February 16, 2024


Is the farmers’ ask for an MSP guarantee feasible?

In 2020-21, thousands of farmers protested against the Indian government’s controversial farm laws. At the time, the government asked farmers to trust them, but that didn’t go too far. The farmers believed the laws would give large corporations the upper hand in negotiations. The protests were successful since the laws were later repealed.

Now, farmers are once again on the move to protest. This time, it’s for something they’ve asked for before – a legal guarantee for Minimum Support Price (MSP). While there’s already some version of an MSP, the next step is a legal guarantee. Will it be feasible?


The MSP sets a floor below which prices for agricultural produce don’t fall. While most think an MSP is fixed for only rice and wheat, the reality is that there are 23 agricultural commodities listed by the government under MSP.

As farming practices evolved in India, a heavy price was paid. Heavy use of chemical fertilisers, soil degradation, and depleting groundwater reservoirs have all become quite common. For a while, all this led to farmers harvesting a lot of grains and the government storing some as buffer stock.

Things changed for the worse. Despite the application of recommended fertiliser doses, wheat and rice yields have plateaued. This has caused understandable distress among the farming community, leading them to ask for an MSP.

The MSP concept was first mooted in 1966 during the height of the green revolution. Punjab farmers were incentivised to use the dwarf miracle wheat varieties imported from Mexico and cross-bred in India. The MSP was fixed at ₹54 per quintal (1 quintal = 100 kg). The goal was to encourage more farmers to use these dwarf varieties. There was no formal legislation or legal sanction for MSP. It was just a way for the government to spread the dwarf wheat and later rice varieties.

The MSP is set by the central government for select crops. It’s based on the recommendations from the Commission for Agricultural Costs and Prices (CACP), which is tasked with determining the actual MSP rates. That rate is somewhat based on a formula derived from the Swaminathan Committee. The committee, i.e., the National Commission on Farmers, was formed in 2004 to focus on farmer distress.

The concept of MSP is rather strange since there’s no mention of it in any law, as stated before. Also, no law makes it mandatory, not even for private traders. While the government does buy from farmers at MSP, it’s not obliged to do so. Previously, the CACP did ask the government to draw up a concrete MSP law, but the Centre didn’t go for it.

One of the reasons farmers were upset with the now-repealed farm laws was that they didn’t mention MSP at all. Verbal assurances from the government weren’t enough. Now, almost 200 farmer organisations are in Delhi seeking a legal guarantee for MSP. Some even want universal MSP legislation. Is any of this feasible? Would it be the right move?

VIEW: It’s a necessity

We need to understand that farmers operate in a buyer’s market. Their crops are harvested and marketed in bulk. It can lead to sudden supply increases relative to demand, leading to downward pressure on prices. These market conditions favour buyers over sellers. It means farmers are price takers, not price setters. They don’t have the power to set a price, even a Maximum Retail Price (MRP). They’re forced to sell at the prevailing market prices determined by supply and demand.

This means they sell crops at wholesale prices but pay retail prices for things like seeds, pesticides, equipment, etc. Some economists support a direct income scheme rather than an MSP. But if every farmer is paid the same amount, what happens to the farmer who invests and produces more than others? If their primary occupation is agriculture, these farmers are justified in asking for some price assurances. They also have to account for price and production risks.

If there’s an MSP guarantee, the upside could be crop diversification. Farmers will be more likely to grow millets, pulses, and other less water-intensive crops. But can MSP be guaranteed? It can. For example, sugar mills have to pay a “fair and remunerative” or “state-advised” price to cane growers within 14 days of purchase.

COUNTERVIEW: It’s not tenable

For some economists, without accounting for market demands and having a guaranteed MSP is the wrong approach. The ideal would be for farmers to plan what the market wants and needs, reflected in the prices of crops at a given point. An MSP in this situation would lead to an oversupply of some crops and an undersupply of others. It’s why they endorse a direct income scheme that benefits all farmers irrespective of what they grow.

Prices are at their lowest during the time of peak arrivals. This benefits private traders, and imposing an MSP becomes near impossible. In 2018, Maharashtra tried it, with violators facing a ₹50,000 fine and imprisonment. Traders boycotted the purchase. For wheat, if private trade is discouraged to buy, prices could fall below MSP. It could help the government buy millions of tonnes, but farmers won’t get a chance for prices higher than the MSP.

MSPs don’t necessarily insulate farmers from market fluctuations and failures, especially during bumper harvests. Most of the sale of crops under MSP aren’t sold under the Agricultural Produce & Livestock Market Committee (APMC). They’re sold to village traders outside the AMPC’s ambit. There’s no record of the purchaser or seller. It’s impossible to guarantee an MSP for these transactions.

Reference Links:

  • The minimum support price conundrum and Indian farming – Down To Earth
  • Explained: What is MSP and why farmers are protesting over it? – India Today
  • Farmers’ protest: MSP guarantee to cost additional Rs 10 lakh cr, almost equal to infra spending – Business Today
  • Protesting farmers want MSP law: How would such a guarantee work? – The Indian Express
  • Farmers’ Protest Around MSP Reflects a Deep Lack of Trust in the Government – The Quint
  • Bury the MSP demand: Farmers are under severe stress but their demand for a legal guarantee for minimum support price has no merit – The Financial Express
  • Why a legal guarantee of MSP is fraught with challenges – Moneycontrol

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

a) The demand for an MSP guarantee is feasible.

b) The demand for an MSP guarantee isn’t feasible.


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