Why Agri-Economist Ashok Gulati Is NOT In Favour Of MSP Law

Amidst recurring calls by protesting farmers for legal stature to MSP, prominent Agri-economist Ashok Gulati has come in opposition to it. In a recent interview with India Today, the distinguished professor laid down his reasonings for the same.

Demand Supply mismatch

The prominent concern shared by Dr Gulati is that legalising MSP will lead to distortion of the demand-supply balance in the market. Legalisation of MSP would come up with a punitive approach towards those who don’t buy crops at a set price. That augurs well for the farmers during times when demand is more than the supply.

During certain seasons, there may be instances where the supply of a particular product exceeds the demand for it. Dr Gulati explains this scenario using an example — if the demand for a product is 70 units, but the production exceeds this at 100 units, only 70 per cent of the produce will likely be purchased at the Minimum Support Price (MSP).

This means that when 70 per cent of the demand is met, buyers may refrain from purchasing the remaining 30 per cent at the MSP. This decision is driven by the fact that buying the surplus at MSP would incur additional costs for the buyers, and buying below legally mandated MSP could invite punitive action.

Consequently, farmers would not receive any income for the portion of their produce that remains unsold at the MSP. This situation can leave farmers facing financial challenges as they are unable to generate income from the surplus produce.

A fund to compensate for losses is more pragmatic

Moreover, the whole debate on MSP is highly concentrated on wheat and paddy. Dr Gulati informed that MSP is not provided for 72 per cent of agricultural produce. He pointed out that milk and poultry, two other prominent categories of agriculture, are thriving well without MSP.

The 23 products on which MSP is provided constitute only 28 per cent of the total agricultural production. Even within those 23 products, it is implemented mainly in wheat and rice, that too in only 5-6 states.

Despite these, market risks exist. Dr Gulati says that legalising MSP is not a way to counter market risks as it would cost exchequers heavily.

He advocated for a price stabilisation fund. This kind of fund would compensate farmers for the low price realised by their crops in the free market. In fact, this kind of scheme is currently operational in the BJP-ruled states of Haryana and Madhya Pradesh.