Explainer on MSP and Farmer Protest in India; Key question answered

MSP and Farmer Protest : The Fourth round of talks with Protesting farmers has failed again to bring consensus between Farmers and Government. This time however, provided a out of the box idea to farmers that offers-five-year contracts to procure five crops — tur (arhar), urad dal, masur (lentil), maize, and cotton — at minimum support prices (MSP) with no bar on quantity. But farmers have rejected the proposal, as they have demanded a legal guarantee for MSP for all crops that too as per Dr Swaminathan Commission formula. 

List of key questions on MSP :

• What is Swaminathan Commission MSP formula ? 
• Why is Swaminathan MSP (C2+FL) unsustainable? 
• MSP (C2+FL) will lead to inflation? 
• How much does it cost to provide MSP as legal guarantee for all crops? 
• What if all crop growers demand legal guarantee for MSP ? 
• How did Milk become the biggest agri-produce without MSP ?       
• What if Government forced to procure crops at MSP ?

What is Swaminathan Commission MSP formula ? 

Government provides MSP on A2+FL formula. As per this calculation, A2 -Covers all paid-out costs incurred by the farmer in cash for seeds, fertilizers, pesticides, hired labor, leased-in land, fuel, irrigation, etc. However, the Swaminathan Commission Report suggested that the government should raise the MSP to at least 50% more than the weighted average cost of production .i.e C2+ 50% formula. It includes the basically the cost of capital and the rent on the land (called ‘C2’ ) over and above of A2+FL.Here, FL stands for value of unpaid family labour. 

Why is Swaminathan MSP (C2+FL) unsustainable? 

The cost of land varies from state to state. Factoring this cost will lead to different MSP prices in different states for the same crop. It will eventually lead to smuggling from neighboring states for better price discovery.  

MSP (C2+FL) will lead to inflation? 

For most of the crops, the difference between Cost A2+FL and C2 is approximately varies between 25 to 30 per cent for most of the crops. Our Consumer inflation- CPI has almost 40 % weightage for food items. Eventually, it will lead to inflation in the economy, which will hamper growth.  

How much does it cost to provide MSP as legal guarantee for all crops? 

Experts suggest that providing legal guarantee of MSP will cost Rs 10 lakh crore to the government exchequer. For the context, amount is almost equivalent to the Capex expenditure of infrastructure projects all across the country in the year 2024-25. This time govt has allocated Rs 11.11 lakh crore for Capex only.  

What if all crop growers demand legal guarantee for MSP ? 

All the supporters of sympathizers of MSP and Farmer Protest need to think about situation when all farmers demand legal guarantee of MSP for their crops. At present the government provides MSP for 23 different crops. So the farmers who are not growing these 23 crops may likely to MSP as well. The total value of agricultural produce in FY 2019-20 was Rs 40 lakh crore. This included produce from dairy, farming, horticulture, livestock, and MSP crops . It will lead fiscal challenges to the government.

How did Milk become the biggest agri-produce without MSP ?       

It would be interesting to note that the biggest agricultural produce of India not Rice or Wheat. The milk is largest agricultural produce in India in value terms. Further, its value exceeds the value of paddy, wheat, all pulses, and sugarcane combined. Livestock and horticulture together constitute more than 50 per cent of agri-produce, and they have been growing without any MSP. This change in value proposition comes from sustained investment by government, cooperative and private players in value chain. 

What if Government forced to procure crops at MSP ?

It is likely that market players don’t want to buy the product at MSP prices they have cheaper import option is available. Then there would be pressure on government to procure all the produce. It will lead to overproduction, wastage of resource and storage issue. Certainly it may alter the cropping pattern that will eventually affect the biodiversity.

Secondly, if government somehow manages to procure a crop, which is not in demand in the market at MSP prices. Then next year, the government or allied agencies has to dump them to procure fresh crops. It is just not theoretical argument, one can witness the price trend of the crops.

Third argument suggest that MSP discussion has been in skewed in the favour of large land holding farmers (read Punjab). In large section of Indian farmers don’t have large enough land to survive on wheat and paddy cycle. Small farmers find cash crops as a better economic option then cereals.