Telangana seeks 100% MSP procurement amid drought

Why in news?

Telangana sought 100% MSP procurement and lifting of the 25% procurement cap as drought hit 315 of 621 mandals.

UPSC Relevance 

Prelims: MSP, CACP, cost concepts (A2, A2+FL, C2), PM-AASHA, Price Support Scheme, FCI

Mains: GS3 – Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System, buffer stocks and food security; Agricultural marketing.

What is Minimum Support Price (MSP)?

MSP is the price at which the government promises to buy a crop from farmers if market prices fall below it. It is a floor price that protects farmers from distress sale, especially after a bumper harvest.

• Started: 1966-67 for wheat, during the Green Revolution, to encourage farmers to adopt high-yielding varieties.
• Recommended by: Commission for Agricultural Costs and Prices (CACP), set up in 1965 as the Agricultural Prices Commission. It is an attached office of the Ministry of Agriculture and Farmers Welfare, not a statutory body.
• Approved by: Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister.
• Crops covered: 22 mandated crops – 14 kharif, 6 rabi and 2 commercial (jute and copra). Sugarcane gets a Fair and Remunerative Price (FRP), which is fixed under the Sugarcane (Control) Order, 1966.
• MSP has no statutory backing. Farmers cannot claim it as a legal right. Only the FRP of sugarcane is legally binding on mills.

Factors considered by CACP 

Cost of production, demand and supply, domestic and international price trends, price parity between crops, terms of trade between agriculture and non-agriculture, and the likely effect on consumers and the economy.

Cost concepts used in fixing MSP 

• Present formula: Since 2018-19, MSP is fixed at a minimum of 1.5 times the A2+FL cost (Union Budget 2018-19).
• Swaminathan Commission (National Commission on Farmers, 2004-06): Recommended MSP at least 50% above the weighted average cost of production. Farmer groups read this as C2 + 50%, which would give a higher MSP.

How Does MSP Procurement Work?

Announcing MSP is only half the job. It reaches farmers only when a government agency actually buys the crop at that price. Without procurement, MSP remains a number on paper.

• Centralised procurement: FCI buys grain directly or through State agencies, stores it and moves it to deficit States.
• Decentralised Procurement (DCP), 1997-98: States buy, store and distribute grain themselves under PDS. The Centre pays the cost. Excess stock is handed over to FCI. This cuts transport cost and widens coverage to non-traditional States.
• PM-AASHA (2018): Pradhan Mantri Annadata Aay SanraksHan Abhiyan. It has three parts –
  • Price Support Scheme (PSS): Physical purchase of pulses, oilseeds and copra at MSP by central nodal agencies.
  • Price Deficiency Payment Scheme (PDPS): No physical purchase. The government pays farmers the gap between MSP and the market price for oilseeds (modelled on Madhya Pradesh’s Bhavantar Bhugtan Yojana).
  • Private Procurement and Stockist Scheme (PPSS): Pilot allowing private players to buy oilseeds at MSP.
• Market Intervention Scheme (MIS): For perishables like fruits and vegetables not covered by MSP, on request of States.

Open procurement vs Closed procurement

• Why the 25% cap matters: Once the cap is reached, farmers sell the rest in the open market, often below MSP. This is the root of Telangana’s demand.
• Recent change: To push self-reliance in pulses, the Centre has allowed procurement of tur, urad and masur up to 100% of production through NAFED and NCCF. Similar relaxation is now being sought for other crops.
• Important: Even open-ended procurement is not available everywhere. It is strong in Punjab, Haryana, Madhya Pradesh, Chhattisgarh and Telangana, but weak in States like Bihar and Uttar Pradesh.

Need for MSP

• Price stability: Protects farmers from price crashes in bumper years and from exploitation by traders.
• Food security: Procurement feeds the PDS under the National Food Security Act, 2013 and PM Garib Kalyan Anna Yojana, covering around 81 crore people.
• Buffer stock: Helps the government deal with droughts, floods and price spikes, and run Open Market Sale Scheme (OMSS) operations.
• Investment signal: An assured price encourages farmers to invest in seeds, fertilizers and better technology. This drove the Green Revolution.
• Crop diversification tool: Higher MSP and assured purchase can pull farmers towards pulses, oilseeds and millets, and cut import dependence (India imports about half of its edible oil).
• Risk cover in distress: In drought years like this one, farmers have lower output and higher costs; MSP helps limit the loss.

Challenges with MSP

• Low reach: The Shanta Kumar Committee (2015), using NSSO data, found that only about 6% of farmers sold to procurement agencies at MSP. Most small farmers do not benefit.
• Regional skew: Procurement is concentrated in a few States. Eastern India, with many small farmers, gets little benefit.
• Crop bias: Open-ended buying of wheat and paddy has locked farmers into these crops. Pulses, oilseeds and millets lose out.
• Ecological damage: Paddy in Punjab and Haryana has caused severe groundwater depletion; stubble burning adds to air pollution in north India.
• Excess stocks and fiscal cost: Central pool stocks often stay well above buffer norms, raising storage costs and wastage. The food subsidy bill runs to about ₹2 lakh crore a year.
• Awareness and access gaps: Many farmers do not know the MSP. Procurement centres are few, payments can be delayed, and middlemen (arhtiyas) take a cut.
• Market distortion: MSP above global prices makes exports uncompetitive and weakens private trade.
• WTO concerns: Under the Agreement on Agriculture, MSP procurement is counted as ‘Amber Box’ support, limited to 10% of value of production for developing countries. India has invoked the Bali ‘peace clause’ for rice more than once.
• Cost formula debate: Farmers want C2 + 50%; the government uses A2+FL. This gap is a constant source of discontent.
• Demand for legal guarantee: The 2020-21 farmers’ protests sought a legal right to MSP. Critics say a legal guarantee for all 23 crops could be fiscally heavy and hard to enforce.

Suggested Reforms

• Shift from procurement to income support: Use price deficiency payments (like PDPS / Bhavantar) for crops not needed for PDS. This avoids huge stocks while still protecting farmers.
• Wider, crop-neutral procurement: Relax caps for pulses, oilseeds and millets in rain-fed and drought-prone areas, as Telangana demands, so that diversification becomes attractive.
• Shanta Kumar Committee (2015): Extend procurement to eastern States, let FCI hand over procurement to capable States, and move to cash transfers in PDS over time.
• Fix stock levels: Keep procurement close to PDS and buffer needs; dispose of surplus through OMSS and exports.
• Better market access: Strengthen e-NAM, Farmer Producer Organisations (FPOs) and warehouse receipt financing so that farmers get good prices even outside government procurement.
• Region-specific MSP signals: Higher incentive for water-saving crops in water-stressed regions. The committee on MSP set up in 2022 was asked to look at making MSP more effective and transparent, along with crop diversification and natural farming.
• Climate-linked support: In drought years, combine MSP with crop insurance (PMFBY), micro-irrigation (Per Drop More Crop) and timely relief, as Telangana has sought.
• Transparency: Wider publicity of MSP, more purchase centres, digital land records and direct payment into bank accounts within a fixed time.

Practice MCQ

Q1. Consider the following statements:

1. The Commission for Agricultural Costs and Prices (CACP) is a statutory body.

2. The Minimum Support Prices are finally approved by the Cabinet Committee on Economic Affairs.

3. Under the Price Support Scheme of PM-AASHA, procurement of pulses and oilseeds is generally limited to 25% of a State’s production.

How many of the statements given above are correct?

(a) Only one        (b) Only two        (c) All three        (d) None

Answer: (b). Statement 1 is incorrect: CACP is an attached office of the Ministry of Agriculture and Farmers Welfare and has no statutory backing.

Q2. Consider the following statements:

Statement-I: MSP fixed at 1.5 times the A2+FL cost is lower than MSP fixed at 1.5 times the C2 cost.

Statement-II: C2 cost includes rent on owned land and interest on owned fixed capital, which are not part of A2+FL.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I

(b) Both Statement-I and Statement-II are correct but Statement-II does not explain Statement-I

(c) Statement-I is correct but Statement-II is incorrect

(d) Statement-I is incorrect but Statement-II is correct

Answer: (a). C2 is the most comprehensive cost. Since it adds land rent and interest on capital, it is always higher than A2+FL, so an MSP based on C2 would be higher.

Mains Practice Question

Q. “An MSP without assured procurement is only a price on paper.” Explain how MSP procurement works in India and distinguish between open-ended and closed-ended procurement. Suggest reforms to make MSP a tool for crop diversification and climate resilience. (15 marks, 250 words)

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