Introduction:

The future of Indian agriculture is at a crossroads. With the shrinking of the agricultural workforce and the diversion of fertile farmlands for urbanization, ensuring the sustainability of farming is a strategic imperative. Among the various support mechanisms for farmers, the Minimum Support Price (MSP) remains a central point of debate. Should there be a legal guarantee for MSP? This question has gained prominence, especially with the rising challenges in agriculture, from unpredictable climate patterns to volatile market prices.

The Decline of Agriculture and Its Impact

India’s agricultural sector faces a dual crisis: loss of both land and human resources. Prime agricultural lands across river basins, such as the Ganga-Yamuna Doab or the Krishna-Godavari delta, are being repurposed for real estate, infrastructure, and industrial projects. Additionally, the number of "serious farmers" – those deriving at least half of their income from agriculture – is dwindling. The number of operational holdings may be 146.5 million, but only a small fraction of these farmers remains committed to agriculture.

This decline threatens the future of India’s food security, as the country will need to feed a population of 1.7 billion by the 2060s. To sustain farming and ensure long-term food security, we must secure farmers' livelihoods. Price security, particularly through MSP, plays a crucial role in this context.

The Role of MSP in Securing Farmers

MSP is the government-mandated price at which it guarantees the purchase of crops if market prices fall below a certain threshold. It provides a safety net for farmers against price volatility. The process of fixing MSP involves recommendations by the Commission for Agricultural Costs and Prices (CACP), which takes into account factors such as the cost of production and market trends. Once approved by the Cabinet Committee on Economic Affairs (CCEA), MSP is set for various crops, including rice, wheat, and sugarcane.

For farmers to stay in business, there must be a balance between production costs and returns. Farming is a risky business – yield losses can occur due to weather anomalies, pest attacks, or other natural factors. However, price risks can be mitigated with a guaranteed MSP. This would encourage farmers to invest in their land and adopt modern farming technologies, which would boost productivity and reduce costs.

Arguments for and Against Legal MSP Guarantee

Supporters of a legal MSP guarantee argue that it would provide financial security to farmers, protecting them from unpredictable market conditions. It would also promote crop diversification, encourage farmers to shift from water-intensive crops to those less dependent on irrigation, and inject resources into rural economies, thus addressing distress in rural areas.

However, critics highlight several challenges with a legal guarantee for MSP. The most significant concern is the fiscal burden it would impose on the government, potentially reaching Rs. 5 trillion. Furthermore, such a system could distort market dynamics, discouraging private traders and leading to a situation where the government becomes the primary buyer of agricultural produce. This could be economically unsustainable, especially for crops with low yields. Additionally, legal MSP guarantees could violate World Trade Organization (WTO) subsidy principles, adversely impacting India’s agricultural exports.

The Way Forward: A Balanced Approach

Given the challenges associated with a legal MSP guarantee, alternative measures should be explored. Price Deficiency Payment (PDP) schemes, such as those implemented in Madhya Pradesh and Haryana, could be expanded at the national level. These schemes compensate farmers for the difference between market prices and MSP, ensuring price security without the fiscal burden of procurement.

Additionally, the government can focus on improving agricultural infrastructure, such as cold storage facilities, to help farmers better access markets and increase price realization. Supporting Farmer Producer Organizations (FPOs) could also help farmers by enhancing collective bargaining power and ensuring better prices for their produce. Moreover, gradual expansion of MSP coverage to include a wider range of crops would encourage diversification, reducing the dominance of rice and wheat.