The most immediate impact of such a law will be higher food inflation. It involves huge central expenditure and this will be a bigger problem for the Modi government,” said Sudhir Panwar, a professor of Lucknow University. “The demand for a law on MSP will elicit a bigger response from farmers now because it be a direct step towards higher income. While the government announces MSP for 23 major crops, setting them at 1.5 times the cost of cultivation to account for inflation, analysts say a blanket law mandating that no trader can buy any farm commodity below this threshold price could be tough to implement. It is an administrative exercise that does not have statutory backing. The crisis, therefore, is not one of low production, but of low prices.Īn MSP is an important policy tool that helped achieve food self-sufficiency because it gave farmers assured prices. This has worsened agriculture’s terms of trade, measured as a ratio of prices of agri-products to prices of manufactured items.
Indian farmers receive lower-than-international prices for much of their produce because of increasing costs of cultivation, inadequate markets and the government’s policy to keep food prices low. MSPs, which began with the Green Revolution, are set such that they offer 50% returns over cost but mainly benefit paddy and wheat growers because the government procures only these two commodities in sufficiently large quantities. The government has insisted it will still buy staples at MSP, but farmers have demanded a law that prohibits purchase of major farm produce below state-set minimum prices. The reforms Modi said his government would rescind aimed to allow businesses to freely trade farm produce outside regulated markets, called mandis, permit private traders to stockpile large quantities of essential commodities for future sales and lay down a national framework for contract farming.įarmers feared the new economic agenda could pave the way for the government to stop buying staples at federally fixed minimum support prices (MSP) and would leave them at the mercy of private buyers. Farm unions on Friday welcomed Prime Minister Narendra Modi’s decision to roll back three agricultural laws they had been opposing for year, but the government now has to contend with a tougher demand – a law guaranteeing minimum support prices or MSP to cultivators for their produce.
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