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The Minimum Support Price (MSP) policy in India has been a topic of intense discussion and debate in recent times. The government has often argued that providing MSP to farmers would impose a significant fiscal burden on the economy, leading to concerns about the feasibility of extending MSP to all other groups. However, it is important to note that the current fiscal burden is not solely a result of MSP, but also stems from the mismanagement of agricultural policies over the last three decades.

Understanding the Components of the Fiscal Burden

To truly grasp the fiscal burden associated with MSP, it is essential to delineate the three key components of the food economy: procurement, storage, and distribution. The cost of procurement, which constitutes a fraction of the overall burden, is often mistakenly conflated with the total expenditure of managing food. The government’s excessive stocks of grain, particularly highlighted during the COVID-19 pandemic, have resulted in substantial costs associated with storage rather than procurement itself.

An Artifact of Wrong Policies

The notion of MSP being a fiscal burden is an artifact of wrong policies and mismanagement. Rather than solely attributing the burden to MSP, the focus should be on rectifying the misalignment of cost of production, the price farmers receive, and the distribution of government-procured grain. The sharp rise in costs can be attributed to factors such as deregulation and liberalization, which have distorted market prices and left farmers with no choice but to sell their produce to public procurement agencies.

The Importance of Synchronization

Synchronization of the three elements – cost of production, price realization, and distribution – is crucial to ensure an effective system. If government procurement is not synchronized with distribution, it leads to an accumulation of excessive stocks and an increase in storage costs. Similarly, if the government does not prioritize procurement as a response to rising input costs, it results in distress among farmers.

The Need for Price Assurance

Farmers’ empowerment requires ensuring price assurance, which has been a major concern for farmers. However, the Farmers’ Empowerment and Protection Agreement on Price Assurance and Farm Services Act fell short of addressing this concern. Although the legislation aimed to provide price assurance, it failed to deliver on meaningful price guarantees that would be remunerative for farmers.

The Way Forward

To address the fiscal burden and enhance price assurance for farmers, a holistic approach is required. Here are some key steps that can help in achieving these goals:

1. Ensuring Remunerative Price Assurance: To provide meaningful price assurance, it is crucial to set a minimum level of return that guarantees farmers’ earnings above the cost of production. This would incentivize farmers to produce and provide a safety net against market fluctuations.

2. Strengthening Market Mechanisms: Market reforms should focus on improving price discovery mechanisms and reducing market distortions. This can be achieved through the integration of technology, standardized grading systems, and enhancing market infrastructure. Digitization and the establishment of Farmer Producer Organizations (FPOs) can empower farmers and facilitate better market access.

3. Promoting Efficient Storage and Distribution: Emphasis should be placed on optimizing storage practices and establishing robust supply chain networks. This would help reduce the cost of storage and prevent excessive accumulation of stocks.

4. Diversification of Agriculture: Encouraging crop diversification can lessen the reliance on specific crops and reduce market volatility. Empowering farmers with knowledge about alternative crops and providing necessary support for diversification would contribute to more sustainable agricultural practices.

5. Investing in Agricultural Research and Development: Government investment in agricultural research and development can help improve yield, reduce input costs, and enhance overall productivity. Equipping farmers with modern technology and knowledge will allow them to adapt to changing market dynamics.

Addressing the fiscal burden associated with MSP and enhancing price assurance for farmers requires a comprehensive approach that considers various factors contributing to the burden. By synchronizing the cost of production, price realization, and distribution, the burden can be reduced significantly. Additionally, ensuring remunerative price assurance, promoting market efficiency, and focusing on storage and distribution optimization are essential steps toward achieving fiscal stability and empowering farmers in the long run.