MSPs are often increased sharply for political gain, and this could compromise the goal of getting the crop mix right
As is often the case, and particularly so in an an election year, the announcement of minimum support prices (MSP) for the FY24 kharif marketing season, has kicked up a furore. Such protests generally range over two issues. First, whether MSP calculation duly compensates for cost of production and gives a generous return. The second pertains to the market prices ruling below MSP, owing to a range of general and crop-specific situations.
Except for wheat and rice, the market prices for the 24 crops for which MSPs are announced often do not hold up. This is because farmers lack the income to hold on to their produce, are under pressure to pay off their debt and do not have access to storage. Or else, as in the case of the agitation over sunflower seeds, markets can flatten out after touching a high. The Centre is in a perennial trilemma; it has to protect farmers’ interests, meet welfare goals, and ensure that its finances remain in order. The MSP instrument, besides protecting farmers and creating assured supply for consumers, can be used to alter cropping patterns in order to promote crop diversity and improve ecological and nutritional outcomes. This government has used relative price signalling effectively to enhance pulses output, as a result of which imports have come down from over five million tonnes per annum about six or seven years back to about two million tonnes today, while output has risen from 17 million tonnes to over 26 million tonnes. Hence, for FY24 kharif, moong prices have been raised by 10.35 per cent, while paddy and jowar are up by 7 per cent, and bajra 6.3 per cent.
However, MSPs are also increased sharply for political gain, and this could compromise the goal of getting the crop mix right. For instance, the average annual increase in support prices of paddy common grade was 5.2 per cent between FY15 and FY24, but it was raised 12.9 per cent in 2018-19 in view of elections. Arhar and moong prices were increased by an average of 5 per cent and 7 per cent, respectively, over this period. However, the Centre stuck to its relative pricing formula by raising moong prices by 30 per cent in 2018-19, and the coarse grains by 42-52 per cent! Likewise, in 2008-09, paddy prices were raised 32 per cent, and the rest by much more. As for the inflationary effects, the CPI and WPI readings for subsequent years do not bear this out.
While increases in MSP as well as free supplies of grain are largely a given for political economy reasons, with some give and take, it is possible to curb the food subsidy outgo by improving the logistics of procurement and distribution. The plan to set up warehouses at the block level, run by the primary agriculture credit societies to create a grain storage of 70 million tonnes, can make a difference. It can improve farm realisations and control distribution costs. Cooperatives in the post-procurement chain can add to the efficiencies. However, details of this plan are awaited.
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