Minimum Support Price: All That Glitters Is Not Gold

By Neha Chauhan

November 23, 2021
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INTRODUCTION 

Prime Minister Narendra Modi announced the repeal of the contentious farm laws on 19 November 2021 and urged the protesting farmers to return home. These three bills, namely, the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill 2020, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill 2020, and the Essential Commodities (Amendment) Bill 2020, arrived with India’s agrarian distress as their backdrop. 

Indian agriculture is plagued with high price volatility, lack of access to inputs, poor price realisation, rising costs, inaccessibility to formal credit, and poor bargaining power. In the backdrop of this agrarian distress, farmers have been protesting for over a year against the new Farm Bills passed in the parliament. One of the leading causes of worry for the protesting farmers was that the new farm laws would adversely affect the Minimum Support Price [MSP] regime that has been in place since the 1960s. While PM Modi mentioned in his speech that a committee would make MSP more effective and transparent, it remains unclear whether the government will agree to farmers’ other significant demands of making MSP a legal right.

 

UNDERSTANDING MINIMUM SUPPORT PRICE

Minimum Support Price [MSP] is the minimum price that the Indian government pays the farmers at the time of procurement. It is a form of market intervention by the government of India. The original idea behind the introduction of MSP was to provide the farmers with some kind of insurance against any sharp fall in market prices. 

Though MSP is supposed to be lower than the market prices, it has been consistently higher than the market and international prices. While the government keeps hiking the MSP, the farmers argue that MSP is not enough. At the same time, there have also been demands to legalise MSP. Since MSP keeps increasing yearly, it costs the government both financially and logistically. 

In this context, the paper seeks to analyse some key questions about MSP. The first section looks at the reasons behind the continuous increase in the MSP. The second section discusses whether the current MSP regime is benefitting the intended beneficiaries. Based on these observations, the final section attempts to provide a way forward for the policymakers.


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Neha Chauhan

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