Himanshu writes: What the real MSP means

After more than a year, the farmers’ unions finally decided to call off their protests with the repeal of the three controversial farm laws. Ultimately, no one knows why the laws were introduced and why they were withdrawn, as the government refused to discuss them in parliament. But in the process, he conceded at the union’s demand to set up a committee to guarantee minimum support prices (MSPs) for all farmers as well as other assurances, none of which was part of the laws that were passed. adopted and repealed.

Perhaps the most controversial and ambiguous of these is the demand for an MSP guarantee. It has been interpreted as a mandatory application of trade in agricultural products, including private trade, which must necessarily be equal to or greater than the MSP for that crop. Another interpretation is the nationalization of agricultural trade whereby the government promises to buy all the crop produced from the MSP. These two formulations are not correct. But even if they were, there is no way to implement them. Commentators have used these two interpretations to project large estimates of the public spending required for implementation. While most of these estimates are hyperbole, imaginary and irrational, they fail to understand the true spirit of the demand for a legal PSM.

This ambiguity is mainly due to the nature of the current MSP regime. By definition, the MSP is not an income assistance program. It is designed to be used as a government intervention to stabilize prices, to provide remunerative prices to farmers. Currently, this is only a government procurement program to meet the requirements of the National Food Safety Act (NFSA). Contrary to the official MSP announcement for 23 crops, only two, rice and wheat are purchased as they are distributed in the NFSA. For the rest, it is mostly punctual and insignificant.

The current demand for a legal guarantee of MSP must be seen in the larger context of the situation of farmers. In addition to the twin droughts of 2014 and 2015, farmers have also suffered from falling commodity prices since 2014. The double shock of demonetization and the hasty deployment of the GST has crippled the rural economy, mainly the non-sector. agricultural, but also agriculture. The economic slowdown after 2016-17 followed by the pandemic has kept the situation precarious for the majority of farmers. With the decline in rural wages in real terms since 2014 and the lack of employment opportunities, the crisis in the rural economy has actually worsened. The higher prices of inputs for diesel, electricity and fertilizers have only made the hardship worse. In this context, the demand to ensure remunerative prices is only a reiteration of the promise made by successive governments to implement the Swaminathan Committee report in letter and spirit.

A price intervention regime is not unique and is a standard intervention used by many countries. A true PSM requires the government to intervene whenever market prices fall below a predefined level, mainly when there is excess production and oversupply or a collapse in prices due to international factors. This does not force the government to purchase all products, but only to the extent that it creates upward pressure on market prices to stabilize prices at the MSP level. What is needed is a price control mechanism. Although such a mechanism already exists, a policy of required intervention in the market is lacking.

MSP can also be an incentive price for many crops that are desirable for nutritional security, such as coarse grains, as well as legumes and edible oils for which we depend on imports. The fact that farmers respond to such interventions is clear from the example of pulses, which in production increased after the government began purchasing them.

However, the current MSP regime bears no relation to prices in the domestic market. Its sole purpose is to meet NFSA requirements, which effectively makes it a purchase price rather than an MSP. This is precisely why, the food subsidy of over Rs 2 lakh crore is not a subsidy for farmers, but a subsidy for consumers to ensure the nutritional security of the country. However, policy interventions have meant that the actual supply is far more than the actual NFSA requirements, resulting in excess stocks. Besides being a waste of resources, this is also inefficient and counterproductive, contributing to price distortions. On the other hand, a true PSM may not be expensive since intervention in the market is only necessary in the event of a price collapse and only for the product for which it occurs. The cost of such an operation is unlikely to be significant as long as the government has a mechanism to sell the grain purchased on the open market or on the export market.

Fortunately, the existence of the NFSA also ensures that there is a fully functional distribution mechanism for the distribution of these products. Despite repeated requests from food activists, there has been no progress in including legumes, edible oils and millets in the PDS. These are not only essential for nutritional security, but will also increase the pool of farmers likely to benefit from MSP interventions to include smallholder and marginal farmers who grow millets, pulses and edible oil. . This will also ensure geographic balance as most of them are grown in rainfed and arid regions. A guaranteed PSM is therefore nothing more than restoring the true spirit and functions of PSM, applicable to a wide range of crops and to all sections of farmers.

It is evident that there is neither a shortage of funds nor a lack of infrastructure and institutional mechanisms to ensure guaranteed PSM. This is essentially a lack of understanding of the needs of agriculture and above all a lack of political commitment to guarantee remunerative prices to farmers. But even an effective and functioning PSM is unlikely to be the permanent solution to the deep crisis in agriculture which suffers from low investment, lack of state support and inefficient management of agriculture. ‘economy. But it is certainly the least that the government can do to protect a sector which remains the biggest employer and a refuge for the poor and the vulnerable as seen during the pandemic.

This column first appeared in the paper edition on December 11, 2021 under the title “The effective support price”. The writer teaches at JNU.

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