MSP of Kharif Crops: Here's What Experts Say

The government is expected to notify the MSP or minimum support price for kharif crops soon. However, experts seem divided on the issue of MSP. Kharif crops include rice, maize, sorghum, bajra, ragi, pulses, soyabean, groundnut, cotton etc

While former agriculture minister Sompal believes the existence of MSP is critical, economist Madan Sabnavis says the government would do well to provide the farmers with a direct cash transfer rather than set an MSP.

MSP is the minimum price set by the government at which the farmers' produce is procured by the Food Corporation of India (FCI).

"This price policy is of critical importance not only as a source of income for the farmers but also as a source of demand for other sectors of the economy, especially the manufacturing sector.

"46 per cent of demand for manufactured items emanates from rural areas which are dependent on agricultural incomes as their purchasing power and that is a very important source," Mr Sompal said.

However, Madan Sabnavis, chief economist, Care Ratings takes a contrarian stance, saying that MSP is a largely redundant concept.

"In India we see that procurement actually takes place for only rice and wheat. So to my mind announcing MSPs for crops where there is no intervention from the point of view of the government is quite superfluous and it sort of distorts the overall market mechanism.

"And that's why we have had situations where prices are no longer guided by the demand-supply forces. So even in years where we have had very good agricultural crops, normally prices should be moving downwards. But then that hasn't happened because the MSPs have been increased by the government for whatever motivations it is," Mr Sabnavis said.

Mr Sompal, in fact, says the government should have notified MSPs much earlier.

"Actually it should be one month before the sowing season so that the farmer is able to find out what acreage he has to allocate to which commodity. Price is the only index because there is no other advisory which is effective. In economics, price is the main consideration so this delay is also causing anxiety and disappointment," he said.

Mr Sabnavis believes MSP has the potential to distort market prices and there are other ways of compensating farmers.

"What should be done to correct this is that if we want to compensate the farmers by making sure that they have the right kind of income, then you can always have a cash transfer to them. We should not try and distort the market mechanism by unnecessarily increasing these prices. What really happens is that when MSP increases, the benchmark prices start increasing in the market.

"So even when pulses production is normal, we have pulses prices going up because MSP has been increased," he said.

However, Mr Sompal is of the opinion that MSP has no relation with inflation and says if minimum support price is not there, the farmers won't be able to recover even their cost.