Background
After nearly two years, farmers from Punjab, Haryana, and Uttar Pradesh represented by over 200 unions are marching towards Delhi to push for their demands, including a legal guarantee for the minimum support price (MSP). However, the implementation of such a guarantee poses several challenges.
Low Awareness and Limited Coverage
MSP benefits less than seven per cent of farmers in the country, indicating that officially procured crop output accounts for only a small fraction of total agricultural output. This underscores the challenge of ensuring fair prices for the remaining 90 per cent of produce. Additionally, the majority of agricultural households in India remain unaware of the concept of MSP.
Market Dynamics and Fiscal Costs
Agricultural segments such as horticulture, milk, and fishery, where government market intervention is minimal, show four to ten per cent annual growth. In contrast, the growth rate in cereals, where MSP and other interventions are high, remains relatively low. This suggests that liberalized markets are more favourable to agricultural growth than government support and intervention.
Need for Targeted Intervention
While government intervention through procurement-backed MSP is necessary for staple foods to ensure food security, expanding MSP to all crops involves hefty fiscal costs, nearly one-third of MSP, to back MSP through procurement. This makes it challenging to implement a legal guarantee for MSP across all crops.
Challenges in Maharashtra
In 2018, the Maharashtra government faced challenges in implementing MSP when traders boycotted markets in response to penalties for buying farm commodities below MSP. This led to a stalemate as open market prices were lower than the MSP levels declared by the state.
Recommendations and Conclusion
The NITI Aayog paper suggests that government intervention through procurement-backed MSP is needed in selected cases but expanding MSP to all crops is not feasible due to fiscal costs. The report recommends revisiting the MSP and procurement support policy, designed for cereals during the Green Revolution, to meet specific state needs. Addressing challenges such as low awareness among farmers, high transportation costs, and insufficient storage facilities is crucial for effective implementation of MSP.
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