India’s MSP system for farmers has outlived its purpose. It’s time to phase it out

Farmers plant paddy saplings in a field | Representational photo | PTI

The Minimum Support Price system has long been regarded as a bastion of stability, offering a lifeline to millions of farmers and ensuring food security for the nation. The government sets MSPs for 22 crops based on recommendations from the Commission for Agricultural Costs and Prices, taking into account inputs from state governments, central ministries, and departments. The CACP considers factors such as production costs, domestic and global market dynamics, price parity between crops, and impact on the economy before setting this price. The MSP framework aims for a minimum 50 per cent margin over production costs to ensure fair compensation for farmers.

Despite the government’s mandated procurement of 22 crops – including 14 Kharif and six Rabi crops – the bulk of procurement activities focus on wheat and paddy alone. According to official data, the number of farmers benefiting from grain procurement has increased steadily over the past three years, reaching the 1.93 crore mark in 2021-22. Similarly, the volume of foodgrain procurement has seen a consistent rise, totalling 1,340 lakh tonnes in 2021-22. The expenditure incurred on procurement has followed a similar upward trajectory, reaching Rs 2.75 lakh crore in 2021-22. 

The MSP system has outlived its purpose and it’s time to phase it out. Here are my reasons.

Evolution of agricultural dynamics

India’s agriculture story has changed a lot. We used to struggle with not having enough food in the 1960s, but now, we produce more than we need. We’ve become a surplus food grain nation. The total stock of rice and wheat available in the central pool as of 1 July 2023 is 253.49 lakh tonnes and 301.45 lakh tonnes respectively. This exceeds the food grain stocking norms of 135.40 lakh tonnes for rice and 275.80 lakh tonnes for wheat.

The government recently said that India bought around 600 lakh metric tonnes of rice last year. However, our annual requirement under the National Food Security Act is only about 350 lakh metric tonnes, which means we have more rice than we need.  Old policies that helped us when food was scarce need to change. We must find new ways to manage our surplus food and keep up with the modern world.

Lack of storage infrastructure

When it comes to MSP, storage infrastructure poses a big problem. The MSP system requires substantial grain storage, which our facilities often struggle to accommodate. This means that sometimes, grains go bad because the Food Corporation of India is unable to store them properly. Clearly, we need to upgrade our storage system and use new technology to fix the problem.

Regional disparities in government procurement

The MSP system can intensify disparities between India’s farming regions, fostering unhealthy competition among states. We must work together to make farming better for everyone. For instance, Punjab and Haryana don’t eat much rice, but they sell a lot of it because it’s easier for farmers there to grow rice with cheap electricity and lots of water.

Empowering every farmer

The promise of MSP remains elusive for millions of small farmers consigned to the margins of agricultural prosperity. Only 1.93 crore farmers are benefitting from the MSP guarantee. It is incumbent upon policymakers to dismantle the barriers of exclusion and empower every farmer, irrespective of landholding size or crop choice, to realise their full potential in a market-driven agricultural ecosystem.

Inclusive growth

While farmers rightfully occupy centre stage in the agricultural narrative, farm labourers work in obscurity, their voices drowned out by the cacophony of political rhetoric. The prosperity that accompanied decades of MSP never trickled down to these landless agricultural labourers. Farmers in Punjab and Haryana brought the cheapest labourers from Bihar to work in their fields, causing many of them to become bonded labour. The time has come to accord them the dignity and respect they deserve, ensuring that the dividends of agricultural prosperity are equitably shared among all stakeholders.

Navigating the path to sustainability

The pursuit of water-intensive crops like paddy in water-stressed regions exacts a heavy toll on India’s fragile ecosystems, perpetuating a cycle of environmental degradation and resource depletion. There has been concern regarding the water table going down. It is imperative to embrace sustainable alternatives that harmonise agricultural productivity with ecological stewardship, safeguarding the planet for future generations.

Breaking the chains of inertia

The recent upheavals and protests surrounding MSP fixation underscore the perils of policymaking, held hostage by vested interests and populist rhetoric. Policies impacting billions of people cannot and should not be made just because 1,000-2,000 landowning farmers choke arterial roads leading to the capital. It is imperative to reclaim the reins of governance from the clutches of populism, ensuring that policy decisions are guided by evidence, reason, and the imperatives of the public good.

Unleashing the creative forces of agriculture

MSP’s stranglehold on agricultural markets stifles innovation, consigning farmers to a cycle of stagnation and dependency. By fostering an ecosystem of entrepreneurship and risk-taking, India can unlock the latent potential of its agricultural sector, propelling it to new frontiers of growth and prosperity. The wheat-rice cycle should be dismantled, especially in Punjab and Haryana.

Emancipating agriculture from state intervention

The call for MSP reform heralds a new dawn of agricultural liberation, where market forces reign supreme and innovation thrives. By freeing agriculture from the shackles of state intervention, India can harness the full force of market dynamics, driving efficiency, competitiveness, and prosperity in the agricultural sector.

It is incumbent upon policymakers, stakeholders, and civil society alike to heed this call with courage and conviction, forging a new path toward agricultural rejuvenation and prosperity. Let us seize this moment and chart a more equitable, sustainable, and resilient agricultural future for India.

Dilip Mandal is the former managing editor of India Today Hindi Magazine, and has authored books on media and sociology. He tweets @Profdilipmandal. Views are personal.

(Edited by Zoya Bhatti)