Economic
Highlights
New Delhi, 9 July 2018
Hike In MSP
MERE TEMPORARY
SOLUTION
By Shivaji Sarkar
The Union Cabinet’s decision to hike minimum
support price (MSP) for 14 crops is a move to ease agrarian distress as well as
fulfill a promise made to farmers to ameliorate their lot. The crops would
fetch the farmers almost 1.5 times the cost of cultivation. Ostensibly, it is a
good move.
The Agriculture Ministry says this would be a
step towards doubling farmers’ income by 2022. Now 23 crops are covered by MSP.
However, it does not imply that all would be purchased at that price by
government agencies. Instead, it decides a floor and an oblique assurance that
if prices fall below the level, the government purchases would be at those
prices. It also sets a basic level in the farm market though most produces are
purchased by the traders at lower prices.
The cost of production for crops is estimated
by the Commission for Agricultural Costs and Prices (CACP) using three
definitions: One is A2. It represents the actual amount farmers spend on
growing a crop each season. This includes seeds, fertilizers, pesticides, and
wages for agricultural workers. The other is A2+FL -- the actual input costs as
well as the implied economic value of family members working on the farm, which
offsets the wages the farmer might otherwise have paid, in short the family
labour. Then there is C2. It includes A2+FL and the value of capital assets,
including rent and interest of the land.
This year’s MSP increase is restricted to
A2+FL. This is what many farm organisations are saying needs correction. In
fact MSPs and loan waivers are favourites to address the farm distress. Ironically
though, the very next day Karnataka’s JD-S-Congress government waived Rs 34,000
crore in farm loan and hiked petrol and diesel-- a key farm input-- prices by
two per cent. This would only add to farm costs, make transportation more
expensive and ultimately the benefit to farmers would be minimal. Even the new
MSPs would not be able to help the Karnataka farmers much as the step would be
inflationary.
While paddy and other crops would have about
50 per cent more MSP, the coarse grain bajra
would have 97 per cent more MSP and benefit poll-bound Rajasthan farmers the
most at A2+FL. The way paddy has found favour, it may increase its acreage for
higher benefits. As per C2, most crops have 14 per cent more MSP. Only bajra
has around 50 per cent.
However, it has been observed by the Shanta
Kumar committee in 2015 that six per cent farmers get the maximum benefit of
MSP hike. It also found that the Food Corporation of India has been deficient
in purchases. The NSSO’s (70th round) data for
2012-13 reveals that of all the paddy farmers who reported sale of paddy during
July-December 2012, only 13.5 per cent farmers sold it to any procurement
agency (during January-June 2013, this ratio for paddy farmers is only 10 per cent),
and in case of wheat farmers (January-June, 2013) only 16.2 per cent farmers
sold to any procurement agency.
That diversions of grains from PDS amounted
to 46.7 per cent in 2011-12 (NSSO’s 68th round
consumption data from PDS); and that country had hugely surplus grain stocks,
much above the buffer stock norms, even when cereal inflation was hovering
between 8-12 per cent in the last few years. This situation existed even after record
exports of over 42 MMT of cereals during 2012-13 and 2013-14. Together, they
account for only 6 per cent of total farmers in the country, who have gained
from selling wheat and paddy directly to any procurement agency.
A NITI Ayog study in 2016 also endorsed the
NSSO study and noted that in many areas either there was no FCI procurement
programme or that many farmers were not even aware if there was one. Some years
back it was found that Punjab traders purchased wheat from Bihar at lower
prices, transported it to Punjab or other markets and sold it at MSP to
government procurement agencies.
The NITI Ayog study indicates that these
drawbacks continue. It, however, noted that MSP increased cropping area in States
such as Andhra Pradesh and Assam, Maharashtra, Rajasthan and in parts of Bihar.
In Uttar Pradesh the acreage increased by a mere 1.4 per cent, Odisha it fell
marginally and Uttarakhand had a 14 per cent fall in gross cropped area. It had
little impact in Gujarat as most crops there are sold above MSP.
Farmers have been demanding that MSPs provide
a return of 50 per cent over the C2 measure of cost. This has yet to be met.
Even the Bharatiya Kisan Sangh in the past stressed for rise in C2. Another
aspect, though known, has been ignored i.e. the presence of middle men, who
purchase most of the crops and do the most of the marketing. The farmers often
lack the capacity to transport their produce to the market and find various
stipulations at FCI centres cumbersome.
This is taken advantage of by the traders,
who purchase at lower prices and make the best profits. The farmers’ loss is
their gain. But at the same time, farmers consider them a help as they also
provide finance and save them of additional burden.
What Shanta Kumar committee and NITI Ayog
have found are worth considering. Their oblique suggestion is to go deeper into
the farm marketing strategy and re-organise the entire farm mechanism for the
benefit of the farmers thus assuring a semblance of farm security.
Recently, the government said it was
considering increasing private investment in the farm sector. What it meant was
that large corporate houses would invest more. This is a hackneyed way. Farm
sector has the least public investment. Both Shanta Kumar panel and NITI Ayog studies
and NSSO have noted that large rural populace is dependent on farm activities.
More corporate investment displaces people and reduces job opportunities. The
farm sector is complex and needs a detailed study and area-specific strategy.
This is now recognised at government level. But an acceptable strategy still
has not been worked out.
Political brinkmanship can never churn that
out. While Prime Minister Narendra Modi’s dream of doubling farmers’ income is
a necessity, it requires different strategies for different areas to end the
distress. And it also has to be non-inflationary. While for now, the MSP hike
is fine, neither this nor loan-waiver can be the ultimate. A new methodology
has to be worked out for strengthening farmers and food security.---INFA
(Copyright,
India News & Feature Alliance)
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