The Mere Existence of MSPs will Not Do Much for Indian Farmers

Context: India’s current price policy, driven by political expediency, is not consistent with the idea of an MSP as a support price to be invoked only in the event of a price fall.

Key Features of Ideal MSP System: for what it was actually designed for - 

• Support operation: MSP is an offer price at which government is willing to buy any amount of grain from farmers and should be undertaken until market prices stabilize. (provides support for 23 crops)
• Universal instrument of price security: (not unique to India) given the large fluctuations in agricultural commodities output (and thereby prices) due to weather vagaries and inelastic demand.
• Above hypothetical market price may or may not have any explicit reference to input cost (it involves an element of subsidy).

Issues in MSP Operation

• Does not include actual input prices: given the price fluctuation, MSP may or may not have an explicit reference to the input prices
• Skewed Procurement (limited to rice and wheat): has led to reduction of MSPs to procurement prices (rates at which Food Corporation of India (FCI)).
• There were hardly any MSP for several crops such as maize, even though prices collapsed.
• Led to the rise in the buffer stocks: As against the norm of 21.4 million tonnes of rice and wheat, stocks were almost four times. (even when the food inflation was more than 10% yearly)
• MSP operations were undertaken in states that had market and storage facilities, rather than on the basis of prevailing prices. 
• As a result, though wheat prices collapsed in Bihar, its farmers hardly got any MSP support, 
• While Madhya Pradesh, where 13 million tonnes of wheat was procured despite higher farm-gate prices.

Way Forward: Ensure broad-based MSP regime

• Catering to all major crops would not only be fiscally prudent but also incentivize crop diversification based on agro-climatic conditions. 
• Extend MSPs to pulses and millets would help reduce dependence on imports and encourage better agricultural practices in some of poorest rain-fed regions.

Conclusion: The issue related to Minimum support prices (MSPs) is never the existence of it, however, is whether the MSP system in its current form has played the role that it was designed for