MSP: A double-edged sword in Indian agriculture

MSP: A double-edged sword in Indian agriculture

The favourite problem of the economist is food inflation, if the farmers are given a fair price then the food economy will experience hyperinflation

From tear gas to iron spikes, the government has left no stone unturned to stop the farmers’ march on the Punjab-Haryana border. Thousands of farmers have been blocked on the Punjab side with an overwhelming police presence on the Haryana side. Local police and paramilitary battalions have been deployed in heavy numbers. But what lead to such a confrontation? We have to rewind to 2022, when the Modi government rescinded the three farm laws and asked the farmers to go back home as there will be a government committee formed to look into the minimum support price (MSP).

Since January 2022, the government hasn’t given any clear answers to the questions of MSP, debt waiver, electricity bills, etc. As 2024 began, a splinter group of the Samyukt Kisan Morcha (non-political) declared their intention to revive the demand for MSP and were willing to do a tractor-cade to Delhi on 13 February to reassert themselves and pressure the government to make MSP the legal right of farmers.

Now even before we begin to analyse this demand let’s understand what MSP is and how it came to be. In the 1960s, India’s war with China and constant droughts devastated the Indian food distribution system. India was forced to import wheat from the US to feed its own people. But as a condition of receiving food aid, India had to agree to structural adjustment and subscribe to an industrial agricultural model. The Green Revolution experiment began in Punjab. Before interventions, Punjab was a fertile area, growing cotton, and indigenous varieties of legumes, oilseeds and millet. “High-yielding” rice varieties introduced during the Green Revolution were non-native and didn’t suit Punjabi farmers’ palate or markets, seeing as rice was not part of their diet. The Indian government pushed farmers to grow these hybrid seeds but found that there were no buyers for their rice paddy.

To address the market problem in Punjab, the Indian government introduced the MSP. Inspired by the US price support system, the MSP system assured a minimum price floor for Green Revolution crops — mainly rice paddy and wheat. This price floor was originally calculated based on the costs of chemical inputs, seeds, and fuel, and was revised each year to assure farmers that they would earn a profit.

However, many local traders, who had no use for the rice as it had no part in the local food economy, refused to guarantee MSP. In response, the government’s Agricultural Produce Market Committee (APMC) introduced regulated market yards for buying rice and wheat, mainly in the regions where the Green Revolution was first introduced — Punjab and Haryana. The APMC served as a safeguard for farmers, protecting them from exploitation by traders and corporations, and ensuring that farmers had a market where they would receive government-regulated prices for their produce. The farmers started to visit these APMC market yards to sell their paddy and the markets started to flourish. The grain purchased at the APMC also landed up in the PDS system and our strategic grain reserves.

For a while, the APMC system stabilised prices for farmers. Market yard taxes were used to improve village roads and other infrastructure. However, while the MSP was established to guarantee farmers a minimum price, over time it became the maximum price a farmer could hope for. To keep food inflation in check, the government didn’t increase MSP to account for inflation. The cost of chemical inputs needed for the Green Revolution seeds become more costly and degraded soils, creating the need for more chemicals just to get the same yield.

If at first, a field required one kg bag of urea, after two decades of chemical farming that same field needs two or three bags of urea to get the same yield. The cost of water, farmers’ labour and soil degradation were not considered in the MSP costs. MSP became an approximation of the cost of production each season by the CACP.

The CACP each year declares the MSP for 23 crops, although the government directly procures two or three crops at best.

‘MSP as a legal right’

Now if we see the main demand of the farmers groups’ – make MSP a legal right. What does it even mean? In simple terms, farmers are proposing that the government declare prices for various agri commodities each season and make purchases below them illegal.

Seeing the dismaying state of agriculture and their shrinking pockets, where a farmer makes 1/10th of daily wage labourers yearly earnings, farmers wanted a guaranteed income built-in with the value of their agri-produce. Their logic is simple, if the daily wage labourer has a minimum wage for his work, the farmers should also be empowered by including the minimum living wage in the price of the produce.


On the face of it, the farmers’ demand is only fair. Why shouldn’t one get the fair for his labour? The Modi government has also realised this need, and hence aggressively campaigned for a doubling farmers’ income programme and yet failed to see results in the past decade.

The favourite problem of the economist is food inflation, if the farmers are given a fair price then the food economy will experience hyperinflation. Of course, this could potentially be a problem, but eventually, prices will stabilise once fair prices are given. The government could eventually reduce fertilisers and other chemical agri-input subsidies, providing relief to the taxpayers too.

In a second scenario from last year, 2023 was one of the worst years for food inflation with hyperinflation in vegetables, wheat, etc. while the farmers got less than Rs 2/kg for their tomatoes. There was a huge gap in what the farmers got and what the consumers paid. Compare over 220/kg paid by people in metro cities while the farmers got under 5/kg for tomatoes. The key lesson is supply management, prices can be managed with better supply management. If most resources are spent improving supply management, the farmers, traders and consumers can all get a portion of food at fair prices. Oversupply at harvest time, without inadequate storage facilities, is leading to price volatility.

The Green Revolution also started spreading to other areas in India but the APMC market yards did not. Farmers in these newer areas got higher yields but no market to sell. This led to an over-supply of cereals like rice and wheat, while indigenous crops like oilseeds and legumes declined rapidly. Most of the paddy and wheat varieties are grown strictly for the market, not for farmers themselves. Traders took advantage of this over-supply and started to manipulate farmers and decrease prices. Most Indian farmers are small-scale farmers, owning less than two acres, and lacking grain storage facilities. They are forced to sell their crops to local traders as soon as they harvest or risk losing their harvest altogether — another vulnerability that traders tend to take advantage of.

The Green Revolution has transformed Indian agriculture. While it made India cereal sovereign, Indians got more than they bargained for — monocultures, shortage of oilseeds, disappearance of trace minerals from diets, the emergence of diseases like cancer. And all these came hand in hand with MSP — all part of the industrial system of agriculture. Even now, after the laws are repealed, the farmers hope that with a law on MSP, they will be lifted out of the agrarian crisis.

But the MSP system itself has trapped farmers in the wheat/rice paddy growing cycle. As irrigation use is increasing, even dryland farmers are abandoning indigenous, locally adapted crops for wheat and rice. MSP is plugging more farmers into the industrial agriculture system and the consequent oversupply of agricultural commodities is crashing prices. Heavy government subsidies that support the fertiliser and oil industry are also draining the Indian economy.

So in many ways, the current situation is a catch-22. Without MSP, farmers can’t survive economically. But by growing MSP crops like wheat and rice, they destroy land, water, and soil and get exploited by the industrial market system. If MSP is not diverted towards agroecological farming, MSP backing an industrial system of agriculture could potentially be risky. Farmers and the government should reimagine MSP to serve national and environmental interests not just market ones.

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