The government recently approved the Minimum Support Prices (MSP) for the Kharif season 2022-23, indicating that the rates are at least 1.5 times the average cost of production. For 14 Kharif crops, the rates have been increased between 4% to 8%. The MSP is the rate at which the government purchases crops from farmers, calculated as at least one-and-a-half times the cost of production incurred by them. It functions as a “minimum price” for crops that are remunerative for farmers and deserving of “support”.
Understanding Kharif Season
Kharif crops are cultivated from June to July, with harvesting done between September and October. These include crops like rice, maize, jowar, bajra, cotton and groundnut. The main States involved in the production of Kharif crops are Assam, West Bengal, Odisha, Andhra Pradesh, Telangana, Tamil Nadu, Kerala, and Maharashtra.
MSP and it’s Significance
The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 22 mandated crops and fair and remunerative price (FRP) for sugarcane. The crops under MSP include 14 Kharif season crops, 6 Rabi crops, and 2 other commercial crops. Additionally, the CACP uses various factors to measure the MSP for a commodity including cost of cultivation, the supply and demand situation, market trend prices, and implications for consumers and environment.
Production Cost Categories
The CACP projects three kinds of production costs: ‘A2’ covers all paid-out costs directly incurred by the farmer; ‘A2+FL’ combines A2 plus an imputed value of unpaid family labour; and ‘C2’ incorporates rentals and interest forgone on owned land and fixed capital assets, on top of ‘A2+FL’. The CACP takes both A2+FL and C2 costs into account when recommending MSP.
The Need for MSP
MSP has become crucial for farmers given the economic upheavals and the various challenges that agriculture in India faces. Factors such as declining commodity prices, the impacts of demonetisation, the rollout of GST, and the subsequent slowdown of the economy have all made farming precarious. Higher input prices for diesel, electricity and fertilisers have added to these difficulties.
Issues with India’s MSP Regime
Despite its potential benefits, the implementation of MSP is fraught with issues. Firstly, very few crops are procured at MSP due to resource constraints. Secondly, a majority of farmers are unable to benefit from MSP due to ineffective implementation. Lastly, the MSP-based procurement system is also dependent on middlemen and APMC officials, making it difficult for smaller farmers to access.
Way Forward
To address these issues, government intervention is needed whenever market prices fall below a predefined level. There is a potential to use MSP as an incentive for many crops which are critical for nutritional security. Investment in animal husbandry and horticulture can be beneficial. It’s suggested to incentivise the private sector to build efficient value chains based on a cluster approach. Partial agricultural pricing should be state-supported and partially market-driven. The implementation of a deficiency payments scheme similar to the Bhavantar Bhugtan Yojana (BBY) initiated by Madhya Pradesh could serve as a possible resolution.
The importance of the MSP system and its potential impact on farmers’ livelihoods cannot be understated. It is crucial to understand this complex system comprehensively and work towards implementing it effectively to benefit the intended beneficiaries.