Farm Bills Part 3
A guide to understanding MSP, as well as its prevalence.
Over the years, some states repealed the APMC Act while some modified it. However, many farmers across India are still reliant on the ‘mandi’ system detailed in the APMC Act. Based on the Act, farmers have to sell their harvest at a specific mandi (or “market”). They can sell to either private buyers (at a price which varies) or to the government at a Minimum Support Price, or MSP.
The MSP is a price guaranteed by the government, which is considered to be basic compensation for the resources and effort put in by farmers. Based on the Union Budget of 2018-2019, the MSP is fixed at 1.5 times the cost of production. Currently, MSP is recommended for 23 crops by the Commission for Agricultural Costs and Prices (CACP).
As we mentioned in an earlier post, as of 2019, India had only 6630 mandis, with an average area served of 643 square kilometres. A lot of small farmers are unable to travel such long distances and consequently, sell their harvest to village traders (who will then sell at mandis) at a price lower than the MSP. Many farmers have also said that sometimes they are unable to even sell at the MSP as the government does not buy their crops.
Consequently, for crops like paddy and wheat, only 6% of all farmers benefit from MSP. Taking into account all types of crops, the value ranges between 15 and 25%.
At mandis, there are also taxes and fees, ranging from less than 1% in some states to 8.5% in Punjab. For states with high mandi taxes, mandis form a big source for government revenue. In Punjab, for example, the government collects an annual revenue of Rs 3500 crore from mandi taxes and fees. These taxes, especially in Punjab, are typically channeled into public schemes, often improving agricultural infrastructure.
The new farm bills that were passed however, make it clear that the government cannot impose taxes, cesses, or any sort of fees on private markets. This has led to three concerns. One is that state governments will lose enormous sources of revenue – which may lead to growth in agricultural infrastructure slowing down. The second is that state governments will lose popular support if they are unable to continue funding certain state-run programmes.
The third, which involves the protesting farmers, is that since the private markets cannot be taxed, farmers may choose to sell their harvest there instead – leading to the decline of mandis, and eventually the MSP. We’ll discuss the validity of this concern based on the case studies of Bihar and Maharashtra in a later post.
Although the farm bills do not do away with the MSP, and the central government has offered to give a written agreement, farmers are demanding that the MSP be guaranteed through a law since 1) they believe that the mandis might die out and 2) they have concerns about being exploited by big companies (we will cover this in greater detail in a later post).
Citations:
https://www.financialexpress.com/opinion/few-farmers-really-worry-about-msp/2089993/
https://www.drishtiias.com/daily-updates/daily-news-analysis/minimum-support-price-for-crops
https://www.drishtiias.com/daily-updates/daily-news-editorials/mandi-system-in-india