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There has been a great debate recently over minimum support price (MSP) for agricultural produce. Fresh talks have begun over the government’s move of hiking the MSP to 50% over production cost and whether it will benefit farmers. Let us look at whether the move makes sense given that it has always been one of the major demands in all of the farmer movements in the country.
It was in the early 1960s when India was facing an enormous shortage of cereals that new agricultural policies were born marking the start of the Green Revolution.
In 1964, the government set up the Food Corporation of India (FCI) to procure foodgrains from farmers at remunerative prices, and through the public distribution system distribute them to consumers and also maintain buffer stock for food security.
In order to buy foodgrains, there had to be a policy on pricing. In 1965, an Agricultural Prices Commission was set up to advise on the pricing policy for agricultural commodities and its impact on the economy.
It was then that the Price Support Policy of the Government came in, providing a foolproof solution to agricultural producers against a sharp fall in farm prices. The minimum guaranteed prices are fixed to set a floor below which market prices cannot fall. If no one else buys it, the government will buy the stock at this minimum guaranteed prices. This is what came to be known as the minimum support price or MSP.
This policy took its final shape around 1974-76. The MSP serves as a long-term guarantee for investment decisions of producers. It came with an assurance that prices would not fall below a fixed level, even in case of a bumper crop.
MSP was introduced to provide financial stability to the agricultural system and encourage production.
MSPs are announced for 23 commodities on the basis of recommendations of the Commission for Agricultural Costs and Prices (CACP) by the Government of India at the beginning of the sowing season.
The major objectives of MSP are to support farmers from distress sales at severely low prices and to procure foodgrains for public distribution.
Ideally, the market price will always remain higher than the MSP fixed by the government. With government guarantee, the farmer can always sell at the MSP if he/she cannot procure a better price elsewhere.
Thus, MSP becomes a very important benchmark for the producer because it helps him estimate the revenue, aiding the financial planning and also influencing borrowing decisions if any.
Therefore, the demand to raise MSP has been one of the major points in most farmer protests given that it directly dictates the farmers income.
While there are many other non-price factors which have an long-term impact on agricultural development such as technology, irrigation, development of infrastructure, market reforms, better procurement, and storage facilities and institutions, MSP has always remained contentious as it is directly linked with the farmers pocket and is tangible.
The MSP just saw a 50% hike much to the relief of many farmers. The trouble with MSP is that while it is touted as an all-important factor for farmers promising an instant rise in their income and stability, it also has many drawbacks in implementation.
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