MSP under Shastri began as a crisis response. Now India must ask what role it should play today

A quiet transformation took place in India’s rural economy within five years of MSP’s introduction. All doubts about India's ability to feed itself were laid to rest.

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When Lal Bahadur Shastri took over as Prime Minister in June 1964, the Agriculture Ministry was considered a ‘political graveyard’, on account of massive food deficits after successive crop failures in different parts of the country. Agricultural production had plummeted to 62 million tonnes per annum, and India was critically dependent on food shipments from the United States under PL-480. Unlike John F Kennedy, who saw US food aid as humanitarian, his successor Lyndon B Johnson was a brusque bully who expected recipients to kowtow to his political preferences.

When two of Shastri’s senior colleagues, Jagjivan Ram and Swaran Singh, refused the agriculture portfolio, Shastri rang up C Subramaniam. CS reportedly asked, “Why me?” To which Shastri replied, “Because no one else is willing.” Subramaniam asked for time to consider — he was well settled in the Steel Ministry. But Shastri prevailed, assuring him of the fullest political support in the challenging task of tiding over the crisis and making India self-sufficient in food.

Once he accepted the position, Subramaniam drew from his experience in the Steel Ministry and concluded that the core reason for stagnation in Indian agriculture was that “farmers were not given a fair and remunerative price for their efforts.” He was dismayed to see the government continuing with wartime strategies of imposing controls, rationing, and a procurement system that adversely impacted the primary producer.

Subramaniam appointed a Foodgrains Prices Committee under LK Jha, Secretary to the Prime Minister, to determine the “producer price” for paddy and wheat for the 1964–65 crop year. In his first Cabinet note of October 1964, backed fully by Shastri, CS proposed an unprecedented 15 per cent hike in prices for both Rabi and Kharif seasons. This was opposed by Finance Minister TT Krishnamachari, who saw it as inflationary, and Home Minister Gulzari Lal Nanda, who feared unrest among industrial workers.

However, even more important than this episodic 15 per cent hike was the establishment of the Agricultural Prices Commission (APC) from 1 January 1965. Its role was to advise on price policy, on a continuing basis, not only for paddy and wheat but also for coarse cereals, pulses, oilseeds, sugarcane, cotton, and jute. Over the years, the mandate expanded, and APC (now CACP) recommendations today cover 23 commodities.

Gandhian economist ML Dantwala was appointed the first chairperson of the APC. He had earlier worked on the Indian cotton economy and understood the need to balance the interests of farmers with those of the textile industry. In his new role, he had to recommend Minimum Support Prices (MSPs) to incentivise farmers to adopt new technologies, optimise resource use, and increase productivity. It was clear by then that the community development approach had its limitations. What was needed was higher economic returns and a state guarantee for procurement — either through direct procurement for the PDS or price support for oilseeds and pulses.

According to Harsh Damodaran, the idea of the APC had also featured in a Ford Foundation study, but this was underplayed, since anything “American” was viewed with suspicion in those days. Ironically, the trio behind this transformation — minister C Subramaniam, scientist MS Swaminathan, and agriculture secretary B Sivaraman — were all accused of yielding to American pressure. As an aside: while the Americans were advocating for smallholder agriculture, the USSR promoted collectivisation and professionalisation, both of which had already failed in the USSR and China.

Meanwhile, Dantwala’s advocacy for a more interventionist approach, including price stabilisation to protect farmers and ensure food security, was challenged by V.M. Dandekar. He argued that such policies would encourage inefficiency and corruption, and hinder natural growth in the agribusiness sector. This intellectual debate played out in the Economic and Political Weekly. Dandekar (and co-author Rath) argued that although poverty and undernourishment were correlated, they were often independent variables and needed distinct policy responses.

Jai Jawan, Jai Kisan

Yet a quiet transformation took place in India’s rural economy within five years of MSP’s introduction. If one had to choose the most understated yet transformative five years in the seven decades and eight years of Indian Independence (from 1947 to the present), it would be 1965–66 to 1970–71.

During this period, India’s foodgrain production rose to 108 million tonnes, laying to rest all doubts about the nation’s ability to feed itself. The kisan had delivered. India became more than self-sufficient in food, just in time for the jawan to secure a decisive victory in the 1971 war on both the western and eastern fronts, leading to the creation of Bangladesh.

By then, the Agriculture Ministry had become one of the most coveted portfolios. From the 1970s onward, it has been held by stalwarts like Jagjivan Ram, Balram Jakhar, Devi Lal, Nitish Kumar, and Sharad Pawar. Today, it is held by Shivraj Singh Chouhan, one of the longest-serving Chief Ministers of Madhya Pradesh.

Empirical norms for MSP

From a policy perspective, subsequent APC chairpersons — distinguished agricultural economists such as Abhijit Sen, T Haque, and Ashok Gulati — developed empirical norms for determining MSP. By 1980, APC evolved into the Commission for Agricultural Costs and Prices (CACP), as India had achieved a more than adequate food surplus.

Three new cost concepts entered farmers’ political vocabulary: A2, A2+FL, and C2.

— A2 includes all paid-out expenses: seeds, fertilisers, chemicals, machinery, irrigation, interest on working capital, depreciation, and rent for leased land.

— A2+FL adds the imputed cost of unpaid family labour.

— C2, proposed by MS Swaminathan when he chaired the National Commission on Farmers in 2006, includes A2+FL, plus the imputed rent on owned land and other imputed costs.

Raising A2+FL by 50 per cent suggested that family labour (time spent by the farmer and their family in the production field) was valued 50 per cent higher than hired wages (money paid to hired labourers). It recognised the sweat equity of farming households.

CACP in a balancing role

CACP’s job is not easy. Each crop has multiple stakeholders. For example, jute farmers in West Bengal, Assam, and Bihar demand higher MSPs, but grain-producing states like Punjab, Uttar Pradesh, and Madhya Pradesh as well as the Union food ministry oppose this. Their argument is that higher jute prices inflate the cost of gunny bags for wheat procurement. The Ministry of Consumer Affairs worries about inflation. The Ministry of Agriculture and Farmers’ Welfare tries to double farmers’ income. Balancing these competing demands is a delicate act. Food inflation must be balanced with farmers’ incomes.

Changes over time

As someone who has served as Agriculture Secretary in Uttarakhand and West Bengal, and as Joint Secretary at the Centre and MD of NAFED, I’ve had candid exchanges with Alagh, Sen, Haque, and Gulati. Like Dantwala, the first three believed in the dominant role of the state in agricultural economics.

However, post-liberalisation, Indian agriculture has changed. No longer an economy of shortages, it began to reflect shifts in consumer demand and market orientation. Gulati’s tenure reflected this transition. By the early 2000s, farmers near Tier I and Tier II cities were earning more from high-value agriculture — dairy, livestock, fisheries, and horticulture — than from grains.

By 2015, horticulture production exceeded cereals in volume, weight, and value. Like the Dantawala-Dandekar debate, Swaminathan was sceptical of liberalised export policies, while Gulati argued that government restrictions on trade in agricultural products prevented farmers from securing better prices and thus better incomes. Freer trade, including external trade, will benefit farmers.

Many agricultural commodities, including rice and wheat, remained barred from being exported. This meant Indian farmers could not benefit from global price surges. In Gulati’s view, more private procurement and scrapping mandi taxes would narrow the wholesale-retail price gap. He rejected the idea that rising MSPs caused food inflation. He instead pointed to non-MSP items — vegetables, fruit, milk, meat, and fish — that drove food inflation.

The road ahead

The current CACP Chairman, Vijay Paul Sharma, who is now in his second term and a professor at IIM Ahmedabad, brings management expertise in agri-value chains. His tenure has witnessed a successive volley of farmer protests demanding statutory backing for CACP and MSP.

Having worked in both central and state governments, I believe the focus should be less on the legal status of MSP or CACP, and more on strengthening infrastructure: warehousing, market linkages, farm machinery hubs, credit access, value addition, and transparent price discovery.

Indian agriculture has travelled far since the time of Shastri. The institution he set up must evolve with the times. While principles, such as ensuring the best price for farmers, must be preserved, strategy and practice must adapt to modern realities.

This is the second article in a series on Lal Bahadur Shastri and the institutions he helped establish.

Sanjeev Chopra is a former IAS officer and Festival Director of Valley of Words. Until recently, he was director, Lal Bahadur Shastri National Academy of Administration. He tweets @ChopraSanjeev. Views are personal.

Disclosure: The columnist is a trustee of the Lal Bahadur Shastri Memorial (LBS Museum).

(Edited by Prashant)