Minimum Support Prices in India: Distilling the facts

Abstract

In recent years, the Minimum Support Price (MSP) and government procurement especially of paddy and wheat have been discussed widely, but these discussions have often drawn on evidence that is dated and incomplete. Consequently, such discussions have clouded the facts, resulting in a large number of factoids. According to these popular beliefs, very few farmers benefit (6% only), only large farmers benefit, and only farmers of Punjab and Haryana (and to some extent western Uttar Pradesh) benefit. In this article, we examine these three factoids and draw on multiple data sources to distil the facts. We argue that existing evidence suggests a more complex picture –(1) the MSP impacts 13(16)% paddy(wheat) sellers; (2)the geographies of procurement have expanded to new states including notably, Madhya Pradesh, Chhattisgarh and Odisha, and (3) Although, at the national level, there is a large farmer bias, this doesn’t imply exclusion of small and marginal farmers. In fact, majority of the beneficiaries are marginal and small farmers on both the extensive and the intensive margins. Further, we find substantial heterogeneity by states. Haryana for instance has a bias in favour of small and marginal farmers. We conclude that debates on the MSP and procurement must therefore take into account the changed geography of procurement and the profile of sellers and recognize the diversity of experiences with procurement across states.