Limits to MSP – Business Line–05.07.2018

Policymakers need to shift from price support to income support

With possibly an eye on 2019, the Centre has stuck to its Budget promise of fixing kharif support prices at 50 per cent or more over the cost of production, which includes family labour but not rent. In the case of bajra, tur, urad and cotton, the increase awarded is 97 per cent, 65 per cent, 63 per cent and 59 per cent, respectively, over cost. The Centre’s focus on increasing pulses output and reducing dependency on imports is laudable. It is just as well that it has sought to push millets cultivation as well, a move that will benefit both dryland farmers as well as the nutrient intake of all consumers. However, minimum support price (MSP) increases may not help in fulfilling these ends, in the absence of a robust procurement infrastructure. For example, the generous MSP increase in the case of tur in 2017, prompted farmers to increase acreage and output, which in turn brought down prices to levels that barely covered their cost — estimated by the Commission of Agriculture Costs and Prices at ₹3,318 per quintal for 2017-18. Prices of tur fell to ₹3,500-4,000 per quintal in December 2017-January 2018 in growing regions of Karnataka and Maharashtra, against last year’s support price of ₹5,450 per quintal. High MSPs in such situations only end up fuelling inflationary expectations, with hefty gains accruing to intermediaries. If market prices have ruled above or close to MSP levels in the case of paddy, it is on account of demand arising out of value-added products, exports and welfare schemes.

The limits to procurement are best affirmed by a sobering fact: according to the Shanta Kumar Committee report submitted in January 2015, only 6 per cent of all farmers sell their produce to a procurement agency. Citing 2012-13 NSSO data, it says that while a third of both paddy and wheat produced is procured, only 13.5 per cent of paddy farmers sell their produce to a procurement body. There can be no denying the role of procurement in meeting the food security needs of the poor through PDS, Anna Antyodaya Yojana, mid-day meals programmes and public kitchens. But there is no need to hold stocks hugely in excess of these requirements. Markets must operate freely, with no curbs on exports so that farmers are rewarded for output and quality of produce.

Without using support prices to serve populist ends, they must be supplemented by a drive to improve the PDS network, so that rural households benefit from cheap retail grain as well. But the bulk of India’s subsistence farmers need support systems other than MSP to alleviate distress. The Centre must shift to income support measures, and to this end set up a farmers’ income commission. With the systems in place for direct transfers, the time is ripe. The shift makes pragmatic sense as well, as income support unlike MSP will not run foul of WTO rules.

via Limits to MSP – Business Line

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