Using the MSP regime wisely

Using the MSP regime wisely

Using the MSP regime wisely: India’s greatest achievement in agriculture was the Green Revolution of the 1960s. Farmers were given seeds of high-yielding rice and wheat varieties. Punjab and Haryana were chosen because the region already had a network of irrigation systems. Critical inputs such as power, fertiliser and pesticide were subsidised. These efforts were backed by a critical intervention, of offering minimum support prices (MSP) that offered guaranteed government prices to farmers for their output.

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Decades later, this broadly remains the policy framework for Indian agriculture. MSPs primarily work in the case of grains, such as rice and wheat, because the government buys nearly 40% of the produce at assured rates, which are increased annually. But the MSP regime made the biggest farmers limit their crop choices to just wheat and rice, resulting in gluts and damaging deficiency of other essential food items, such as oilseeds, coarse cereals and pulses. As of May, State-run granaries held 80 million tonnes of foodgrains, 11 times more than what must be set aside as reserves. It also hurt nutritional security. India ranked 94 out of 107 nations according to the Global Hunger Index 2020. In states such as Punjab, overproduction of rice, incentivised by MSP, plunged ground-water levels to environmentally disastrous levels — and the water rationing and release schedule, especially in Punjab, is one reason for stubble-burning between cropping seasons, resulting in pollution across the northern plains.

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Since the government pays higher MSPs every year for cereals, the produce is non-competitive in global markets. Indian wheat can hardly be exported competitively, since it’s way more expensive than that of other exporting nations. Food policies designed to work in an era of scarcity must be different from strategies to be adopted in an era of surplus. Successive governments, including the Narendra Modi one, have tended to correct this trend by offering higher MSPs for essential noncereals — this was done again last Wednesday. But it hasn’t nudged farmers to diversify away from cereals because government procurement of non-cereals is still a token exercise. The shift to higher MSPs for non-cereals must be backed by State procurement of a quantity that is sufficient to pull up rates for private traders so that farmers gain confidence. That is the way forward to correcting the imbalance that marks the political economy of Indian agriculture.