MSP and Punjab: Time to Outgrow the Crutch

MSP, like a child's walker, was once essential. But today, it is a crutch slowing the pace of reform. Its time has passed.

Karan Bir Singh Sidhu is a retired IAS officer of the Punjab cadre and former Special Chief Secretary, Government of Punjab. He holds an MA in Economics from the University of Manchester, UK, and writes on public policy, agriculture, institutional reform, and strategic affairs.

MSP and Punjab: Time to Outgrow the Crutch

The Minimum Support Price (MSP) regime, particularly for wheat and paddy, has long been the backbone of India's agricultural policy. But like a child outgrows a walker or a healthy adult stumbles with crutches meant for the infirm, Punjab’s agriculture is today shackled by a support system that has outlived its utility. As we examine MSP's 25-year trajectory and its continuing relevance, it's imperative to ask: are we sustaining farmers or stalling them?

The Genesis: Why MSP Was Introduced

When MSP was instituted, it made perfect sense. It protected farmers from the cruel economics of glut-induced price crashes. State agencies stepped in to procure food grains, preventing distress sales and creating vital buffer stocks. For a country historically haunted by food insecurity and monsoon failures, this intervention was foundational. It also provided price visibility—critical for a farmer's sowing decisions.

But while the intent was noble, policies must evolve. Today’s ground realities are starkly different, and the MSP framework—especially in wheat and paddy—is showing signs of fatigue.

MSP Growth: A 25-Year Overview (2000–2025)

Punjab has been among the biggest beneficiaries of the MSP system. The state’s well-oiled procurement infrastructure ensures near-complete reach of MSP payouts. But how much has MSP truly grown, and what does it mean?

Wheat

• 2000-01 MSP: ₹610 per quintal

• 2025-26 MSP: ₹2,425 per quintal

• Absolute growth: 297.5%

• CAGR: 5.68% over 25 years

Paddy (Common Variety)

• 2000-01 MSP: ₹510 per quintal

• 2025-26 MSP: ₹2,369 per quintal

• Absolute growth: 364.5%

• CAGR: 6.34% over 25 years

These figures suggest a consistent upward trend, ostensibly shielding farmers. But when juxtaposed with input inflation, labour costs, and environmental degradation, the picture is more complex. Growth has mirrored inflation, not outpaced it.

The Lost Reform: Three Farm Laws and the Status Quo

The repealed farm laws of 2020–21 attempted to modernise the agri-market ecosystem—offering alternatives to inefficient APMC mandis, reducing transport/storage losses, and enabling direct farmer-to-consumer sales. Yet the agitation, dominated by vested intermediaries like commission agents (Aarthiyas), stalled the reform. Ironically, in the 2022 elections, several protest leaders lost deposits—a silent verdict on misplaced resistance.

We're now back to square one. Despite annual MSP hikes, farmers remain disillusioned. Structural problems persist, worsened by political hesitancy and economic inertia.

Statutory MSP: A Mirage of Security

There is now renewed demand to make MSP a legal entitlement. But does legalising a price guarantee change outcomes? India’s labour laws offer a cautionary tale: minimum wages, mandated by law, are rarely enforced. Legal recourse is tedious, expensive, and often futile.

MSP, if made statutory, risks being a hollow promise without functional enforcement, especially in states with weak procurement mechanisms.

Export Controls and the Consumer Narrative

The state routinely restricts exports of wheat, rice, and even Basmati through minimum export prices and duties—under the pretext of protecting consumers. But the real cost is borne by farmers. The narrative of the “pampered farmer” conveniently ignores that this pampering is as much about electoral populism as it is about food security.

With 80 crore people receiving free rations, policy coherence is absent. Diversification is preached, but staple grain production is still aggressively incentivised.

Water Woes and Environmental Costs

Punjab’s groundwater crisis is critical. With only 27% of irrigated land serviced by canals, farmers are over-reliant on tubewells—many defunct or diesel-operated. Subsidised power sustains over-extraction, while the environmental fallout—stubble burning, emissions, soil fatigue—remains unquantified but catastrophic. MSP perpetuates this cycle.

False Hopes of Diversification

Diversification remains rhetoric. Sugarcane, once seen as a viable alternative, is marred by mill delays, corruption, and unpaid dues. Most private mills are thinly veiled distilleries. Crops like fruits and vegetables require cold chains, expensive energy, and assured markets—largely absent.

Without systemic support, diversification is high risk. MSP makes monoculture safer—even when unsustainable.

Subsidies and Hidden Transfers

MSP is not the only support farmers receive. Add power, fertiliser, diesel, and irrigation subsidies, and the implicit transfer far exceeds the sticker price. No consolidated accounting exists, but clearly, we are funding inefficiency at a national scale. There's no free lunch—only deferred liabilities.

Aarthiyas and the Cultivator's Invisibility

The real beneficiaries of MSP are often not the cultivators but the Aarthiyas—middlemen who control market access, credit, and agri-input supply. The cultivator, especially the landless or tenant farmer on oral lease, has no security. He bears all risks and has no formal recognition. Gidwari (tenant registration) is taboo. This underclass remains invisible in policy discussions.

Farm Labour: Allies or Outsiders?

Agricultural labourers, once integral to rural livelihoods, are now daily wage contractors with no stake in farm profitability. Their interests are not aligned with large landowners or Aarthiya-led protest groups. Any future framework must reconcile this conflict and give farm labour its due dignity and voice.

Hope on the Horizon: Farmer Producer Organisations (FPOs)

Punjab’s culture may resist corporate farming, but Farmer Producer Organisations are a promising middle ground. Backed by policy and tech, FPOs pool resources, enable better bargaining, and link directly to markets.

A promising example is Mohali-based HFN, led by a former Microsoft executive. It connects smallholders with consumers via mobile-driven solutions—streamlining procurement, enhancing incomes, and reducing dependence on MSP.

Looking Ahead: Time to Phase Out MSP, Not Farmers

MSP, like a child's walker, was once essential. But today, it is a crutch slowing the pace of reform. Its time has passed. The phase-out need not be abrupt, but calibrated—over 5–7 years—while empowering alternatives like FPOs, infrastructure-led diversification, and environmental sustainability.

A second Green Revolution—more mindful, market-driven, and inclusive—is not a fantasy. It’s a necessity. And the first step is to jettison the myth that MSP is sacred. It isn’t. What’s sacred is the dignity, prosperity, and resilience of India’s farmers—and that needs new tools, not old props.