No, legal guarantee for MSP is not a “folly”

The debate over the demand for a legal guarantee for Minimum Support Price (MSP) for farmers has once again resurfaced, with Ashok Gulati, a prominent agricultural economist, labeling the demand a "folly." His criticism has sparked significant discussion, particularly in light of ongoing farmer protests and hunger strikes advocating for a legal guarantee of MSP. This issue is central to discussions on improving farmers' incomes and addressing the broader agricultural policy in India.

The Debate over Legal MSP Guarantee:

• Ashok Gulati's Opposition to Legal MSP: Implementing a legal guarantee for MSP would distort agricultural markets and undermine economic liberalization, despite acknowledging that farmers do not always receive the announced MSP.
• Evolving Farmer Demands: Over the years, farmers' demands for MSP have evolved, with a shift towards ensuring the assured realization of MSP through more nuanced policy measures, rather than a blanket entitlement.
• National Hypocrisy on MSP: While everyone supports MSP in principle, opposition arises when concrete proposals for its legal realization are presented. The debate highlights the gap between rhetoric and actual policy implementation for farmers.

Policy Proposals for MSP Realization:

• Comprehensive MSP Support Mechanisms: To ensure MSP realization, the authors propose a multi-faceted approach, including widening the Public Distribution System (PDS) food basket, expanding MSP procurement, and creating a price stabilization fund.
• Price Deficit Payment (PDP) Proposal: A proposal for Price Deficit Payment (PDP) is put forward, where the government compensates farmers when market prices fall below MSP. This mechanism avoids the pitfalls of universal procurement and mandatory trade bans.
• Addressing Price Suppression: The current policy is biased towards consumers, suppressing prices for essential crops like pulses and oilseeds. The authors argue that MSP must be guaranteed to balance this consumer bias with farmer welfare.

Economic Considerations and Criticism of Gulati's Stance:

• Market-Based Systems and Growth: Gulati points to growth in sectors like fisheries, horticulture, and milk, attributing it to market-based systems, but these sectors are not directly linked to MSP, and their growth does not necessarily benefit farmers in terms of income.
• Comparing Growth of MSP Crops: Data shows that MSP crops, such as mustard and green gram, have seen significant growth, surpassing that of non-MSP crops, indicating that MSP can support growth in agricultural sectors.
• Cost of Guaranteeing MSP: The cost of guaranteeing MSP through PDP, which could be Rs 26,565 crore in 2022-23, is argued to be affordable in comparison to other government expenditures like debt write-offs and corporate tax waivers, raising questions about the reluctance to support farmers.

Practice Question:

Evaluate the feasibility and implications of implementing a legally guaranteed Minimum Support Price (MSP) for farmers in India. How do recent proposals address the challenges of agricultural pricing and farmer welfare?