Approach:

Introduction: Write in brief about MSP and its general impact.

Body: Role of MSP in addressing Agricultural distress and farmers' income issues. Also, discuss the relevant challenges.

Conclusion: While giving solutions for some of the challenges, provide a positive way forward.

Answer:

Agricultural distress in India has been a significant issue, with farmers facing numerous challenges such as volatile market prices, unpredictable weather conditions, and mounting debts. Minimum Support Price serves as a safety net for farmers by ensuring a minimum guaranteed price for their produce, thereby protecting them from market fluctuations and ensuring a fair return on their investment.

The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 22 mandated crops and fair and remunerative prices (FRP) for sugarcane.

Role of MSP in addressing the issue of farmers' income and agricultural distress in India:

1. Income Security: MSP provides income security to farmers by assuring them a minimum price (floor price) for their crops and protects farmers from the volatility of market prices, especially during times of surplus production or price crashes. This stability in income helps in reducing the economic distress faced by farmers.
   • In the 2021-22 Rabi season, the government procured 146.4 million tonnes of wheat and rice at MSP, which was 86% of the total procurement target. This was the highest-ever procurement of wheat and rice at MSP in a single season. The government also paid a total of ₹1.95 lakh crore to farmers as MSP.

1. Price Support: The government purchases crops at the MSP and builds a buffer stock to maintain stability in prices and ensure food security. This support protects farmers from exploitation by middlemen and ensures they receive a fair price for their produce.
   • According to the data from the Department of Agriculture, Cooperation & Farmers Welfare, Government of India, the Minimum Support Price (MSP) for wheat in the year 2020-2021 was set at Rs. 1,975 per quintal and the government procured a record 43.36 million tonnes in the same year.

1. Agricultural Productivity: MSP encourages farmers to invest in agricultural activities by providing them with a guaranteed crop price. This assurance of income motivates farmers to adopt modern agricultural practices, invest in quality inputs, and strive for higher productivity. It leads to increased production, which in turn contributes to food security and economic growth.
   • For instance, the introduction of high-yielding varieties of wheat and rice supported by MSP has contributed to higher yields and increased production. The average yield of wheat in India has increased from 1,564 kg/ha in 2000-01 to 2,758 kg/ha in 2020-21.

1. Price Discovery: MSP acts as a reference price in the agricultural market. It serves as a benchmark against which market prices are compared, enabling farmers to negotiate better prices with private buyers. Even farmers who do not sell their produce to government agencies benefit indirectly from MSP as it influences market rates and prevents prices from falling too low.
   • The Minimum Support Price (MSP) for wheat in India for the marketing year 2021-22 was ₹1,975 per quintal. The market price of wheat during the same period for example in Punjab was ₹2,100 per quintal, in Haryana, it was ₹2,050 per quintal.

1. Social Welfare: MSP promotes social welfare by ensuring food security and affordability for consumers. It helps in maintaining stable prices for essential commodities like wheat and rice, which are distributed through public distribution systems (PDS). MSP operations ensure an adequate supply of these commodities, especially for vulnerable sections of society.
   • This ensures that these food items are available to consumers at affordable prices, promoting social welfare and food security.

1. Rural Economy and Employment: MSP plays a crucial role in the rural economy by supporting farm incomes and boosting rural employment. The agriculture sector is a significant source of livelihood for a large population in India. By providing a fair price for agricultural produce, MSP contributes to rural income generation, stimulates economic activity, and reduces migration from rural to urban areas.
   • The increased income in the hands of farmers leads to enhanced purchasing power, thereby stimulating economic activity in rural areas.

1. Empowerment of Small and Marginal Farmers: MSP particularly benefits small and marginal farmers who have limited access to market information and bargaining power. It provides them with a reliable price floor, enabling them to earn a decent income and improve their socioeconomic conditions. This empowerment of small farmers helps reduce income disparities and promotes inclusive growth.
   • It provides them with income security, enabling them to improve their livelihoods and invest in their farms. This empowers them to break the cycle of poverty and improve their socio-economic conditions.

1. Policy Instrument for Agricultural Reforms: It has been used as a tool to incentivize the production of specific crops, encourage diversification, and promote sustainable agricultural practices. The discussions and debates around MSP have paved the way for broader reforms in the agricultural sector, such as the recent Farm Acts, aiming to provide more market-oriented solutions and improve farmer income.
   • The discussions and debates around MSP have led to agricultural reforms in India, including the introduction of the Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020. These reforms aim to provide farmers with more market-oriented solutions, expand their choices beyond traditional government procurement, and enhance their income opportunities.

But there are certain challenges associated with the MSP:

1. Coverage: MSP operations predominantly focus on a few crops and specific regions, leaving out farmers growing other crops. Ensuring wider coverage and accessibility to all farmers, especially small and marginal farmers, remains a challenge.

• In 2020-21, the government procured only 23.5 million tonnes of wheat and rice, out of a total production of 109.5 million tonnes and 116.4 million tonnes, respectively. This means that only 22% of wheat and 20% of rice produced in India was procured by the government at MSP.

1. Market Distortions and Crop Imbalances: The MSP system's heavy reliance on certain crops, such as wheat and rice, has led to imbalances in cropping patterns. This creates market distortions, as farmers tend to favour these crops at the expense of others, resulting in overproduction and limited diversification. Addressing this challenge requires promoting MSP for a wider range of crops and encouraging crop diversification.

• For example, in 2022-23, the average price of wheat was Rs. 2,015 per quintal, while the average price of pulses was Rs. 6,100 per quintal. This means that farmers could have earned 3x more by growing pulses instead of wheat.

1. Procurement and Storage Infrastructure: Procuring crops at MSP requires robust procurement infrastructure and adequate storage facilities to prevent wastage and maintain quality. However, the existing procurement and storage infrastructure in many regions of India is insufficient, leading to post-harvest losses and inadequate support to farmers.

• For example, in 2022-23, the government was only able to procure 75% of the wheat that was offered for sale at MSP. This means that 25% of the wheat produced in India was not procured by the government, and farmers were forced to sell it at market prices, which were often lower than MSP

1. Price Disparities and Middlemen Exploitation: Despite MSP, price disparities persist due to variations in market prices and the involvement of intermediaries in the supply chain. Farmers often face challenges in selling their produce at the MSP due to the dominance of middlemen and commission agents who manipulate prices. Addressing these issues requires improving market linkages and reducing the influence of intermediaries.

• For example, in 2022-23, the average price of wheat in the mandis was Rs. 1,950 per quintal. However, the average price of wheat at the farm gate was Rs. 1,800 per quintal. This means that farmers lost Rs. 150 per quintal by selling their produce to the middlemen.

1. Cost of Production and Input Subsidies: The MSP may not always align with the actual cost of production, including rising input costs, such as seeds, fertilizers, pesticides, and irrigation. Farmers face challenges when the MSP falls short of covering their production costs, leading to reduced profitability and financial stress. Addressing this challenge requires periodic review and revision of MSP rates based on input costs and market dynamics.

• For example, in 2022-23, the government provided an input subsidy of Rs. 60,000 crores to farmers. However, the actual cost of production for wheat was Rs. 80,000 crores. This means that the government's input subsidy only covered 75% of the cost of production.

1. Financial Burden on Government: The financial burden on the government for procuring crops at MSP and maintaining buffer stocks can be significant. Allocating sufficient funds and managing fiscal resources to support MSP operations pose challenges, especially during periods of surplus production and declining global prices.

• In 2022-23, the government spent Rs. 2.0 trillion on procurement and storage of food grains. This is a significant financial burden, especially during periods of surplus production and declining global prices

It is important to note that while MSP has provided significant benefits, it is not a comprehensive solution to all the challenges faced by farmers. Addressing issues related to access to credit, technology, infrastructure, and market linkages, along with ensuring sustainable agricultural practices, are equally important for the long-term well-being of farmers and the agricultural sector as a whole. It requires a multi-faceted approach that includes improving infrastructure, expanding the MSP coverage, and promoting market reforms among others.