Home India

What is C2+50 Formula of MSP, How this can change life of farmers?

The Swaminathan Committee report has been a long-standing demand of the farmers across the country, who have been protesting

By Ground report 14 Feb 2024

New Update

What is C2+50 Formula of MSP, How this can change life of farmers?

The Swaminathan Committee report has been a long-standing demand of farmers across the country, who have been protesting for its implementation since the last decade. The report, prepared by a panel headed by MS Swaminathan, suggests various measures to improve the condition and income of the farmers.

The C2+50 formula of MSP is a recommendation by the Swaminathan Commission to ensure that farmers get at least 50% more than the comprehensive cost of production of their crops. The formula is seen as a way to improve the income and livelihood of farmers, who often face low and volatile prices for their produce. However, the government has not implemented the formula, citing various challenges and implications.

The farmers, especially from Punjab, Haryana, Maharashtra and Madhya Pradesh, have also been asking for a legal guarantee of minimum support price (MSP), the repeal of the controversial farm laws, the withdrawal of the Electricity amendment bill and the waiver of their debts.

The BJP-led central government has tried to calm the farmers by saying that a law on MSP cannot be made hastily without consulting all the stakeholders. However, Congress leader Rahul Gandhi has promised that if his party comes to power, it will enact a law to ensure MSP for every farmer as per the Swaminathan Committee report.

The Modi government claimed in 2019 that it had accepted 200 out of the 201 recommendations of the committee, including the one on MSP.

What is MSP and C2+50 Formula?

The government fixes the Minimum Support Price (MSP) for certain crops and pays it to the farmers when they procure their produce. The MSP aims to protect the farmers from market fluctuations and ensure a minimum profit for their harvest. People also know this as the C2+50 per cent formula. This formula includes the input cost of capital and the rent on the land, giving the farmers 50 per cent of the returns.

The Swaminathan Commission proposed the C2+50% formula on MSP, aiming to provide farmers an additional 50% of their crop cost to increase their income. Currently, the protesting farmers demand authorities to incorporate this formula into the MSP Guarantee Act. Congress leader Rahul Gandhi notably declared that they would provide MSP with a legal status if Congress emerges victorious in the upcoming 2024 elections.

The Commission for Agricultural Costs and Prices (CACP) sets the MSP, factoring in production costs, demand and supply, domestic and international prices, crop price parity, and consumer and environmental impacts.

The cost of production is calculated based on three types of costs: A2, A2+FL, and C2. A2 covers the direct expenses incurred by the farmers, such as seeds, fertilizers, pesticides, labour, etc. A2+FL adds the value of the unpaid family labour to A2. The comprehensive cost, C2, also includes the rent and interest farmers foregone on the land and machinery they own.

The government set up The Swaminathan Commission in 2004 to suggest ways to improve the condition of farmers. The Commission recommended fixing the MSP at least 50% more than the C2 cost of production. People know this formula as the C2+50 formula of MSP.

How C2+50 formula an change life of farmers?

People see the C2+50 formula of MSP as a way to ensure that the farmers receive a fair and remunerative price for their crops, which can boost their income and livelihood. The formula can also incentivize the farmers to produce more and diversify their crops, which can enhance the food security and nutritional security of the country.

The C2+50 formula can also reduce the distress and indebtedness of the farmers, who often resort to distress sales, borrowings, or even suicides due to low and uncertain prices for their produce. The formula can also empower the farmers to bargain better with the traders and the government and reduce their dependence on middlemen and commission agents.

The formula can also create a level playing field for the farmers, who face unequal competition from the subsidized and cheaper imports of agricultural products from other countries. The C2+50 formula can also protect the farmers from the adverse effects of the new farm laws, which allow the private players to buy the crops from the farmers without any regulation or MSP.

Which crops come under MSP?

The government has announced minimum support prices (MSPs) for 23 mandated crops, along with the fair and remunerative price (FRP) for sugarcane. These crops include 14 kharif season crops, 6 rabi crops, and two other commercial crops. Additionally, MSPs for toria and de-husked coconut are determined based on the MSPs of rapeseed/mustard and copra, respectively. The list of crops comprises:

The government currently fixes the MSP for 23 crops, which are:

7 cereals: Paddy, wheat, maize, bajra, jowar, ragi, and barley.
5 pulses: Chana, arhar/tur, urad, moong, and Masur.
7 oilseeds: Rapeseed/mustard, groundnut, soybean, sunflower, sesamum, safflower, and niger-seed.
4 commercial crops: Cotton, sugarcane, copra, and raw jute.

The government also announced the Fair and Remunerative Price (FRP) for sugarcane, which is the minimum price that the sugar mills have to pay to the sugarcane farmers.

Why Govt does not want to make law on MSP?

The government has not implemented the C2+50 formula of MSP, nor has it given a legal guarantee to the MSP, despite the repeated demands of the farmers. The government has cited various challenges and implications of making MSP a legal right, such as:

Fiscal burden: The government claims that implementing the C2+50 formula of MSP would entail a huge fiscal burden on the exchequer, as it would increase the subsidy bill and food inflation. The government also argues that it does not have the financial and physical capacity to procure all the crops from all the farmers at the MSP.
Market distortion: The government contends that making MSP a legal mandate would distort the market forces of demand and supply, and create inefficiencies and imbalances in the agricultural sector. The government also fears that MSP would discourage the private sector from investing in the agriculture and allied sectors, and hamper the growth and competitiveness of the farmers.
Crop diversification: The government asserts that fixing MSP for only a few crops would discourage the farmers from diversifying their crops and adopting high-value crops, such as fruits, vegetables, dairy, poultry, etc. The government also worries that MSP would encourage the farmers to grow water-intensive and environmentally harmful crops, such as paddy and sugarcane, which would affect the natural resources and the climate.

Key recommendations of Swaminathan committee

The Swaminathan Committee made some important recommendations for the welfare of the farmers. The main recommendation was to fix the MSP at 50 per cent more than the cost of production, which is called the C2+50 per cent formula. This would give the farmers a fair profit for their crops.

However, this recommendation was not accepted by the UPA government in the National Policy for Farmers in 2007. The committee also found that the farmers were facing a crisis due to lack of land reforms, water quality and quantity, technology fatigue and weather problems. Also, the committee suggested adding 'agriculture' to the Concurrent List of the Constitution.

The Swaminathan committee tackled farmers' land and water issues, advocating against giving prime agricultural and forest land to corporates for non-farming purposes. They called for a system to regulate the sale of agricultural land, adequate and fair irrigation for farmers, and increased investment in irrigation infrastructure.

The committee also gave some suggestions to improve the productivity and sustainability of agriculture. The Swaminathan committee asked for more investment in infrastructure related to agriculture.

The Swaminathan committee also asked for conservation farming, which would help the farmers to take care of the soil and the environment.

The committee also talked about the credit and insurance for the farmers. The committee asked for reducing the interest rate on crop loans to 4 per cent with the help of the government. The Swaminathan committee also asked for giving Kisan Credit Cards to women farmers. The committee also asked for creating a Rural Insurance Development Fund, which would help to spread rural insurance.