Farmers protest: How does Swaminathan formula differ from current MSP system? Explained
Farmers protest: Farmers demand legal guarantee for Minimum Support Price (MSP) based on Swaminathan Commission formula. Why? The simple explanation is here.
The key demand of farmers participating in the 'Delhi Chalo' march is to compel the union government to provide a legal guarantee for Minimum Support Price (MSP) based on the Swaminathan Commission formula. But what exactly is it? Here, we break down the nitty-gritty of ‘C2+50 per cent’ formula.
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What is MSP?
MSP is the lowest price set by the government for purchasing crops from farmers. The government declares these rates each season to guarantee fair prices for farmers, promoting increased investment and production.
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Which crops are covered under MSP?
• Kharif crops such as Paddy, Jowar, Bajra, Ragi, Maize, Arhar, Moong, Urad, Cotton, Groundnut, Sunflower Seed, Soybean, and Sesamum.
• Rabi crops such as Wheat, Barley, Gram, Masur, Rapeseeds & Mustard, Safflower, and Toria.
• Additionally, MSP is announced for Copra, De-husked Coconut, Jute, and Fair Remunerative Prices are declared for Sugarcane.
Who sets the rates of MSP?
The Commission for Agricultural Costs & Prices (CACP), an attached office of the union agricultural ministry, suggests MSPs for specific crops.
The factors considered by CACP for fixing MSP include the cost of production, domestic and international prices, demand-supply conditions, inter-crop price parity, and terms of trade between the agricultural and non-agricultural sectors.
The final decision on MSP levels is made by the Union government's Cabinet Committee on Economic Affairs (CCEA).
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How is MSP calculated?
The CACP calculates three types of production costs for every crop, both at the state and all-India average levels.
1. 'A2':
• Covers all paid-out costs directly incurred by the farmer in cash and kind on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.
2. 'FL':
• Includes A2 plus an imputed value of unpaid family labour.
CACP considers A2+FL as the cost of production and sets MSP at 1.5 times of it.
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What changes did the Swaminathan formula propose?
The National Commission on Farmers, chaired by agricultural scientist M S Swaminathan, in 2004, submitted a report to the government in 2006, suggesting that the solution to the farm crisis was to provide remunerative prices to the farmer.
The commission recommended that the MSP should be 1.5 times the farmers’ input costs.
For the calculation of input costs, however, the Swaminathan Commission laid down a different formula. Along with the paid-out cost (A2) and the imputed value of family labour (FL), also included the interest on the value of owned capital assets, rent paid for leased-in land, or the rental value of owned land (C2).
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Key difference
The government sets MSP at 1.5 times the Cost of Production (CoP), where Cop is A2+FL.
The Swaminathan Commission, however, suggests that CoP should be based on C2, proposing the 'C2+50 per cent' formula for setting MSP.
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Current MSP vs. Swaminathan Formula - the difference?
Here are the estimated production costs for the Rabi marketing season 2024-25 for various crops, calculated using both A2+FL and C2 formulas by the CACP, reported by Down To Earth.
| Crops | C2 | MSP announced (Rs/qtl) | MSP as per C2+50% |
| Wheat | 1652 | 2,275 | 2,478 |
| Barley | 1614 | 1,850 | 2,421 |
| Gram | 4547 | 5,440 | 6,820.5 |
| Lentil | 4890 | 6,425 | 7,335 |
| Rapeseed & Mustard | 4068 | 5,650 | 6,102 |
| Safflower | 5414 | 5,800 | 8,121 |