seeking “legally-guaranteed MSP” before developing a broader consensus and thinking through its operating mechanism, is like putting the cart before the bullock.

MSP is a price calculated by the government for different crops, some of which it procures for its food security buffer stocks, redistributing to the poor, mitigating inflation and stabilising prices. In the process, farmers get financial support. Therefore, no government is likely to stop announcing MSP and procuring crops at this support price. Legally guaranteed MSP has largely come to signify the right of the farmer to receive this value.

There is no unanimity amongst those seeking legally-guaranteed MSP on several issues. Though the number of farmers benefiting from MSP has increased by more than 50 per cent in the last 10 years, such farmers remain a small minority. Farmers who grow cereals will be happy to settle for legal provisions for the 23 crops for which MSP is currently available. These comprise only about 28 per cent of the country’s total agricultural output. Other producers want all agricultural produce covered. Academics too are divided. Many espousing the farmers’ demand believe that the provisions cannot be extended to perishable commodities like fresh fruit and vegetables as they would be impossible to implement.

Farmers believe that after legal MSP comes into force, the government will have to physically procure everything. This idea is unsound and has been rejected outright by almost all who understand that MSP has to be ensured through different means, such as procurement or the government paying the difference between the market price and MSP. Many believe the law would mean that traders who purchase the produce below the MSP risk prosecution. Similarly, such a provision would not only negate the option of paying farmers the difference between the market price and the MSP, as it would also obliterate the most vital market price discovery mechanism.

If legally-guaranteed MSP were to be implemented, it would be operationalised according to the area crop production plan — in a particular area, a farmer would be incentivised to grow the crops best suited to the block’s agro-climatic conditions. Farmers growing paddy will not want to shift to other crops as the alternatives can never be as profitable. On the other hand, a legal enactment would result in support for and procurement of different crops expanding exponentially across India. Therefore, it is only logical, given the increased cost and scale of interventions, that interventions would be for limited produce (five acres worth) per farmer family. This is the norm in all states for all crops (apart from wheat and paddy). Due to these two fundamentals, paddy and wheat procurement in Punjab could be reduced by at least a third. This would sow the seeds of a fiercer and uglier confrontation.

More complications could result from the ambiguity in the calculation of legally-guaranteed MSP. Currently, CACP which sets the MSP, calculates it by averaging the countrywide costs. For example, for wheat, the MSP is Rs 2,275. For Punjab, the C2 cost of production is Rs 1,503 while in Chhattisgarh it is Rs 1,939. Therefore, farmers in Punjab receive 51.36 per cent and their counterparts in Chhattisgarh receive 17.33 per cent over their respective C2 cost of production. In a legally-guaranteed MSP regime, it would only be natural for states, like Bihar and UP, which have a combined total of 120 parliamentary seats, to insist on state-specific MSP to gain maximum benefit for their farmers.

It is presumed that the central government will foot the bill for legally-guaranteed MSP. However, many who are better informed maintain that states like Tamil Nadu and Karnataka will vehemently object and insist that costs are shared according to Finance Commission norms on the ratio for devolution of funds — 41 per cent from states and 59 per cent from the Centre. This is nothing new: Already, all centrally sponsored schemes like Pradhan Mantri Krishi Sinchai Yojna, Paramparapagat Krishi Vikas Yojna, RKVY-RAFTAAR have a 60:40 ratio where a state has to pitch in with a 40 per cent share. Once MSP becomes law, states would have to pitch in with their share. If that is not acceptable to them, their share in the Finance Commission’s central pool would have to be reduced by over four per cent.

Ironically, the farmers of Punjab, who benefit economically from the present system, are the ones agitating. They would actually lose out if they succeeded in securing the guarantee for the country. They deserve better (also see ‘Saving Punjab from Rice’, IE, December 20, 2023) than the contract farming deal for alternative crops proposed by the Punjab Chief Minister, which the Union government has agreed to.

Finally, the most important point that’s missing in every discussion on the issue is that about 42 per cent of India’s population is directly dependent on agricultural activities. Ninety per cent of this population, the landless labour, marginal and small farmers, either have no produce to sell or a very small surplus. Therefore, even if they were to receive C2+50 per cent MSP price, it would not give them sufficient income to lead a life of dignity. The pertinent question then is: Why don’t farmers’ unions look beyond MSP? While farmers need to be supported, there are no perfect solutions. Along with MSP, the right combination of intervention need to be determined before a few more generations are lost.