The Cost of Legal MSP is Greatly Exaggerated

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The Cost of Legal MSP is Greatly Exaggerated Blog Image

Why in News?

  • The resurgence of farmers on the streets, demanding a legal guarantee for Minimum Support Prices (MSP), highlights the longstanding struggle for stability in the agricultural sector.
  • Amid these developments, it is important to look into the complexities surrounding MSP, the misconceptions that fuel apprehensions, and the potential benefits of legalising this mechanism.

Understanding the Purpose Behind MSP

  • Price Stability for Essential Commodities
    • MSP serves as a crucial mechanism for maintaining stability in the prices of essential agricultural commodities.
    • By establishing a floor price, it acts as a shield against market volatility, safeguarding farmers from unpredictable fluctuations in the prices of their produce.
  • Risk Mitigating Mechanism for Farmers
    • Farming is inherently risky, influenced by factors such as weather conditions, pest attacks, and market dynamics.
    • MSP provides farmers with a level of income certainty, offering a buffer against financial losses during periods of low market prices.
  • Encouraging Crop Diversification and Food Security
    • MSP is not only about stabilising prices for major crops like rice and wheat but also serves as an incentive for farmers to diversify their crops.
    • By extending MSP to a variety of crops, the agricultural sector can witness diversification, promoting sustainable farming practices and reducing dependency on specific crops.
    • MSP plays a pivotal role in ensuring food security for the nation by maintaining a stable production environment for key staples.
    • By providing farmers with a guaranteed minimum price, MSP encourages sustained production of essential food items, contributing to the overall food security of the country.
  • Reflects Government's Commitment to Farmers
    • MSP reflects the government's commitment to supporting the agricultural community and acknowledging its crucial role in the country's economy.
    • By ensuring a minimum price, the government signals its dedication to the welfare of farmers, creating a sense of security and stability within the agricultural sector.

MSP Implementation Challenges

  • Selective Intervention and Limited Coverage
    • While the government announces MSP for 23 crops annually, the actual implementation is often selective, with meaningful intervention observed mainly in the case of major crops like rice and wheat.
    • This limited coverage undermines the overarching goal of MSP to provide stability across a broader spectrum of agricultural commodities.
    • Moreover, despite the government's yearly MSP announcements, the actual intervention in the market remains inconsistent.
  • MSP Implementation Bias
    • The unequal application of MSP, focusing predominantly on specific crops, creates a bias that marginalises farmers cultivating other essential commodities.
    • This bias contributes to regional disparities and affects the economic well-being of farmers involved in the cultivation of non-major crops.
  • Disconnect Between Market Price and MSP
    • The disconnect between market prices and MSP is a significant challenge, as the government's intervention is primarily triggered when market prices fall below the MSP.
    • The sporadic nature of intervention further exacerbates uncertainties for farmers, who may face financial distress during periods of market downturns.
  • Perceived Government Apathy
    • Farmers perceive a lack of genuine interest or urgency from the government in effectively implementing MSP.
    • This perceived apathy contributes to distrust and frustration among farmers, fuelling protests and demands for a legal guarantee to ensure consistent and widespread implementation.
  • Political Hesitation and Decision-Making Delays
    • Despite political consensus supporting a legal guarantee for MSP, successive governments have hesitated to formalise this mechanism.
    • The delay in decision-making perpetuates uncertainties in the agricultural sector and undermines the effectiveness of MSP as a stabilizing force.

Obstacles in Legalising MSP

  • Fiscal Concerns
    • Exaggerated claims about the fiscal costs of guaranteeing MSP have hindered its legalisation.
    • Political consensus supports the legal guarantee, but concerns over excessive fiscal requirements have deterred successive governments.
  • Prevalent Misconceptions
    • The notion that legalising MSP means the government must procure all agricultural produce is a fallacy.
    • Government intervention is necessary only when market prices fall below MSP, and it does not require the procurement of the entire marketable surplus.
  • Misunderstanding in Procurement Costs and Subsidies
    • The cost of procuring rice and wheat is often misunderstood as the cost of the MSP program, but it is a subsidy to consumers, not farmers.
    • For other crops, government procurement is not a cost unless sold with a subsidy, and the actual cost is the difference between economic cost and issue price.

Possible Benefits of Legalising MSP

  • To Ensure Consistent Implementation
    • Legalising Minimum Support Prices (MSP) provides a formal and legally binding framework, ensuring consistent and uniform implementation across all crops.
    • A legal guarantee mitigates the current challenges of selective intervention, providing farmers with a reliable safety net.
  • To Promote Inclusive Agricultural Growth
    • Legalising MSP for a wider variety of crops ensures that the benefits of price stability are not limited to specific segments of the farming community.
    • Small and marginal farmers cultivating diverse crops can access the protective shield of MSP, contributing to inclusive agricultural growth.
  • To Reduce Farmer Vulnerability
    • Legalising MSP reduces the vulnerability of farmers to market fluctuations, ensuring a minimum income for their produce.
    • Farmers can navigate uncertainties more confidently, knowing that the government is legally bound to intervene when market prices fall below the MSP.
  • To Increase Rural Economy
    • A guaranteed MSP contributes to the economic well-being of farmers, leading to increased rural income.
    • This, in turn, stimulates the rural economy by boosting demand for goods and services, creating a positive ripple effect on various sectors.
  • To Balance Consumer Subsidies
    • Legalising MSP helps in distinguishing the cost of procuring rice and wheat, often mistaken as the cost of MSP programs, from actual subsidies to consumers.
    • This clarity aids in policy discussions and ensures that subsidies are targeted appropriately, benefitting both farmers and consumers.
  • To Enable Strategic Government Operations
    • A legal framework enables the government to conduct strategic operations in domestic and international markets.
    • By selling procured produce at minimal mark-ups during times of higher market prices, the government can manage inflation surges, ensuring price stability for consumers.


  • Legalising MSP offers a comprehensive solution to the challenges faced by the agricultural sector.
  • It not only ensures consistent implementation but also promotes diversification, inclusivity, and economic resilience, contributing to the overall well-being of farmers and the prosperity of the rural economy.
  • By dispelling misconceptions and addressing concerns, policymakers can pave the way for a more secure and prosperous future for the backbone of our nation - the farmers.

Q1) What is the Swaminathan Commission, and why is it significant in the context of Minimum Support Price (MSP)?

The Swaminathan Commission refers to the National Commission on Farmers, headed by Professor M.S. Swaminathan, established in 2004. Its primary objective was to address issues related to farmers' welfare and agriculture in India. One significant aspect of the commission's recommendations pertains to Minimum Support Price (MSP). The Swaminathan Commission recommended that MSP should be set at a level that ensures a 50% profit margin over the comprehensive cost of production, taking into account factors like input costs, family labour, and rental value of owned land.

Q2) What are the key recommendations of the Swaminathan Commission regarding Minimum Support Price (MSP)?

The Swaminathan Commission made several key recommendations regarding MSP, aimed at ensuring fair and remunerative prices for farmers. One crucial recommendation was the fixation of MSP at a level that provides a 50% profit margin over the comprehensive cost of production. The comprehensive cost includes various factors such as input costs, imputed value of family labour, and the rental value of owned land. The commission emphasised the need for periodic reviews of MSP to account for changes in input costs and market conditions. Despite these recommendations, the complete implementation of the Swaminathan Commission's suggestions has been a matter of ongoing debate and discussion in Indian agricultural policies.

Source: The Indian Express