January 23, 2025

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📰 FEATURE STORY

Is a minimum income assurance better than MSP for farmers?

Indian farmers, led by those from North India, achieved an unprecedented historic victory against the government. The government was forced to withdraw three farm laws that it had hurriedly rushed through Parliament in 2020. The thousands of farmers gathered didn’t buy Prime Minister Modi’s assurances on the withdrawal.

Their struggle continues today with the demand for a legally binding Minimum Support Price (MSP). Several farm groups and political parties have their backs. However, is there an argument to be made that income assurance is better than a minimum price guarantee? Wouldn’t the former be better for their incomes?

Context

The three withdrawn farm laws dealt with the pricing of agricultural products, contract farming, and storage of food grains. They were criticised for encouraging private investment by agro-business corporations and diluting the given agricultural rights of states.

The government tried and failed to convince farmers that the laws, which allowed trade in produce outside state government-controlled markets and agri-businesses to source directly from farmers, were in their best interests.

Since last February, farmers from Punjab and Haryana have unsuccessfully attempted to enter Delhi while demanding a law guaranteeing MSP for all crops. One farm union leader has been on a hunger strike since November 26. While both sides are unwilling to budge, the government decided to hold talks on February 14.

So, what has been tried and tested to help increase farmers’ income? While presenting the 2024-25 Budget, the government allocated ₹1,17,528.79 crore for the Ministry of Agriculture. That’s about 2% of the Union Budget. The government said the PM Kisan Sampada Yojana benefited 38 lakh farmers and generated 10 lakh jobs.

But farmer incomes haven’t exactly skyrocketed. Data from the Situation Assessment of Agricultural Households and Land and Livestock Holding 2019 survey showed that the average monthly income of a farmer household was ₹10,218. Over half of the surveyed agricultural households were in debt.

Amid continued protests, the Centre plans to appoint an experts’ committee to examine traders’ manipulations behind price crashes. The government wants to see if there’s a middle ground since it doesn’t plan to legalise MSP.

While the farmers are adamant that an MSP will be the surest way to increase their incomes, others have stated the best way is to focus on minimum income rather than price. Why leave farmers and the sector at the mercy of market forces?

VIEW: Guarantee farmers a minimum income

The government declares MSP for 23 crops but mainly produces rice and wheat. Farm leaders say a legal MSP will compel private traders to buy at that price. That might be true if there’s a grain shortage when market prices are higher. When supply is plentiful, the government remains the largest buyer. The cost-plus model won’t compel farmers to be efficient. They’ll produce regardless of market demands. Commodities that receive government support through input subsidies and output prices have recorded lower growth in the past decade.

Even in Europe, which saw protests by farmers, leaders couldn’t identify the real cause for their unhappiness – the failure of markets to provide an assured income. Liberalising markets have failed to increase incomes. There’s an argument to be made that farmers should produce what the market wants. In that case, the government and farmers would be better served if the former ensured well-functioning markets rather than fixing or guaranteeing MSP.

The best approach would be to focus on some sort of minimum income rather than prices. The government actually has a head start with the PM Kisan Samman Nidhi scheme, which provides ₹6,000 annually to all landholding farmers. This scheme can be enhanced or modified from a per-farmer to a per-hectare basis. Instead of taxpayer money going toward input subsidies, it can be redirected and converted into direct income support. Farmers would no longer need to worry about which crops to grow and when.

COUNTERVIEW: MSP’s the better tool

Agricultural scientist MS Swaminathan had it right. He has called for an MSP for produce at cost plus at least 50% of the weighted average cost of production. To increase farmer incomes, we need to know current incomes. Per NITI Aayog, this is challenging due to the lack of data on cultivators and their income from other sources. That’s why MSP is a stable option. Market forces are uncertain, and MSP insulates farmers from this.

While there’s talk of crop diversification, if MSP is legally guaranteed across the board, farmers will be encouraged to grow crops that provide better profits than wheat and paddy. Industrial agriculture relies heavily on taxpayer money for fertilisers, energy subsidies, and water. Stepping away from industrial agri-chemicals is not only good for the ecology but also for taxpayers. The government can incentivise organic production within the MSP framework. It can also ensure that the Food Corporation of India (FCI) and other government agencies procure first from small and medium organic farmers.

While some schemes provide income support to farmers, they’re quite unequal. Some states don’t implement the scheme properly. In others, the number of beneficiaries is larger than the total landholdings estimated by the Census. While something like the PM-Kisan scheme could increase the welfare of some families, it won’t work out in the long run. It’s just another freebie that will further crowd out investments and R&D in agriculture. That won’t do the sector and those employed in it any good.

Reference Links:

• A farmer makes ₹10K a month in India; earnings as low as ₹4.8K in some States – Businessline
• Smallholder Farmers Need Minimum Income Assurance, Not MSP As A Legal Guarantee – NDTV Profit
• Prioritise assured income for farmers – The Tribune
• Doubling Farmer’s Income: A Tale of Empty Promises, Deceit and Propaganda – The Wire
• Is legal assurance of MSP for farmers viable? What are its implications? – Down To Earth
• Ensuring price assurance for farmers – The imperative of Minimum Support Price – Times of India

What is your opinion on this?
(Only subscribers can participate in polls)

a) A minimum income assurance is better than MSP for farmers.
b) A minimum income assurance isn’t better than MSP for farmers.

Previous poll’s results:

• The new UGC draft guidelines are the right approach: 54.7% 🏆
• The new UGC draft guidelines are the wrong approach: 45.3%

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🕵️ BEYOND ECHO CHAMBERS

For the Right:

DPDP Act will be outdated before it’s passed

For the Left:

Uttarakhand UCC regulating live-in relationships has a positive side too