MSP-procured foodgrains contribute to the central pool, which is used to supply the Public Distribution System (PDS) and other welfare schemes
Pushpamitra Mohanty
The Minimum Support Price (MSP) is the guaranteed price paid to farmers when the government procures their produce. It ensures that farmers receive fair compensation, protects them from market volatility, and promotes crop diversification. MSP is crucial for reducing rural poverty, supporting agricultural livelihoods, and strengthening food security.
MSP-procured foodgrains contribute to the central pool, which is used to supply the Public Distribution System (PDS) and other welfare schemes under the National Food Security Act (NFSA), as well as to maintain buffer stock reserves for emergencies.
How MSP is Fixed?
The MSP is determined based on recommendations by the Commission for Agricultural Costs and Prices (CACP), an advisory body under the Ministry of Agriculture and Farmers Welfare. The CACP considers factors like production costs, market price trends, demand-supply dynamics, and inter-crop price parity to recommend fair and remunerative prices. Once the CACP submits its recommendations, the Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister, takes the final decision on the MSP levels.
The CACP evaluates three types of production costs:
- A2 Costs: Direct expenses incurred by farmers on items like seeds, fertilizers, pesticides, hired labor, and irrigation.
- A2+FL Costs: A2 costs plus the value of unpaid family labor.
- C2 Costs: A comprehensive measure that includes A2+FL costs along with the rental value of owned land and interest on fixed capital assets.
Currently, MSP is set to cover A2+FL costs, with C2 costs used as a benchmark to ensure fair returns.
Swaminathan Committee Recommendations
The Swaminathan Committee, chaired by Dr. M.S. Swaminathan, recommended setting MSP at least 50% higher than the C2 costs to ensure sustainable and profitable farming. While this formula has not been fully implemented, it remains a cornerstone in policy discussions about farmer welfare and agricultural pricing.
Need for MSP
Farmers in India face several challenges that highlight the importance of MSP:
- The twin droughts of 2014 and 2015 and declining commodity prices since 2014 severely impacted farm incomes.
- Economic disruptions from demonetization and the rollout of the Goods and Services Tax (GST) weakened the rural economy, affecting both non-farm and agricultural sectors.
- A slowdown in the economy post-2016-17, followed by the COVID-19 pandemic, further strained farmers’ livelihoods.
- Rising input costs for diesel, electricity, and fertilizers added to farmers’ financial burdens.
In this context, MSP serves as a safety net to protect farmers from financial distress and ensure equitable returns for their produce.
Union Government’s Recent Measures
The Central Government recently announced a hike in MSP for six Rabi crops for the upcoming marketing season. This includes a 6.59% increase in MSP for wheat, raising it to Rs 2,425 per quintal. The move is aimed at ensuring fair returns for farmers, especially ahead of major elections in states like Maharashtra, Jharkhand, and Delhi.
Odisha’s Ambitious Paddy Procurement Plan
The Odisha government has taken a proactive step by releasing an additional input subsidy of Rs 800 per quintal for paddy farmers. This subsidy and the central MSP of Rs 2,300 will be disbursed through direct benefit transfer (DBT) to farmers’ accounts. Chief Minister Mohan Charan Majhi will officially launch the initiative at a farmers’ convention in Sohela, Bargarh district, under the Samrudha Krushak Yojana. This will ensure farmers receive Rs 3,100 per quintal for their produce during the Kharif Marketing Season (KMS).
To simplify the procurement process, the state plans to:
- Build additional godowns under a public-private partnership (PPP) model.
- Use advanced automatic grain analyzers to ensure quality checks during procurement.
- Leverage technology like GPS-enabled tracking and the E-Vahan App to monitor paddy transportation and reduce middlemen involvement.
How Odisha Offers a Higher MSP?
State governments like Odisha can provide a higher MSP than the centrally announced rate by supplementing it with state-funded subsidies. In this case, the additional Rs 800 per quintal offered under the Samrudha Krushak Yojana reflects Odisha’s commitment to reducing farm distress and ensuring higher incomes for its farmers. This move bolsters farmers’ financial stability and highlights the state’s effort to align its policies with the local agricultural economy.
MSP: A Pillar of Agricultural Resilience
The measures taken by the Union and Odisha governments reflect the importance of MSP in supporting farmers and ensuring food security. Odisha’s higher MSP, coupled with technological and logistical enhancements, exemplifies how state-level initiatives can address regional agricultural challenges. Despite the existing concerns, MSP continues to be a vital tool for mitigating rural distress, promoting sustainable agriculture, and strengthening India’s food security framework.
(The author is a senior journalist. Views expressed are personal.)
