Context: Recently enacted law by passed farm trade Bill has raised concerns that farmers may no longer be assured MSP for their crop. But MSP isn’t even mentioned in the new law or in existing ones. In this article we discuss, about the "basis of MSP".
Issue

• The newly enacted law dismantles the monopoly of APMC (agricultural produce market committee) mandis, thereby allowing sale and purchase of crops outside these state government-regulated market yards, 
• Even the government of the day may not have faced serious farmer opposition because it included a provision safeguarding the continuance of the existing minimum support price (MSP)-based procurement regime.
• But as per Union Minister the new legislation has “nothing to do with MSP”,  its objective is simply to grant farmers and traders the freedom of choice to sell and buy agricultural produce outside the premises of APMC mandis.

What does the new law say about MSP?

• The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill does not give any statutory backing to MSP and forget to making it a legal right, there isn’t even a mention of either “MSP” or “procurement” .
• MSP and procurement, according to Union Minister, are entirely separate issues: “MSP was not part of any law before. Nor is it part of any law today.”
• Because the National Food Security Act, 2013 (NFSA), passed by the previous Congress-led UPA government, provides a legal basis for the public distribution system (PDS) that earlier operated only as a regular government scheme.
• The NFSA made access to the PDS a right, entitling every person belonging to a “priority household” to receive 5 kg of foodgrains per month at a subsidised price not exceeding Rs 2/kg for wheat and Rs 3/kg for rice. 
• Priority households were further defined so as to cover up to 75% of the country’s rural population and 50% in urban areas.
• Where as MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidised grains through the PDS, isn’t an entitlement for farmers. They cannot demand it as a matter of right.

What is the basis of MSP then?

• According to former Planning Commission member and chairman of the Commission for Agricultural Costs & Prices (CACP) “It is only a government policy that is part of administrative decision-making. The government declares MSPs for crops, but there’s no law mandating their implementation,”
• Even the CACP itself is not any statutory body set up through an Act of Parliament. 
• This, despite its coming to existence in 1965 and MSPs being announced since the time of the Green Revolution, starting with wheat in 1966-67. 
• The CACP, as its website states, is just “an attached office of the Ministry of Agriculture and Farmers Welfare, Government of India”. 
• It can recommend MSPs, but the decision on fixing (or even not fixing) and enforcement rests finally with the government.
• Currently the centre fixes MSPs for 23 farm commodities — 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley), 5 pulses (chana, arhar/tur, urad, moong and masur), 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and nigerseed) and 4 commercial crops (cotton, sugarcane, copra and raw jute) — based on the CACP’s recommendations.
• Moreover, the government can procure at the MSPs if it wants to. There is no legal compulsion. Nor can it force others (private traders, organised retailers, processors or exporters) to pay.
• The government does buy wheat and paddy at their MSPs. But that’s more out of political compulsion and the need to supply the PDS’s foodgrain requirements, more so post the NFSA.
• Right now the only crop where MSP payment has some statutory element is sugarcane. This is due to its pricing being governed by the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act. 
• That order, in turn, provides for the fixation of a ‘fair and remunerative price’ (FRP) for cane during every sugar year (October-September). 
• But even the FRP — which, incidentally, was until 2008-09 called the ‘statutory minimum price’ or SMP — is payable not by the government. The responsibility to make FRP payment to farmers within 14 days of cane purchase lies solely with the sugar mills.

Has there been any move to give MSP legislative backing?

• The ongoing farmer protests essentially reflect a loss of that very confidence that the dismantling of the monopoly of APMC mandis in wholesale trading of farm produce the first step at ending even the present MSP-based procurement programme, largely limited to wheat and paddy.
• If APMCs were to turn unviable due to the trades moving outside, how will government agencies undertake procurement that now takes place in mandis?
• These questions are playing in the minds of farmers, particularly in states such as Punjab, Haryana and MP that have well-established systems of governmental MSP purchases. For them, freedom to sell to anyone, anywhere and anytime has little value compared to the comfort of assured procurement at MSP.
• The CACP, in its price policy report for the 2018-19 kharif marketing season, had suggested enactment of a legislation conferring on farmers ‘The Right to Sell at MSP’. This, it felt, was necessary “to instil confidence among farmers for procurement of their produce”. That advice, predictably, wasn’t accepted.
• Because once the MSP becomes a “right”, the government is duty-bound to enforce it. In this case, successful enforcement would mean not just distorting, but supplanting the market.

Road Ahead

• Farmer organisations want the MSP to become an entitlement, similar to the right to subsidised foodgrains (under the National Food Security Act), work (under the MGNREGA) or free and compulsory education for children.
• But seeking redress by giving statutory backing to the MSP makes no economic sense. There are established institutional mechanisms — the public distribution system (PDS), gram panchayats and government schools — to ensure right to food, minimum workdays and education. 
• The time has come to rethink the MSP farmers would be better off with income support that is crop-agnostic.  The idea of a universal basic income (UBI), mooted in the 2016-17 Economic Survey, is worth considering. Let all 12 crore-odd farm households receive a UBI of, say, Rs 24,000 annually, which is four times the amount already extended under PM-Kisan. 
• The extra money required can be found by phasing out the MSP and all market-distorting input subsidies.With this UBI helps to complement the three reform laws which will unleash the transformative potential of Indian agriculture.