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Hiking MSP Alone Will Not Solve Farm Crisis Problem

Dr D M Deshpande

As was widely expected the Government has hiked MSP (Minimum Support Price) for 14 crops, in a move which will be seen as a precursor to elections to a few important states to be followed by general elections next year. Apparently, the increase is substantial, over 50% of the input costs, as promised in the budget presentation by the Finance Minister. Yet it falls short of expectations and even recommendations of Swaminathan Committee. In calculating the rise, the government has taken in to account paid out costs of inputs, interest on borrowed capital and imputed cost of family labour, known by a formula as (A2+FL).  But it has left out two things- imputed cost of rent of cultivated land and notional cost of interest on owned capital invested in farming, known by a different formula, that is, C2.

Generally there is a lot of criticism for both what the government does and does not do in respect of agriculture. Though most of it is well deserved, it is also to be appreciated that it is up against daunting task and myriad challenges. On the one hand, the overarching policy initiatives have to provide the outcome of food security to 1.32 billion people in India. More importantly, to the lowest in the economic ladder, for, this section is more vulnerable to high food prices. Higher MSP normally translates in to higher prices. On the other hand, government also has to ensure that farm production is incentivised by higher returns/incomes and improve productivity so that it becomes sustainable. At times, even some of the major objectives tend to contradict one another.

Governments, over a period of time, have tried various policy interventions and legislative measures. They range from market regulations, such as APMC Act, Essential Commodities Act to budgetary policies such as increased input subsidy, such as power, seeds, pumps etc. Even the trade policies followed in respect of agriculture is seemingly to protect the farmers and enhance their incomes. The examples of this are, ban on exports of certain goods, fixing of minimum export prices and tariff duties. Lastly there are food subsidies that are largely implemented through public distribution system. All of these and more work in complex ways and have a definitive bearing on both producers and consumers.

Higher MSP’s alone are not sufficient to come out of farm crisis. Going by the past experience, procurement by government agencies is concentrated around just a few crops such as wheat, paddy and cotton. Sugar is the only other exception as sugar mills are mandated to pay a fixed price to farmers. Further procurement is also mostly restricted to a few states, leaving farmers in the vast hinterland high and dry. For example, in the entire north-east, and also eastern states of Bihar, West Bengal  and Jharkhand, procurement infrastructure is weak; so they have no realistic hopes of benefitting from the higher MSP’s in their Kharif crops.

Even the Central Government schemes to give MSP support to farmers have met with limited success. The share of the FCI in paddy and wheat procurement is just 10%. Nafed has been given a guarantee of Rs.29,000 crores for procurement of oil seeds, copra, pulses. Yet, it took more than five years for Nafed to get reimbursement for it’s Rs 1,000 crores spent on procuring groundnut, oil seeds, pulses and cotton. According to Shanta Kumar Committee report submitted in 2015, only 6% of the farmers sell their produce to procurement agencies.

Instead of using MSP announcements as an instrument to garner farmers’ votes, government must work towards expansion of PDS network especially in rural and far flung areas. The need for giving food security there is all the more urgent. Higher MSP prices alone will not alleviate farm crisis. Government has to shift from price based support to income based support. Since aadhar based network in already in place, direct cash transfers can be effected without human intervention. This will also ensure that we do not violate any provision or undertaking given to WTO.

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