The Wrong Link

Context:  The recently enacted farm bills have triggered a debate on the desirability of the Minimum Support Price (MSP) regime.

Significance of MSP Regime:

• Benefits to the farmers: even beyond Punjab and Haryana are not negligible, and while small fraction benefits from it, the indirect benefit to food production can’t be ignored.

• Influence the output price: As the procurement significantly exceeds the Public Distribution System (PDS) requirement, this creates additional demand in the food-grain market, pushing up the prices. 

• A causal link between high prices and decrease in poverty: The period (2004-2012) was the period of high commodity prices, high government procurement and rapid reduction in rural poverty.

• Institutional backing:

• The Reserve Bank of India’s (RBI’s) annual report 2017-18 shows that MSP is a leading factor influencing the output prices of the farm produce in the entire country. 

• The Commission for Agricultural Costs and Prices (CACP) had previously recommended a steep increase in MSPs. 

• Important for rain-fed agriculturalists: Being deprived of irrigation, they don’t derive benefit from subsidies on electricity and fertiliser as their use is limited. 

• The only state supports these farmers (primarily cotton and pulse producers) have that of MSPs. 

Conclusion:   Presenting a free market as an alternative to MSPs will not persuade farmers, and they cannot be blamed for that.