Farmers from various states have once again taken to the streets as part of the “Dilli Chalo” march to assert their demands, with securing a legal guarantee for the minimum support price (MSP) for their produce at the forefront. This demand, along with several others, was a significant aspect of their previous protests against the contentious farm laws.

While the government currently provides MSP for agricultural produce, the farmers are advocating for a law that ensures its guarantee, among other demands such as the implementation of the Swaminathan Committee report and the provision of a pension of Rs 10,000 per month for farmers above 60 years of age.

For farmers, such measures would signify crucial support during periods of price volatility and grant them the freedom to cultivate crops of their choice. Although the Congress has pledged to enshrine MSP into law, based on the recommendations of the Swaminathan Committee, if elected, some analysts express skepticism about the feasibility of such a move, citing its substantial financial implications and the potential drawbacks of a uniform approach.

While government officials have indicated the impracticality of guaranteeing MSP, citing the enormous financial burden it would impose—potentially exceeding Rs 10 lakh crore annually—they have also expressed a willingness to engage in dialogue with farmer groups. Providing legal guarantee for procurement of all crops at MSP could result in a “fiscal disaster”, govt sources said on Tuesday. They underscore how the proposed legislation could strain the government”s budget, considering the substantial value of agricultural produce in the country and the associated market dynamics.

Sunil Sinha, Senior Director and Principal Economist at India Ratings and Research, underscores the significant financial implications of implementing a legally binding MSP, likening it to fixed expenditures such as salaries and pensions.

“Once it is made into a law and is formula driven, the government will have to shell out a specified amount every year irrespective of its financial situation and without the leeway to tweak the MSP,” Sinha was quoted as saying by Business Today.

What is MSP or Minimum Support Price?

MSP serves as a safety net for farmers by guaranteeing a minimum price at which the government purchases their crops, ensuring them a stable income even during market downturns.

Currently, the government fixes MSP for 23 crops, on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP) as well as taking into consideration the views of the Centre, states, and other stakeholders.The MSP is fixed at a level of one and a half times of the cost of production as a pre-determined principle in the Union Budget 2018-19.

Of the 23 crops that the government currently announces MSPs for every year, there are seven cereals (paddy, wheat, maize, bajra, jowar, ragi and barley), five pulses (chana, arhar, moong, urad and masoor), seven oilseeds (groundnut, soybean, rapeseed-mustard, sesame, sunflower, niger seed and safflower) and four commercial crops (sugarcane, cotton, copra and jute).

MSP is declared for all crops, but its effectiveness is predominantly seen in the case of rice and wheat. This is largely due to the government”s extensive storage infrastructure, primarily dedicated to these grains, which are vital for the public distribution system. However, a notable issue arises from the government”s tendency to procure quantities far exceeding the required buffer stock. Over the years, concerns have persisted regarding the deterioration of grains stored in the Food Corporation of India (FCI) facilities. Given India”s diminished likelihood of facing severe food shortages due to war or famine, these surplus buffer stocks have seldom been utilised.

In November 2021, after the three farm laws were repealed, Prime Minister Narendra Modi had in July 2022 set up the Committee on MSP to deliberate on matters to MSP, zero-budget natural farming (ZBNF) practices, and crop patterns. But farmer unions say that the committee has not come out with any conclusive outcome yet.

In response to ongoing farmer protests and discussions, the government has proposed the formation of a new committee comprising representatives from relevant ministries such as agriculture, rural and animal husbandry to address farmers” demands, including the establishment of MSP for all crops. This demonstrates a shift in the government”s approach towards dialogue and negotiation, signaling a willingness to engage with farmers on crucial agricultural policies.