Prime Minister Narendra Modi has assured farmers that the Cabinet would decide this week on fixing the minimum support price (MSP) for kharif crops at 150% of the production cost.
The intent to tackle farm distress is laudable, but hefty hikes in MSPs could be counterproductive. It could push domestic prices out of sync with global prices and destroy market discipline in crop choice, cost control and efficiency.
If the MSP scheme takes the form of actual procurement, state outlay would have to cover, over and above the cost of procurement, the cost of storage, transport, spoilage and pilferage, besides significant costs such as market taxes and loading and unloading charges.
Madhya Pradesh tried an alternative to state procurement: paying the farmer the difference between the market price and the MSP, but traders took advantage by artificially depressing prices so that the state would pick up the tab.
Policy should pursue what is best for Indian farming, not populist glory. The focus must be on investment — in efficient water management and irrigation, plant breeding and genetics, crop husbandry, market linkages — and in breaking the middleman’s hold over the farm-to-consumer value chain, replacing it with farmer-led enterprises, whether cooperatives or producer companies, that allow farmers to capture a share of the value added to their produce along its journey to the dining table/factory.
Now that every village is electrified, agro-processing industry in rural areas is a real possibility, not just climate-controlled storage. Income support linked to area cultivated is a WTO-compatible supplement to farm investment. India needs a functional commodity options and futures market to ensure efficient price discovery, besides a reliable form of crop insurance.
Productivity should be raised in every crop, considering the rise in demand for superior foods with rising income levels. Good roads in rural areas, together with a rational approach to trade, would allow conversion of local gluts into supplies to the global markets that enhance farmer incomes.