Farmers MSP is linked to politics, Govt to face burden of Rs 13.5 trillion this year: SBI Report

In recent times, the government’s emphasis on regular increases in the Minimum Support Price (MSP) has become a source of contention. While farmers demand legal backing for the pricing mechanism, the SBI research team argues that this focus on MSP is a political obsession that hinders the shift towards smart agricultural practices. According to the team’s report, the MSP regime covers only 6 percent of the farm universe, limiting its ability to address critical issues in agri value chain financing and livelihood support.
The Limitations of MSP:
If the government were to procure all MSP crops, it would impose a staggering fiscal burden of Rs 13.5 trillion on FY24 GDP. Soumyakanti Ghosh, the chief economic advisor at SBI, suggests that crop diversification, better farming practices, and improved farm value chain financing offer more sustainable alternatives. While food grain output, a key MSP item, accounts for only 17 percent of the agri sector’s overall output, a significant 71 percent is generated through vegetables, fruits, fisheries, forestry, and livestock. The current politics surrounding MSP fail to address the concerns of the remaining 83 percent of the sector in a holistic manner.
The Need for Reforms:
Agriculture and allied sectors were estimated at Rs 56.19 trillion in FY23, with food grain constituting only 17 percent of the agri & allied output. In contrast, livestock accounts for 30.7 percent, and vegetables & fruits for 11.4 percent. However, the government procures MSP crops, amounting to Rs 3.4 trillion, which represents only 6 percent of the total agri & allied output in FY23. Consequently, the report highlights the need for continued agricultural sector reforms to support the remaining 83 percent, as the MSP’s political agenda obscures the real issues facing the agricultural sector.
The MSP System and Crop Procurement:
Over the past decade, the MSP for all 22 crops has increased by an average of more than 100 percent. However, the government predominantly procures wheat and paddy through agencies like FCI and state bodies. Additionally, oilseeds, pulses, and copra are procured under the price support scheme when market prices fall below MSP. Cotton and jute are also procured at MSP through dedicated corporations. Notably, market prices for crops like maize, arhar, urad, paddy, sesamum, wheat, gram, and masur are currently higher than MSP, while others like jowar, bajra, ragi, moong, soybean, and cotton are lower.
The Scope of MSP:
Although the government has declared MSP for 22 crops, it procures only six or seven crops, contributing a mere 6 percent to the total agri & allied sector output. In other words, 94 percent of the total output remains outside the MSP’s support.
Reforming Agri Value Chain Financing:
Soumyakanti Ghosh argues that the demand for MSP is an obsession that hinders the shift towards a comprehensive 360-degree approach to agri value chain financing and crop diversification. He proposes moving towards a unified nationwide finance scale for all 23 commodities covered by the MSP system. This reform would revolutionize agri value chain financing, particularly for crop cultivation. Additionally, developing more mandis across states would facilitate direct consumer-farmer interactions.
Enhancing Agricultural Financing:
In states with digitized land records, banks could be mandated to lend up to Rs 3 lakh without collateral for any activity within the agri value chain, including crop loans. This increase from the current collateral-free loan limit of Rs 1.6 lakh would offer greater financial support to farmers.
Short-term Measures:
To avoid the need for legal backing for MSP, private parties could be mandated to buy crops at or above MSP. This approach would prevent storage issues associated with government procurement. Another solution involves compensating farmers directly for the difference between selling prices and MSP, thus containing the fiscal burden on the government.
Long-term Strategies:
Encouraging farmers to embrace crop diversification by promoting high-value and climate-resilient crops holds promise for increasing their income opportunities. Additionally, strengthening agricultural marketing infrastructure and increasing public investment in agri infrastructure are essential for long-term growth and sustainability.
Conclusion:
As the government contemplates the regular increase of MSP, it is crucial to consider alternative approaches that foster smart agricultural practices. By prioritizing crop diversification, improving farming practices, and enhancing agri value chain financing, India can unlock the full potential of its agricultural sector. Reforms that address the concerns of the entire agri universe rather than a mere 6 percent covered by MSP will pave the way for a brighter and more sustainable future in Indian agriculture.