Wednesday, February 1, 2023
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Can India actually afford MSP for farmers? It’s a question of political will

If there is one moment to bust the myth about MSP being unviable, it is now, when lakhs of farmers are preparing to march to the capital on Republic Day.

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Can the farmers of India be offered a guaranteed remunerative price for their produce? The Narendra Modi government, some economists, and the country’s media would have you believe that this is impossible — both logistically and financially. They are wrong. They either do not understand what the farmers demand. Or they have not calculated the costs. Or they mislead, deliberately. If there is one moment to bust this myth, it is now, when lakhs of farmers are preparing to march to the capital on Republic Day.

Fortunately, we don’t have to start from scratch. The Modi government declares a minimum support price (MSP) for 23 crops every year. So, in principle, the government of India does recognise that the farmers need and deserve a minimum price for their produce. It has a mechanism, however faulty and disputed, for computing and announcing this price. And it acknowledges, though not in legal terms, its responsibility to “support” the farmers in terms of their price.

The problem is that it does not do much to actually offer this support. In reality, less than one-fifth of farmers get this support, because the government steps in only for two or three crops, and that too in a few regions. For most farmers, this minimum support price remains a maximum securable price, almost a dream price. In the current season, the MSP of maize is Rs 1,850 per quintal, but farmers had to sell it in the past three months between Rs 1,100 and Rs 1,350. Bajra fetched an average price of Rs 1,340 this January in Rajasthan, its largest producer, against the official MSP of Rs 2,150. Growers of pulses like urad, moong, and tur face a similar situation. The farmers want and demand the Modi government to ensure that they get what the government itself admits to be the minimum. They demand a law that would place an obligation on the government to make necessary interventions to ensure MSP.

Also read: Modi govt’s proposal shows it wants farmers to look unreasonable, not address their concerns

What MSP support really entails

Is this possible? Let us first get rid of a faulty notion of what such support might mean. Guaranteed, MSP doesn’t mean that the government should purchase every quintal of every crop. That would be impossible, unaffordable, and unnecessary. Government procurement at MSP can and should be expanded beyond current levels, but it is only one of several mechanisms that can be used to support the farmers.

Procurement for the public distribution system should be expanded to include millets, pulses, and oilseeds. That would also help meet the nutrition needs of crores of families. Providing 1kg of pulses to each of the 750 million PDS beneficiaries would generate a demand for about 13 million tonnes of pulse crops, giving a boost to pulse production that currently stands at about 23 million tonnes.

The second mechanism could be a robust and timely market intervention whenever the market prices fall below MSP. This would mean expanding the operations of existing agencies like MARKFED and NAFED with better funding, storage and marketing capacities. They need to purchase only a part of the crop, say 10-20 per cent, and this would shore up the prices for the farmers in the rest of the market too. Such a scheme does exist, but its funds need a quantum jump.

If this fails, the government can use a third mechanism by way of deficit payment. The government can compensate the farmers for the difference between the MSP and the price they actually secured. This was tried in Madhya Pradesh, as the Bhavantar Bhugtan Yojana (BBY), but the experiment failed due to its poor design. It should be designed afresh, with sufficient funds allocated for this purpose.

The fourth, and the last resort, mechanism is to make it illegal to trade below MSP. This is not a silver bullet solution and can boomerang if not supported by the first three. Used sparingly, penal provisions for violators would act as a deterrent to ensure that the market officials implement the provisions.

A prudent mix of these four methods can indeed ensure that no farmer receives a price lower than the official minimum support price.

Also read: Why the farmers’ movement is no longer what the Modi govt thinks it is

Myth of unaffordable MSP

Finally, is this affordable? Government spokespersons have pooh-poohed this demand by claiming that it would cost Rs 17 lakh crore, more than half the union budget. This is a mischievous figure. This is what it would cost the government if the entire produce of all crops is purchased by the government at MSP, and then destroyed or dumped in the Indian ocean! This calculation assigns zero value to the purchased crop.

To get a realistic estimate, we have calculated the difference between the MSP and the average actual market price of the crop. This is what it would cost the central government if it procures the crops at higher than market price, or makes deficit payment to the farmers. The table here uses the official data for 2017-18. The average market price is derived from the average (modal) daily prices in markets across the country reported by Agmarknet during the entire season, weighting the modal prices with the quantum of sales for each day.

The table gives the data for 13 major crops out of the 23 crops for which MSP is declared. For instance, the MSP of maize that year was Rs 1,425 but the weighted average market price was only Rs 1,159. Using the estimated marketed surplus production that year of 25.29 million tonnes, the total price deficit suffered by the maize farmers is calculated to be Rs 6,727 crore. In 10 out of the 13 crops, the average market price is significantly lower than the MSP.

So, if the government were to bear the entire cost of the price deficit suffered by the farmers for these 13 crops in 2017-18, the bill comes to Rs 47,764 crore. If you add the remaining 10 minor crops, the bill would have been about Rs 50,000 crore. This is smaller than the MGNREGA budget of that year. The actual government expenditure would be smaller, because market intervention and legal provisions would raise market price and reduce the amount to be paid by the government.

Table: How much would MSP guarantee cost the government?

Source: Computed by Kiran Vissa and Naveen Ramisetti based on GoI data from Agmarknet and the Ministry of Agriculture.

* In paddy, wheat and cotton, the market price was at or above MSP for about 80% of the crop, so we calculated the price deficit for the rest of the crop which was sold below MSP.

The table also presents a higher cost if the government raises MSP itself at 50 per cent above the Comprehensive Cost, as recommended by the MS Swaminathan Commission. In that case the maximum cost to the government would have gone up to Rs 228,000 crore. That is about 1.3 per cent of the GDP, and about 8 per cent of the union budget. This is stiff, but not impossible. The cost could be shared between the central and the state governments.

Can India afford this? Well, it depends on what you think this country is, and what is the worth of annadata. This is a question of political will. This is the question crores of farmers are asking today.

Kiran Vissa is a farmer activist with Rythu Swarajya Vedika and member of the working group of All India Kisan Sangharsh Coordination Committee.

Yogendra Yadav is the national president of Swaraj India. Views are personal.

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  1. What is the fuss about. The market price is higher than the MSP. The Government will make a huge profit if it plays it’s cards right.

  2. Thank you for sharing an article with full of assumptions are cleverly avoiding facts.

    1. Why maize prices crashed from Rs. 237kg in Dec. 2019 to Rs. 11/kg fin 2020. Why no word on it.

    2. Why no mentioned of Oilseed prices in your table?

    3. Value of stocked material is blocked capital of the country. Inventory of food grains adds addition 40% cost over and above MSP.

    I though you are honest in your arguments, this article conveys either you are ignorant about facts or deliberate misleading the country to prove you are bigger dirty politician than Kejriwal.

    Honestly, I felt disappointed after reading this article because I thought you have professional integrity.

  3. Prices have to be determined by markets. Cost optimization is a basic requirement to improve farm incomes. Instead of spending so much money, get a large segment of farmers out of agriculture and give them sustenance wages free. Allocate their farm lands to industry on long term lease on profit sharing basis. The remaining farmers can continue to be in agriculture. Since the production levels come down to the actual requirements, farmers will automatically get decent competitive price.

  4. Average net cash income of a US farmer. $8708 per month in year 2020.
    Average net cash income of an Indian farmer. $87 per month in year 2020.

    There is no way one can justify basic sustenance of a livelihood with a family of 4 or 5 for $87/month in 2021 and beyond. The Indian junta have a choice to make. They can eat their tax rupees, start farming themselves, or pay-up more increase the average income of farmers in India.

    Or they can shut up.

  5. Terrific article which shows the partiality by the governments with farmers from the decades on MSP.
    Modibhakts are giving excuses here, kindly show some light on the following points:

    1. Some people say that why there shouldn’t be the minimum wage law for barbers or cobblers?
    Well who oppose that? Farmers?

    The agitation on delhi borders are by the representatives of more than 50% of people who directly or indirectly relied upon agriculture. Is it a bad idea to make MSP mandatory and by spending merely 6% of total union budget in the interest of more than 50% peole??

    2. Do you people feel that the people who are agitating are not REAL farmers?
    I think people who raise this question are those who finds NATIONALISM on praising Modi government on the anti national decisions like DE-MONETISATION and GST.

    3. Why don’t you ask questions when by implementing 7th pay commission, government have to bear extra 2 lakh crore rupees,which is the 15 % of total union budget and only benefit less than 5% of total population.

    4. Lastly, Why farmers income increased by 19% in comparison to govt employees whose income increased by 150% ?


  6. If you don’t give MSP from where 140 cr people get food grains. Don’t destroy the system built over a period of time and time tested. Funny ideas ,knee jerk enthusiasm is not a substitute for knowledge.

  7. In our country we have lakhs, may be crores , of persons who regularly comment on the game of cricket and performance of national level cricket players. So is the case with YY. A man who is not a farmer, not a politician as never won an election, , not economist, not served as an administrator at any time in his life , but preacher in Chief, because he still dons world over discarded red cap, –as worn by all knowing – leftists. His articles have nothing but anti-Modi verbal abuse. only His articles should be read keeping this in view. Is it not axiomatic to know leftists taking cause of RICHEST FARMERS –beneficiaries of age of food-shortage time policies of 1950, 60, when a family- centered party was ruling India with scant regard to socio- economic logic ? Faulty implementation of those policies that made the state of Punjab into a state projected as “UDTA PUNJAB ” by the Bollywood movies . To which depth further he wants Punjab to go down ?

  8. Terrible nonsensensical article by stupid foolish oppurtunistic fraudsters only six percent of farmer benefit from Msp At expense of a billion poverty stricken indians

  9. Yogendra Yadav is never a farmer in life and could not win a election ,leave alone securing deposits,what type of suggestion is this when proper planning of crop growing is absent and why do you go in for surplus production of paddy and wheat rather scientific way of cultivation and improvement of irrigating the field would rather solve the problem.No other profession in India is so much supportive to the Agricultural sector compared to other only for votebank politics.Earlier govt never implemented irrigation projects which remained only on papers and wealth went to the pockets of politicians.Agriculturist never pay anything towards water,electricity consumption nor direct or indirect taxes nor do contribute anything for the economy but need sizable benefits under the guise of Annadata.Emotionally exploiting the situation since independence.Why on earth they have remained backward because govts since independence do not want them to benefit but to remain in poverty with minimum holding of lands as they are the vote bankers.Why in India large agricultural holdings in a family becomes small only due to partition in the family among members.Since Indipendente,large holdings should have been maintained for better output.Political will was absent among politicians as the policymakers followed policies which were against for the welfare of the nation and the people and all fools realised their path was wrong only in 1990.Since 1947 till 1990 our country followed the policies which were against progress.Our country lost 43 years of precious period due to bunch of foolish politicians.Only when they realised it was inevitable and due to Manmohan Singh and Narasimha Rao combination the path was changed.Still lot of repaireork is needed as proper cultivation process is required and scientific cultivation needed with all incomes of farmers are channelled towards prodctive purposes and they need not have to come to Delhi with begging bowls.

  10. In this case the scheme must be given to the entire country. Just as farmers in Punjab have 90% of their crops purchased by Govt , so too 90% of those crops produced anywhere in India must be purchased by the govt.
    And I presume electricity, seeds, fertiliser those subsidies will be there?
    And no matter how rich a farmer becomes they will pay no tax?

    So how much are we taxdatas worth?

  11. The central Govt, state Govts and other PSUs etc, increase the salaries if employees through pay commission and other mechanism. But each Govt, department or PSU is given free hand to pay, despite such announcement of increases, as per their abilities to pay, then what would happen? Is it not the same with current MSP and it’s actual implementation. So the problem is with the will of the central Govt. Therefore time has come to address the issue of Farmers if India has to have real economic and social progress in all walks of life.

  12. Fallacious arguments that collapse with probing questions. If diagnosis is wrong, we cannot expect to find correct solution. When PDS is a big scam in this country, how can it be cited as a part of solution? Pl come out with solutions taking into ground realities into consideration.

  13. If the government were to procure any amount of produce at MSP, the bill would be higher than you estimate. Incorrect to use difference in market prices and msp to give a cost in this case. Not to mention other costs such as storage and transport.
    As for the price difference payment scheme, for which you gave detailed numbers, ignores market distortions such a system might create. What stops the market prices from falling because the government is going to compensate the difference with msp anyway, even if to a limited percentage.
    Legal msp for every procurement, private or public is the worst of all the four. You’ll either see deadweight losses or increasing inflation.
    Market intervention scheme for stabilizing the prices seems the most effective of these. However detailed analysis of existing scheme’s merits and demerits must be done rather than looking at only costs like you have done in your article

  14. When global market price of the same agri products are lower than the present market prices in India, do government have to spend 50,000cr or 2.25lakh crore to keep a loss making economy alive?? And why the consumers cant directly deal with producers, the farmers and strike a better price for the produce? What is the way forward to decrease the agri production cost, so that the prices will come down? We have to comprehensively address the issue not only purchasing the produce but starting from need to produce the product in first level.

  15. Nagpur Bobde moans that people can change their mind – I suppose he must be referring to the right wing Modi supporters like himself.

    Because, how come Sane voices Like the author’s are not part of the committee?! At the very least to provide a counter balance?! How come Amit Mishra was allowed to adjudicate the land laws, and not someone who opposed the Modi view?! How come Modi was allowed to lay the foundation stone for his new home (and parliament complex), and not stopped, because the mind can always be changed, no?! How come the abrogation in Kashmir was allowed to continue, and not stayed at first, to be adjudicated on, because the mind can change no?!

    Nagpur Bobde’s handing over the decision on the Tractor Rally to the police, around three same time as AS praises the cops for their blatantly biased handling of the riots is a clear and chilling indicator of how the powers that be plan to deal with the farmers dissent!!!

  16. A fair view by the Author. Kerala has a Cooperative Society Model for each of their agro produce. The Cooperative purchases at MSP. In the case of Pine apple the Cooperative has put up plants for manufacturing value added produce. This takes away a major part of the produce in case of Glut. Telangana, Orissa and MP have a system of paying the difference between the MSP and the Sold Price. Karnataka has a system of State Procurement which ensures that Traders pay a price close to MSP. Ultimately the Centre should work on providing a proper IT Backbone to the Farmers so that they can access information as to where they could get a good price. Logistics cost is another area where the States and Centre can work together. Tamil Nadu provides free transport to Vegetable Farmers to enable sell at the Farmer Markets spread all over the State.

    Shri Gurcharan Das in one of the debates in a News Channel suggested increasing the number of Mandis all over the country. M/s Nitin Gadkariji and Piyush Goyalji could consider this to be a part of Infrastructure development. Possible Mandis could be a part of Road and Rail projects just like Hotels are put up along Roadways and Railway stations.

  17. typical leftist utopian idea discarded all over the world, and failed in India in last 70 years. If this is possible, why no government including socialist government implemented them in last 70 years. these leftist unions are the biggest block for development of any kind including of farmers as their main goal is self development and politics

  18. If government stipulates a “minimum wage” for farm labourers, which is the right thing to do, then government must ensure “minimum selling price” for the farm produce, and that will be the right thing to do. If the farmer has no assurence for his income, how will he assure his workers salary?

  19. In Yogendra Yadavs own style, one can humbly tell him as follows: 1. Farming, beyond in house consumption, is a risky business and every one need not get into it. 2. Instead of devising various devious ways to get government to spend more money on subsidies, it would be better to add up add subsidies and add another 20 per cent on top of it and distribute the amount as DBT to farmers and offer them life long pension. 3. This will free them from bothering to undertake risky business and free them to do whatever they wish do in their life. They can lease their farms land, do contract farming, as well do risky farming but on at their own risk and by paying market prices for all inputs. 4. This will make life easy for everybody, except off course for politicians wo will lose their importance!! But Yadav can always take out tractor rallies for increase in DBT!!! So please let this country reform and prosper and leave farmers alone. Tank you (with folded hands)

  20. Why only MSP for farmers? Why not for all other professions like barbers, cobblers, washerman, priests, potters? Are other professions inferior?

  21. are you nuts? at a time when the nation is facing border turmoil and the economy needing fresh investments in infrastructure, an idea like this is irresponsible. The sum of money you quote might be 8% of budget but that 8% has to come from somewhere. Dont use nutty economics just because people in agri form majority of the electorate and can bully their way to get stuff done. Let’s all look at this dispassionately. Instead of frequent distortions you people ask as if it’s your right, why don’t you ask for a proper safety net in the form of DBT? less distortionary, less leakages, no politics. Our poor including poor farmers deserve help. But that cant come in the way of good economics or larger economic interests of others in the country. Ask for DBT and basic income. Not for MSP for everything and anything you grow irrespective of market preferences as a legal right.

  22. Why should government spend 50 billion dollar on fake annadhata
    Instead that money should be spend on education or defense or infrastructure which are more important for developing nation and for not remaining third world bankrupt country whose leftist elites children study abroad and people of their country remain slaves of leftist elites

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