Case for legislative guarantee of minimum support prices

The price of guarantee will be less than the higher interest rate and cost of capital In 2023, government procurement achieved 26 million tons against a target of 35 million tons. These two years saw more than MSP being paid by market prices. Farmers have returned to their streets. This time, there isn’t an instant […]

The price of guarantee will be less than the higher interest rate and cost of capital

In 2023, government procurement achieved 26 million tons against a target of 35 million tons. These two years saw more than MSP being paid by market prices. Farmers have returned to their streets. This time, there isn’t an instant trigger like there was the previous time they marched to Delhi to protest the adoption of the three controversial farm regulations. The farmers have many requests, but the main one is a legislative guarantee for Minimum Support Prices (MSP). Although this has long been demanded, its exact meaning is not entirely clear.

Fear mongering with inflated assertions about fiscal expenses, monopolization of agricultural commerce, and missing markets has clearly resulted from the lack of clarification. The National Food Security Act (NFSA) and the National Rural Employment Guarantee Act were both preceded by similar scare tactics. In reality, the government has not become insolvent as a result of either of these pieces of law. Rather, they turned out to be a vital resource for individuals within the pandemic. MSP is an easy-to-use system that guarantees the price stability of vital agricultural products. Other nations’ farmers have access to such methods. By actively intervening in the market when prices fall below the MSP, the government hopes to protect farmers from price instability.

In India, it has been around for more than 50 years. So why are farmers requesting a formal guarantee? Prior to the sowing season, the government releases the MSP for 23 crops each year. However, the government does not act on the MSP announcement for the majority of crops. In actuality, it is only used for the two main crops, rice and wheat, and sporadically for other crops like pulses. However, even in these situations, the government’s market intervention serves to fulfill legal requirements and fulfill its commitments under the NFSA rather than to assist farmers. Farmers are merely asking that the MSP program be carried out as planned by the government. The majority of political parties and labor organizations support a legislative guarantee of this kind, but despite this consensus, successive governments have been slow to legitimize this system.

The main cause has been the worry that the costs of providing such a guarantee would be too high. Large sums of money, between Rs. 10 and 18 lakh crores, have been proposed as the guarantee’s cost. The majority of these presumptions stem from a lack of knowledge about agricultural markets and MSP’s function in price stabilization. There are two reasons why it is false to assume that the government will have to purchase all agricultural products if MSP implementation is guaranteed. Firstly, what is commonly called the marketable surplus is the portion of the produce that is available in the market. Second, government intervention is only necessary when the market price of a commodity is lower than the MSP, even in the situation of marketable surplus. However, even in this instance, action is only required to the degree that it generates surplus demand and drives up market rates.

Usually, it might only represent a small portion of the market’s arrivals. Years with greater market prices will require no intervention from the government. Furthermore, farmers are unlikely to sell at prices below market rates, even in the event that the government steps in. For wheat, this occurred throughout the previous two years. Government purchases accounted for just 19 million tons, compared to the 44 million tons objective set for 2022.

Against a target of 35 million tons, government procurement came in at 26 million tons in 2023. Market prices exceeded MSP in each of these two years. On the other hand, it is unfair to consider the price of obtaining rice and wheat to be the same as the price of the MSP program. Actually, the majority of it is a consumer subsidy rather than a farmer subsidy. But regardless of the MSP guarantee, this is a government commitment made under the NFSA and is required. Farmers simply receive the bare minimum in exchange for their labor-intensive produce—nothing more.

Unless the government offers a subsidy, the cost of government purchase for the remaining crops that are not included in the NFSA bundle is not incurred. The only amount the government must pay is the discrepancy between the issue price and the economic cost of grain procurement. The cost is zero and all of the expenses are recovered for the remaining crops, which the government does not sell by providing subsidies.

In rare cases, when market prices are higher, the government can also profit by selling the produce it has purchased at a little markup on both domestic and foreign markets. This will assist stabilize market pricing as well as lower domestic prices during spikes in inflation. The government has been exporting stocks to take advantage of higher foreign prices for a number of years in addition to open-market activities.

The farmers’ issues might not be resolved by a guaranteed MSP. However, it presents a favorable chance to address the disparities in the MSP and procurement system. These days, procurement is restricted to specific regions and can only include wheat and rice. To address the regional disparities in agricultural productivity, an enlarged and regionally diversified MSP covering a wider range of crops is required. Additionally, it will guarantee crop diversification and investment in, strengthening, and expanding storage management all essential for the management of natural resources.

Farmers’ and their need for an overhaul of the MSP system are, in large part, the result of years of disregard for the agrarian economy, which has resulted in falling real wages and incomes. Although the cost of such a guarantee is impossible to calculate, it will undoubtedly be less than the higher interest rates and increased cost of capital that the economy must bear as a result of managing inflation. Additionally, price stability will shield the typical consumer from the whims of inflation. More crucially, safeguarding farmers’ incomes will support the recovery of the rural sector during a period when it is beset by weak demand and rising inflation.

Mohit, Assistant Professor Law, Geeta Institute of Law, Panipat
Dr. Alisha Verma, Assistant Professor Law, Amity University Rajasthan