MSP is losing relevance

The Minimum Support Price (MSP) regime as currently practised for specified crops is outliving its utility, and deserves a thorough review. To begin, the list of 22 mandated crops eligible for MSP needs to be pruned substantially.

Look at some of the eligible oilseed crops (nigerseed, safflowerseed and sesamum) as also coarse cereals (barely, jowar and ragi), for example. Over the last 10 years, successive hikes in support price season after season have not had any meaningful impact on their harvest size. Production continues to languish within a small range. It is unclear how growers of these crops have benefited from the MSP regime and whether it makes sense to announce price hikes without ascertaining outcomes.

Pruning the list does not mean some crops are not important; it is to show how ineffective the MSP regime has been over the years in triggering production increase, crop diversification or delivering remunerative rates to growers. Policymakers must explore non-price initiatives to promote the aforementioned crops.

Focus on major crops

The focus of MSP has always been on big-ticket crops like rice, wheat and cotton, and on occasions on crops such as soyabean and rapeseed-mustard. MSP policy cannot be a standalone policy divorced from other aspects of agriculture, nor is it the panacea for all farm ills. In the least, we need MSP + +. What’s this MSP Plus Plus? The farm sector needs a more holistic approach with adequate attention to pre-production and post-production components, including a robust procurement system, appropriate export-import policy and a dynamic tariff structure (customs duty). It is also critical to recognise looming environmental issues. MSP is a kind of sovereign assurance, if not guarantee, that no grower will be forced to suffer loss if crop price fell below the specified MSP. In reality, a majority of farmers have not benefited from MSP. The benefit is largely confined to rice and wheat growers and that, too, in restricted geographies (Punjab, Haryana and Uttar Pradesh, for example).

Indeed, MSP is an unstated options contract where the government is the options writer and the farmer options buyer. In this, the government has the obligation to buy from farmers if prices fall below government- declared MSP; but the farmer is under no obligation to sell to the government if prices rule above MSP. In that case, farmers are free to sell in the open market at a price higher than MSP.

The futility of MSP as practised at present is stark. Take the case of oilseeds, which have been in short-supply for at least 30 years now. The growers of crops in short-supply would logically expect to receive higher prices. But oilseeds growers hardly reap the benefit of shortage.

Herein comes the trade policy and tariff policy. India’s vegetable oil import policy actually works to deny any price benefit to domestic oilseed growers.

The same situation prevails for pulses, too. India has been importing pulses since the early 1980s — that’s for 40 years now. Yet, the growers have often failed to obtain even the MSP, leave alone remunerative rates.

MSP is but a minor component of our agricultural strategy and it has outlived it ‘best-by’ date. It has hardly resulted in any tangible production growth or crop diversification. It is necessary to review the rationale and relevance of MSP. Newer challenges such as worsening land constraints, water shortages and climate change now confront the farm sector. India may not be food insecure today, but an indifferent or business-as-usual attitude can potentially push us to the brink.

Our agricultural policy must be holistic providing end-to-end solutions. While the farm sector accounts for only 15-18 per cent of GDP, it provides livelihood for close to 50 per cent of the workforce. Therein lies its importance.

The writer is a policy commentator and agribusiness specialist. Views are personal

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