MSP refers ‘Minimum Support Price’, which is a floor price or minimum price for a crop decided by government of India. It was first implemented in 1966-1967 for wheat and rice. Currently it covers 23 crops.
MSP is probable the most trending word for 2021. Amid protest in Delhi, there is lot of debates and news around MSP. There is fear among farmers that the new laws introduced by government of India are aimed at dissolving MSP. Entire farmer protest is around this topic. Everyone is discussing MSP today. But do you know history of MSP and how is it calculated. Here it is-
What is MSP ?
MSP refers to Minimum Support Price, which is a floor price or minimum price for a crop decided by Government of India. It is a safety net provided to farmers to ensure that they get remunerated for their produce. State like Punjab and Haryana are food surplus state. Due to surplus produce, which means increase in supply, prices falls sharply, which led to loss to farmer. So government introduce MSP system to ensure farmers get minimum price for their produce. Government decide minimum price of a crop before its harvest. Even the prices of crop fall , government buy it at MSP. MSP protect crop prices from market fluctuations. While MSP is not enforceable by law.
History of MSP-
Back in 1960’s, India was facing acute shortage of food supply. India had got newly Independence and has already fought two wars. India was mostly dependent on imports for wheat. So Prime Minister Lal Bahadur Shastri Ji introduce policies to make promote Agriculture to make India self sufficient. A series of administrative and technological reforms were carried out, but still the outcome was not up to expectation. It was realised that farming is very vulnerable, because farmer due not get profitable price for their produce and end up selling at losses.
To ensure minimum price for farmer’s output, Prime Minister set up 5 member Food Price Committee in August 1964. The committee was set up under his own secretary LK Jha. The committee include TP Singh (member, Planning Commission), BN Adarkar (Additional Secretary, Economic Affairs, Ministry of Finance), ML Dantwala (Department of Economic Affairs) and SC Chaudhary (Economic and Statistical Consultant, Ministry of Food and Agriculture). Based on recommendation of committee Agriculture Price Commission (APC) and Food Corporation of India was established in January 1965. The report was approved by B Shivaraman, then secretary to Government of India in October 1965. Committee recommended providing minimum price to the farmers and implementing maximum retail price for grains, so to ensure availability of food to poor. The committee recommended price for 1964-65 only. In 1985 Agriculture Price Commission (APC) was renamed as Commission for Agriculture Cost and Pricing (CACP).
Also this system was set up to protect farmers from being tapped in debt cycle of middlemen or Zamindars. After independence India’s agriculture was under stress, due to lack of availability of raw material and capital. So farmers used to borrow money from Zamindars, Landlords and Arhtiyas. At that time there was no proper infrastructure, system and knowledge for farmers, so they sell their produce directly to Arhtiyas, Zamindars or Landlords. But these middlemen pay very less for their produce. Farmers became indebted to middlemen and get tapped in debt trap. Farmers were at mercy of middlemens. But MSP ensures that they would get minimum price for their produce.
Here it is also to be noted that MSP is a administrative decision, it does not have any legal backing. It depends upon governments. So far from 1965 it has been continued.
How is MSP calculated ?
MSP is fixed by ministry of agriculture based on recommendation of Commission for Agriculture Cost and Pricing (CACP). It is statutory body so its recommendations are not binding on government. While calculating cost it consider cost of labour, land, inputs, interest on investment, inflation etc. CACP uses 3 formulas to calculate MSP- A2, A2+FL and C2, prescribed by Swaminathan committee.
A2– It include out- of -pocket expense incurred by farmer. It includes cash expense like labour, seed, manure, fertilizer, electricity, fuel, rent etc for production of crop.
A2+FL- FL refers to Family Labour. It includes unpaid labour of family members in cost of crop production.
C2- It refers to Comprehensive Cost (CC OR C2). In addition to A2+FL, it includes interest on capital invested, rent, interest on owned land and machinery.
In reply to parliament Agriculture Minister Tomar said that government use both A2+FL and C2 while calculating MSP.
MSP had been boon to our country and played important role in making India food sufficient. MSP had commercialized the farming. It had attracted farmers toward commercial farming by providing them price security. But it has been established only in few states like Punjab, Haryana and UP. MSP implementation has its own impact. Environment degradation and reducing water table in Punjab has widely been acknowledged. As every coin has two sides, MSP too have both positive and negative impact. It put a lot of burden on government’s exchequer. Also MSP procurement is dependent on middlemen, commission agents and bureaucrats.
New farm bills of 2020 are aimed at dissolving MSP by allowing farmers to sell their produce outside APMC mandis. Farmer fear that if MSP is not provided, corporates will manipulate prices. This has led to protest around Delhi. Government should come with policies that protect stakeholder’s interests and with proper consultation.