Critically evaluate the demand for MSP at C2+50% as recommended by the National Commission on Farmers. What are its fiscal and market implications?

In 2006 the National Commission on Farmers (Swaminathan) recommended that MSP be at least 50% above the weighted average cost of production [1]. Since Budget 2018-19, MSP has been fixed at 1.5 times cost [2]. However, that cost is measured as A2+FL, not the comprehensive C2 cost [3]. The demand for C2+50% is therefore about which cost base is used, and that is a question of money. It has merit, but only with reforms.

Case for C2+50%

• True cost recovery: C2 adds imputed rent on owned land and interest on owned capital to A2+FL [3]. Leaving these out undervalues the farmer's own assets.
• Large income gap: The 2018-19 paddy MSP was Rs 1,750/quintal. On a C2 basis it would have been about Rs 2,340, and the actual margin over C2 was only 12.2% [4].
• Distress in high-cost states: Maharashtra paddy growers made a loss of about 29% over C2 even at MSP [4].

Limitations

• Uniform national price: At the same MSP, Punjab earned 149% over A2+FL while Maharashtra lost 17% [4]. A higher uniform MSP makes this skew worse.
• Procurement is concentrated: Three states grow 49% of wheat but get 93% of procurement [4]. CACP says the "inability of farmers to sell at MSPs" is a key concern [4]. A higher MSP on paper does not help farmers who cannot sell at it.
• Distorted cropping: Better returns on paddy and wheat reinforce water-intensive monocropping in regions that are already procured heavily.

Fiscal implications

• Higher procurement and food-subsidy bills for FCI and the states. Most of the gain goes to farmers who are already better off.
• Stocks can pile up above buffer norms, which raises storage and wastage costs.

Market implications

• Higher market prices can feed food inflation and crowd out private trade.
• Export competitiveness weakens. India's farm-support commitments under the WTO also come under strain.

The C2+50% demand rightly asks for cost recovery. Without reform, though, it costs a lot and reaches few farmers. The way forward is to publish each crop's margin against both A2+FL and C2, state by state. Procurement should also be extended to the eastern states, as the Shanta Kumar Committee recommended [5]. That would move MSP from a headline number towards the NCF's aim of a real income guarantee for the farmer.