Would Legalizing MSP, Really Cost the Government of India?

Legalizing Minimum Support Prices (MSP) has been a long-standing demand of farmers, and yes it does help them somewhat. However, some people do think that it might end up becoming a debilitating drawback for the Indian economy. But would it really affect the economy that much?

Following the repeal of the three agricultural laws, calls have become stronger for farmers to be paid for the whole production of the 23 crops for which the government presently published MSP. Apart from that some farmers even want to legalise MSP for all crops grown. As agriculture is an industry that depends a lot on various external factors like the weather, water, fertiliser, farmer etc. the rates of crops available are not stable in nature and drastic changes can be observed in the rates. 

An example of that can be seen in the state of vegetable prices in south India currently, which has seen a massive spike in the prices of goods due to the rains. Hence a new MSP is declared every year. When it comes to legalising this, there is a big problem according to the claims made by the govt which state that to buy all the crops under MSP the centre has to buy crops worth around 17 lakh crores in total. 

To put this into perspective the total budgetary expenditure for the year 2020-2021 was 30 lakh crores. This clearly shows that the government will have to spend more than half of its budget on just farm produce, which is stupid, to say the least. 

However, this is only true if the government had to procure all the crops produced in the whole nation in a year. But the government does not procure food totally ever. The market is always open for the Private (PVT) players too which is a fact. Out of the 107.6 million tonnes of wheat produced in 2020-21. The government only procured 39 million tonnes. This example is just enough to see how the facts are being mismanaged.   

The official procurement expenditure of the year 2020-21 was only Rs 2.41 lakh crores. Yes, the legalising of Minimum Support Price (MSP) will probably lead to some Pvt companies to look for some cheaper international markets, however, it definitely won’t affect it so much that all the Pvt companies would have to leave India leaving only the government to procure the farm produce forcing them to spend so much money. 

It’s just farfetched to think that way. In fact as far as Pvt buyers are concerned the implementation of MSP might even enhance the competition in the Pvt sector.  However if the government procurement increases then it will sit and talk about different options otherwise the taxpayers will end up having to pay a lot more, which would actually make them agitated towards farmers ( who are exempt from taxes ) which is something to be avoided come what may.