Economic Highlights

New Delhi, 23 October 2023

High MSP More Populist

FEWER FARMERS BENEFIT!

By Shivaji Sarkar 

The minimum support price (MSP) in the context of need of the farmers is turning into more of populism for elections. The MSP for wheat has been increased by 7.1 percent, the highest year-on-year rise since 2012-13. Would this have an impact on the poll-bound States – Chhattisgarh, Madhya Pradesh, Mizoram, Rajasthan and Telangana? 

One interesting aspect is the changes in their economy during the past five years. In short, they have grown faster than the India average since 2018. India’s GDP has grown at compound annual growth rate (CAGR) of 3.4 percent between to 210-19 and 2022-23.This is good for the farmer, but not in tune with the objective of the MSP, i.e. to sustain remunerative farming. 

The MSP is not meant for populism. The farmers must get a price that matches inflation but if it is reset higher, it could itself become the trigger for inflation. The new MSP for wheat is at Rs 2275. The market price of wheat is Rs 2700. In reality, number of MSP beneficiary farmers are coming down. The Congress, the principal challenger to the BJP in Madhya Pradesh, has promised Rs 2600 and later Rs 3000. 

Sounds good alright but it can impact the economy as instead of being a stabiliser for prices, it could lead to an inflationary situation. It should not be used as vote garnering tool. The MSP itself was carved out in a way that it does not become inflationary. The objective was lost as inflation defied logic and MSP revision is an annual process. 

India’s inflation targeting also means that monetary policy has to be forward looking in nature. Data from Reserve Bank of India’s (RBI) households survey show that both current and perception next three-month outlook has come down significantly, compared to two years back. How escalation of Hamas-Israel conflict and possible rise in oil prices would impact the economy needs to be watched. 

The RBI assesses that a spike in food inflation could reverse the falling trajectory of inflation expectations. The curious case of MSP is that while it is announced for all crops - and gets all people on both sides involved in frantic arguments on the price increase being inadequate (if low) or inflationary (if high) - for all practical purposes, the MSP is effective for rice and wheat alone. Hence, while the MSP of maize can be increased, the Central government is not there to buy the crop. Or, for that matter, tur or urad. 

This has caused a mismatch in production and the country has become laggard in pulses and oilseeds. The country has not been able to create a system that could balance production different agricultural products. Palm oil production in some areas has hit the ecological balance.

Agriculture is critical but complex. More the farmers’ problems have been tried to be solved since the Green Revolution, the more it has become acute. Despite efforts dependence on the farm sector has not come down. 

India has largely remained an agriculture economy. The workers’ share in agriculture remains very high in the states of MP, Rajasthan, Chhattisgarh, and Telangana. This is because high value services such as industry or services are less labour intensive. Even Telangana with 47.3 percent engaged in agriculture ranks fifth against national average of 45.8 percent in 2022-23, according to the Centre for Monitoring Indian Economy (CMIE). This is despite that Telangana has better employment in services most northern states. 

Chhattisgarh ranks first with 60 percent employed in agriculture, Madhya Pradesh third with 59 percent and Rajasthan fifth by share of agriculture in employment. Rajasthan employs about 25 percent in construction more than the average of southern states. 

Overall agricultural households, employing at least one person earning Rs 4000 a year as per Situational Assessment Survey (SAS), remains very high suggesting dependence on the farm sector. These households are not farmers. Almost three-fourth of Rajasthan, 74 percent, are in this category, followed by two-third in Chhattisgarh, 66.8 percent; Madhya Pradesh 66.4 percent and half in Telangana 54.2 percent. The national average is 54 percent. 

An interesting aspect is that the GDP of the four States have grown at a rate higher than India growth rate of 3.4 percent. Rajasthan has CAGR of 5.6 percent, second fastest growing among 21 states for which CMIE compiled gross state development product (GSDP) data. Rajasthan, Madhya Pradesh and Chhattisgarh ranked seventh, 10^th and 11^th respectively. These states, however, have not become richer. Per capita GSDP ranking at Rs 99,111 was 13^th for Rajasthan; Madhya Pradesh with Rs 74,653, 18^th and Chhattisgarh with Rs 96,242 at 14^th respectively. They all are lower than India average of Rs 115,746. Only Telangana has per capita income of Rs 191,244 higher than the national average. 

However, in gross value addition (GVA) the share of agriculture in Madhya Pradesh and Rajasthan is double the national average of 15.1 percent at over 32 percent and Chhattisgarh 16.9 percent, because of high mining activities.  

So, would the higher MSP really benefit them? That may not be. For instance, MP in 2022-23 rabi season procured 46.02 lakh tonnes against 128 lakh tonnes a year back. Rajasthan farmers have been selling wheat at a price Rs 1684 per quintal against the MSP of Rs 1925 per quintal in 2020. The variation is due to gradation in quality of wheat. So many farmers may not be getting the benefit of the high MSPs announced by the government. 

According to the Food Corporation of India (FCI), there has been a reduction in procurement of wheat and rice over the past few years. Rice procurement reached a high of 602 lakh tonnes in 2020-21 after which it declined to 576 LT in 2021-22 and further to 533 lakh tonnes in 2022-23. 

Despite higher procurement prices, actual purchases from the farmers have come down in different states. The number of farmers benefited as per Press Information Bureau (PIB) is 591093 in Madhya Pradesh and 816 in Rajasthan for wheat during 2022-23.  In 2021-22, 49.2 lakh farmers growing wheat were benefitted and about 21.29 Lakh farmers have benefited from wheat procurement in the current year, as per PIB releases. 

This makes evident that the MSP may have more publicity value than actual benefits to the farmers. The electoral benefits too could be limited to that extent. It may not be a large vote catcher. It also calls for widening the procurements to other foodgrains to ensure fairer prices for the farmers.---INFA 

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