MSP, Mandis and the Farm Laws
Would a Legal MSP Guarantee Work?
Economists debate the cost and design of making MSP legally binding, with worries about fiscal burden and market distortion.
A hard trade-off.
The demand
Farmers want a law that no crop sells below MSP.
Cost
Estimates of the cost of buying all MSP crops at guaranteed prices run to several lakh crores.
Risks
It could distort crop choice, create big stocks and raise food prices.
Alternatives
Options include price deficiency payments, where the government pays the gap between the market price and MSP.
A payment scheme
A state pays farmers the difference between MSP and the average market price.
Assuming a guarantee is either free or impossible
Design and coverage matter.
Key takeaways
- Farmers want a legal MSP.
- Costs could be huge.
- Distortions are a risk.
- Deficiency payments are an alternative.
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