MSP should not be seen together public procurement

MSP should not be seen together public procurement


Now that the farm laws have been repealed by the Centre, the leaders of farmers’ unions are pushing for legal minimum support price (MSP) entitlement for 23 crops. Since MSP has no statutory backing, technically farmers cannot demand these prices as a matter of right. The farmers’ unions want the Centre to enact legislation conferring mandatory status to MSP, rather than MSP just being an indicative or desired price.

The Centre has assured the unions that it will form a committee to review this demand . Currently, the MSP is decided based on the recommendations of the Commission for Agricultural Costs and Prices (CACP). Farmers’ unions have been demanding a legal entitlement that amounts to the comprehensive cost of production (C2) plus 50 per cent (i.e., C2+50 per cent). Further, farmers are also demanding that there should be a legally enforceable MSP for 23 crops for which MSP is currently announced by the government for all buyers who willingly participate in the market.

In large multi-stakeholder countries, finding a middle ground on certain policy issues is nearly impossible. Thus, policies need to be geared to protect the most vulnerable. As a first step, the issue of MSP should be seen separately from public procurement. The MSP is a price guarantee, which can be delivered both by the government as well as by the market – the discretion should lie with the farmer.

Addressing concerns

There are some concerns that the legal backing of MSP will be a huge financial burden on the exchequer and will also hinder crop diversification by farmers. The government is already purchasing output worth about Rs. 4 lakh crores of these 23 crops at MSP (including sugarcane). The private sector, which typically procures produce at 20-25 per cent lesser than the MSP, purchases the output at a cumulative value of about Rs. 3 lakh crore (of these 23 crops), which, if procured at MSP, would amount to Rs 4 lakh crore. Hence, there is no additional burden on the government and the infusion of additional Rs. 1 lakh crore in the rural economy by the private sector will be beneficial both for the government and private sector.

As regards crop diversification, the crop basket chosen for MSP should factor in food security, market demand and processing potential, and the mix may be revisited every few years to ensure farmers are eventually incentivized more by the market (including food processors) and rely less on the government. After all, the food processing sector is the only engine capable of ensuring the healthy long-term growth of the agriculture sector, and the need of the hour is to drastically enhance the budget allocation for the food processing sector.

(The writer is Partner, Wazir Advisors and Founder, Roots Foundation)


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