Mere temporary solution

Hike In MSP

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