Legalising MSP would disrupt market equilibrium: Experts

As farm unions demand legal guarantee to the minimum support price (MSP), experts believe legalizing is would disrupt the market equilibrium, drive out private trade and lead to inflation. They said it would even result in decline in agricultural exports.

Officials cited government think tank’s NITI Aayog working paper on farm reforms to argue that liberalized markets were more favorable to growth than government support and interventions in the market over a period a period of time.

Ramesh Chand, NITI Aayog member and an , said segments like horticulture, milk and fishery showed 4-10% annual growth whereas the growth rate in cereals, where MSP and other interventions are quite high, remained at 1.1% after 2011-12. Chand gave the example of Maharashtra, where an experiment of legal intervention for ensuring MSP in 2018 failed, forcing the state government to abandon the initiative. “Economic theory as well as experience indicates that the price level that is not supported by demand and supply cannot be sustained through legal means.”

However, he said if legal or mandatory status ensured MSP to farmers, it would be the easiest way for any government to help farmers get desired prices. “This could be done by state governments without central government intervention.” Chand gave the example of Kerala, where the state government in 2020 had announced minimum prices for 16 fruits and vegetables.

Officials stated that the higher procurement cost would mean increase in prices of food grains, leading to inflation, which would eventually impact the poor. They added that it will also impact India’s farm exports, accounting for 11% of the total exports of commodities, if the MSP is higher than the prevailing rates at international markets.”

The Bharatiya Kisan Union (BKU) has written to the Centre and alleged that the government does not want to talk about the MSP as it will benefit farmers across India. Rakesh Tikait, BKU leader, at a press conference in Hyderabad said they have received no answer from the government. He highlighted that the issues still remain despite the announcement to repeal the new farm laws.

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“The government of India did not have any conversation with us after January 22 when the last meeting was held. Now they have decided to repeal the laws. But our issues remain which include the MSP, the compensation for the death of 700 farmers and a shahid smarak for them,” Tikait said. “The government should make a committee to address other issues like the electricity amendment bill, pesticide bill and others.”