For months, a certain strain of commentary has insisted that a legal guarantee of MSP would “sink” any government. That is fear-mongering, not economics. India’s own laws, global practice, and the arithmetic of our food economy show the opposite: a well-designed MSP Guarantee Law will civilise the market, stabilise rural incomes, and, net of leakages, strengthen public finances.
1) What farmers are actually asking for: the state as referee, not buyer of last resort
AIFA’s position is straightforward. The government’s vocation is justice, not trade. We are not asking the state to purchase every kilogram of output. We ask the state to legislate and enforce a minimum lawful farm-gate price, the MSP, below which no trader may buy even a gram. That is all.
Operationally:
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Each year, MSPs are set on a transparent cost basis (at least C2 + 50% as per the Swaminathan formula).
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Private trade, processing, exports continue as before, with one red line: no purchase below MSP.
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Enforcement, like every other business law, relies on inspection, e-invoices, market surveillance, and graded penalties.
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The fiscal outlay is therefore regulatory, not a standing procurement bill.
This is not radical. India already treats minimum wages as non-negotiable. Farm produce, the livelihood of over 100 million holdings, deserves no less.
2) India already runs a binding price law: sugarcane FRP
If a “legal price guarantee” were unworkable, our sugar economy wouldn’t function. Under the Sugarcane (Control) Order, 1966, mills must pay the Fair and Remunerative Price within 14 days of cane delivery; delays attract 15% annual interest and recovery under revenue law. That is a live, enforceable price guarantee in Indian agriculture, proof that legality and agriculture can mix when we choose to make them.
3) India’s farmers have been net taxed by policy, MSP Guarantee reverses that
OECD’s producer-support work repeatedly shows India’s aggregate net support often negative: a combination of price suppression and policy frictions has historically taxed farm incomes rather than subsidised them. A legal MSP floor converts hidden negative support into explicit income protection, a shift from arbitrary extraction to rule-bound fairness. (Editors may cite the latest OECD PSE tables for India.)
4) “But where in the world is this done?”, in law, across the West
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In the United States, Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) trigger statutory payments when revenue or prices collapse below benchmarks. These are farm safety-net laws administered annually by USDA’s Farm Service Agency.
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In the European Union, the Common Agricultural Policy (CAP) provides direct income support and market measures from the EU budget (EAGF/EAFRD), a standing legal framework to stabilise farmers and food systems.
In short, income/price floors are mainstream, not market heresy. The real question for India is design, not dogma.
5) Targeted Indian tools already cap procurement, there is no fiscal sinkhole
Price support for pulses, oilseeds and copra already runs through PSS/PM-AASHA with explicit limits. Recent official guidance confirms procurement is capped at 25% of national production, unless a state is willing to share extra fiscal burden. This is textbook targeting, and it works. A legal MSP can sit on top as an enforceable floor, while procurement remains limited to strategic use-cases.
6) “Will the exchequer bleed?”, on the contrary, the model pays for itself
A legal MSP floor does not mandate government to lift grain. It mandates market compliance. The costs are those of regulation and enforcement, which can ride on existing mandi/APMC/e-NAM infrastructures.
Two further fiscal points:
(a) You already spend massively on the consumer side.
The Union Government has extended PMGKAY free foodgrains for five years from 1 January 2024, with an estimated subsidy of ₹11.8 lakh crore. If the state can afford to protect the consumer at that scale, it can certainly legislate a zero-procurement, low-cost rule that protects the producer’s minimum price. These are complements, not substitutes.
(b) Enforcement can add revenue.
Below-MSP purchases would attract civil penalties and licence sanctions, much like GST or weights-and-measures violations, creating a deterrent and a small revenue stream. Over time, as compliance improves, the need for open-ended market interventions shrinks, lowering ad-hoc fiscal spikes.
7) Inflation scare vs. actual price spreads
Consider the present numbers. For Kharif 2025-26, the MSP for paddy (common) is Rs 2,369/qtl and grade-A Rs 2,389/qtl (PIB). For wheat, Rabi 2025-26 MSP was Rs 2,425/qtl; last week the Cabinet raised wheat MSP to Rs 2,585/qtl for Marketing Year 2026-27. These are farm-gate floors. Meanwhile, retail atta commonly sells near Rs 40/kg, with branded packs often Rs 50–Rs 60/kg; the Union’s “Bharat Atta” initiative explicitly retails at Rs 30/kg. The farm-to-retail spread is therefore large, and largely post-farmgate. A legal MSP protects the bottom line of the producer; competition and logistics reform can compress the upper margins without punishing farmers.
8) A three-tier, fiscally disciplined MSP Guarantee
(i) The legal floor + penalties (no below-MSP buying).
Purchases below MSP are unlawful. Graded penalties: monetary fines, licence suspension, and, on repetition, criminal process for fraud/coercion. Time-bound payment provisions mirror sugarcane FRP (e.g., T+14 days, penal interest, revenue recovery).
(ii) Price deficiency payments (PDP) where physical lifting is inefficient.
When logistics make procurement wasteful, credit the difference between MSP and realised price directly to the farmer’s account under a nationalised PDPS architecture, the Centre already has PDPS guidelines and states have live prototypes (e.g., “Bhavantar”). Result: no warehousing burden, private markets stay active.
(iii) Market-efficiency reforms in parallel.
Scale up e-NAM, scientific storage, cold-chain, last-mile rail/road, FPO aggregation, and processing capacity. This is how the intermediary margin shrinks structurally, protecting consumers without extracting the adjustment from farmers. The US/EU do precisely this: income protection plus supply-chain efficiency.
9) “Isn’t this only for Punjab–Haryana?”, No: it broadens India’s safety net
Procurement is geographically concentrated today; a legal MSP floor is the remedy, not the cause. Once below-MSP buying is illegal nationwide, regions with historically thin procurement, eastern/southern states, millets, pulses, oilseeds, gain immediate bargaining power, even when the state doesn’t lift stock. Targeted PSS fills gaps, PDP covers remote markets; the floor is what equalises.
10) The ethics: welfare for the poor is right, but justice to producers is a duty
India rightly subsidises food to protect vulnerable consumers. But justice to producers cannot be optional charity. The same state that guarantees free grain to 813 million people can surely guarantee that the people who grow it don’t sell below a lawful minimum. That is the moral symmetry a mature democracy owes itself.
11) From seminar rooms to soil: an open invitation
Policy crafted in air-conditioned seminar rooms rarely sees the monsoon. I invite our most prominent economists and policy advisers, cordially, without rancour, to work two crop seasons in the field with us. Numbers will feel different when they wear mud. The MSP Guarantee is not a populist slogan; it is practical risk insurance for the backbone of our economy. Let us debate vigorously, but in the village square as much as the conference hall.
12) Bottom line: MSP Guarantee doesn’t shackle the market, it civilises it
Minimum lawful prices are to markets what guardrails are to highways: they don’t slow traffic; they prevent fatal falls. The US and EU have encoded this common sense for decades. India already enforces it for sugarcane. One coherent, penalty-backed MSP Guarantee Law will complete the architecture, without demanding universal procurement or ballooning stocks.
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AIFA’s working draft: the MSP Guarantee Law
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Legal floor: No purchase below the notified MSP (at least C2+50%). Violations invite fines, licence suspension, and, on repetition or coercion, criminal action.
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Time-bound payment: T+14 days from delivery to payment; penal interest thereafter and recovery under revenue law (FRP template).
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PDP rail-track: A national Price Deficiency Payment System to credit MSP–actual gaps where physical lifting is inefficient (as per PDPS guidelines).
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Capped procurement & smart buffers: Use PSS with explicit caps (≈25% of national output) for pulses/oilseeds/copra; states may co-finance beyond caps, keeping the fiscal glidepath intact.
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Market efficiency push: e-NAM coverage, warehousing receipts, cold-chain, FPOs, and processing clusters to narrow the farm-to-retail spread.
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Transparency & grievance redress: MSP calendar notified on time; all mandis/portals publish real-time compliance dashboards; 180-day statutory disposal of farmer complaints.
