Is MSP guarantee law even feasible?

The farmers are marching on to the national capital, demanding a Minimum Support Price (MSP) guarantee law. Some farmer groups are even demanding legislation for universal MSP; that is, every crop cultivated by the farmer should be open to procurement at an MSP by the Government in the Centre.

Three numbers alone can debunk this entire narrative. One, the total value of agricultural produce is at Rs 40 lakh crore (FY20). This includes produce from dairy, farming, horticulture, livestock, and MSP crops. Two, the market value of the total agricultural produce is at Rs 10 lakh crore (FY20). These include 24 crops that are included in the MSP purview.

For the last two or three years, people have been made to believe, rather falsely, that MSP is integral to India’s agricultural operations. However, that is far from the truth. For FY20, the total MSP procurement stood at Rs. 2.5 lakh crore, which is 6.25 per cent of the total agricultural produce and 25-odd per cent of the produce under MSP.

Now, if an MSP guarantee law were to be introduced, the Government would be looking at an additional expenditure of at least Rs. 10 lakh crore annually, that is each year. To put things in perspective, that is almost equivalent to the expenditure (Rs. 11.11 lakh crore) this Government has set aside for infrastructure in the recent interim budget.

Rs 10 lakh crore is also more than the annual average expenditure we have had on our infrastructure in the last seven fiscal years (Rs 67 lakh crore, between 2016 and 2023). Clearly, a universal MSP demand does not make any economic or fiscal sense and is a politically motivated argument against the Government, which has had an extensive welfare record for the last ten years.

However, even if, for the sake of argument, one were to assume that the cost can be borne by the Government, at Rs 10 lakh crore, where would the money come from? Are we, as citizens, alright with the idea of significantly reduced Government spending on infrastructure and defence or more taxation through direct and indirect taxes?

Clearly, the problem is not agricultural or economic; it is purely political, attempted before the Lok Sabha elections of 2024 and backed by political parties under the radar for extensive corruption. The mere idea of spending Rs 10 lakh crore annually from a budget expenditure of Rs 45 lakh crore (FY25) is equivalent to a fiscal disaster that will clearly derail our fastest-growing economy.