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15th February 2024 (8 Topics)

Plainly on MSP

Context

Farmers have launched the 'Delhi Chalo' agitation to put pressure on the Centre for their demands, including a law on MSP for crops, based on the Swaminathan Commission formula.

Basics

  • About MSP: The minimum support price (MSP) is the rate at which the government purchases crops from farmers. It is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers.
  • C2+50 per cent formula: The National Commission of Farmers (NCF), led by MS Swaminathan, recommended that the MSP should be at least 50 per cent more than the weighted average cost of production.
  • 50 per cent of the returns: C2 is the actual cost of production, including account rent and interest foregone on land and machinery owned by farmers. According to the commission, the formula to calculate MSP would be MSP= C2+ 50 per cent of C2. The commission recommended that the MSP should be 1.5 times the farmers’ input costs.

Challenges with Guaranteeing Minimum Support Price (MSP):

  • Legal guarantee: Farmers demand a legal guarantee on the minimum support price (MSP), but this demand poses logistical and fiscal challenges for the government.
  • Market manipulation: While the government can ensure MSP only on the crops it procures, enforcing MSP on all produce brought to mandis or private trade is impractical and may lead to market manipulation.
  • Fiscal disaster: Guaranteeing MSP through legislation could result in a logistical nightmare, requiring extensive data collection and risking fiscal disaster due to market distortions and price volatility.

Proposal for Minimum Income Support (MIS):

  • Minimum income support (MIS): Instead of MSP, a minimum income support (MIS) scheme could provide farmers with assured income through direct benefit transfers, enabling them to make informed, market-driven decisions on crop cultivation.
  • Better encouragement: MIS, coupled with the phase-out of subsidies, can encourage crop diversification and alleviate the over-reliance on crops like wheat, rice, and sugarcane promoted by the current MSP regime.
  • Required measure: The government should engage in meaningful dialogue with protesting farmers rather than resorting to confrontational tactics, drawing lessons from past experiences and recognizing the need for constructive engagement.
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