Minimum Support Price- How Effective Is It?

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There has been a lot of issues surrounding the Minimum Support Price (MSP) system in India. In concept, MSP makes a lot of sense, as it protects the farmers from making losses on their products and getting exploited. However, the introduction of the Farm Bills by the government has sparked a lot of discussion about MSP. So, what exactly is it and to what extent does it help farmers?

In periods of high productivity, the supply of crops is higher, leading to the price of the crop crashing and leaving farmers incurring huge losses. This could mean that farmers cut back on production to prevent such losses, leading to a crop shortage. For this reason, the government guarantees a minimum amount of profit to the farmers by setting a price floor, or MSP. Any goods that are not sold by the farmers in the open market are bought by the government at the MSP and kept as buffer stock. This helps the farmers have a guarantee of income.

The concept is great, as it provides a guarantee of profits to the poor and exploited farmers. However, it also poses a few problems. The establishment of a price floor means that a crop cannot be sold below a particular price, therefore causing a contraction in demand. This means that there is always excess stock to be bought by the government, meaning they incur huge expenditure on buying and storing these crops. Schemes like MSP contribute largely to the budget expenditure and necessitate borrowing and fiscal deficit.

Additionally, the implementation of the MSP scheme has been far from ideal. According to the Shanta Kumar Committee, formed to suggest restructuring of the Food Corporation of India (FCI) in 2015, only 6% of the farming population in India benefitted from the MSP system, and this population was mainly confined to the northern regions. Farmers who sold their produce at mandis were forced to sell at much below the MSP due to low demand and were not able to even make their money back. The improper implementation of the MSP scheme has led to farmers losing Rs 45 lakh crore between 2000 and 2017. Another big issue is the lack of information and education among farmers. While most farmers know about the existence of MSP, very few know the actual prices for each crop and end up receiving much less than they actually should.

So, what should be done? The government should focus on making the MSP a legally backed scheme. As of now, there is no legal requirement to follow the MSP system, and the lack of information with the farmers means they get exploited. Another step that should be taken is to educate farmers about schemes like this so that they are aware of the prices they should be receiving. 94% of farmers in India do not even utilize the scheme, meaning that these farmers continue to get exploited. Though the MSP program is conceptually great, it requires proper enforcement to benefit the farmers of the country.  

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