MSP: A Necessary Evil?

Farm Union Leader Rakesh Tikait

The Biggest Problem for the farmers of U.P is that they don’t have a proper mandi system and for Bihar farmers is that they abolished the APMC act in 2006. when they had the mandi system the farmers were exploited by middlemen and bureaucrats so their condition never really changed.

1.0. Reasons why we must legalize MSP

Farmers sell their crop at half the price(compared to MSP declared) because they have no option. Mandi infrastructure is not well-build in most parts of the U.P, which is why it is way too hard for farmers to travel and reach nearby mandi. They only have 1 option left which is to sell their crop at a throwaway price to local traders, farmers don’t have the bargaining power due to lack of cold storage. they cannot dictate price and due to zero government support, they don’t have a place either where they can take their product and dump it. The most disheartening part is these traders after buying the crop from farmers of the U.P, sell the crop to mandis in Punjab, Haryana, and double their income. Traders would not get the same amount if they go and sell it to retail shops because of the low Market Price of wheat and rice. So, it is a million-dollar business for them. Who suffers? Govt and farmers both. All of these problems can be solved if there is a floor price, called MSP. In case traders don’t buy at MSP farmers can go and dump their product.

MSP legalization arguments have picked up in states like Punjab, Haryana as well because of the fear that three bills will eventually phase out their well-established Mandi system and they will face the same kind of problems that U.P, Bihar farmers face.

1.1. Problems of legalizing MSP for 23 crops:

The first obvious question is, for which crops they will legalize MSP? All 23 crops for which MSP is declared or only the 2(wheat, rice)which they procure through Mandi and use in PDS.

Let’s assume they legalize MSP for all 23 crops for which MSP is declared.

The MSP is now applicable on 23 farm commodities: 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley), 5 pulses (chana, arhar, moong, urad and masur), 7 oilseeds (groundnut, soyabean, rapeseed-mustard, sesamum, sunflower, nigerseed and safflower) and 4 commercial crops (sugarcane, cotton, copra and raw jute).

  1. According to a guesstimate by Indian Express total amount of crop produced in 2019–20 was 10.78 lakh crore. Since farmers retain some part for their self-consumption the amount Required will be around 8 lakh crore. Assuming that farmers will also sell their crop to private traders the extra amount required will be 1.5 lakh crore. That’s realistically the fiscal requirement. It is up to the Indian govt to decide if they have the political will and fiscal capacity to spend 1.5 lakh crore more on agriculture. Considering the current scenario where the fiscal deficit has gone up it appears extremely difficult. You can read the article here.

  1. The legalization of MSP means the farmer will be able to request the judiciary to intervene in case his crop is not procured by govt in any corner of India. A farmer from the remotest part of India take Nagaland or Manipur for example, irrespective of the fact that govt has no infrastructure to procure in that part of the state. At the moment only 6% percent of farmers get their crop procured at MSP which means if there are 20 crore farmers only 1 crore 20 Lakh farmers get MSP. how will the govt fight court cases against millions of people that will not get MSP, most parts of India have no infrastructure for FCI to procure. in case you are wondering, it will take years for India to create infrastructure in every corner of the country plus investment worth billions
  2. It will also be a step back in diversification that we are desperately hoping for, farmers will pick a crop with the highest return and continue with that. It will be a disaster for the country, we will have to import a lot of crops and will have a surplus of 1 or 2 crops which will not have any export value(because of high production cost it is hard for Indian products to compete in the international market). That will upset the entire Indian foreign reserve and may even lead to depreciation of the currency.
  3. legalizing of MSP will also be an ecological disaster and will encourage people to switch back to agriculture because farming can offer you an assured income without any competitive examination. It will be more appealing than any job where you will have to go through competition considering the high rate of unemployment and cutthroat competition.
  4. Finally the most important one, WTO does not allow protectionist policies. They have been pressurizing India to open up the Agri-market but we have been resisting because our farmers won’t be able to compete with the products of developed countries where subsidies are far higher and production cost far lower. So legalizing MSP will be the last nail in the coffin and we will be thrown out of WTO.

1.2 Problems of legalizing MSP for 2 crops:

Assuming MSP of 2 major crops (wheat and rice) is legalized, Every single farmer in India will shift to these two crops. I don’t have to explain the destruction that will follow.

1.3 Legalizing MSP for only private buyers:

This one sounds the most practical, however, the Market price in India is way lower compared to MSP(due to high production cost because MSP is calculated according to production cost and not market price). While in states like Punjab it will work, in states like Bihar, UP it won’t. Eventually, private traders will find it more lucrative to simply import wheat from other countries like Russia and Ukraine where the cost will be way lower. Which would lead to govt having to procure all.

I have explained all aspects, it’s up to you to make a decision if MSP legalization is possible or not, I have been sure from day 1 that it is not. However, there are other methods to ensure farmers get MSP for more crops which can also lead to diversification without making a law on MSP. I will discuss that in my next article.

Geopolitics and Data Science enthusiast.