Budget 2018: Finance minister Arun Jaitley on Friday told the Rajya Sabha that the Budget 2018 announcement on ensuring farmers minimum support prices (MSPs) of kharif crops at one-and-a-half times of their costs will be based on the A2+FL costs, and not the more ambitious C2 costs formula favoured by farm scientist MS Swaminathan. But, as shown in a comprehensive analysis by FE on Thursday, the MSP-based deficiency payments based on 1.5 times the A2+FL costs could cost the exchequer about Rs 80,000 crore even on conservative estimates, if the government is unable to procure all crops at MSPs.
Importantly, the deficiency payment system is fraught with risks, as demonstrated in Madhya Pradesh where traders are suspected to have manipulated the markets. Also, higher domestic prices would dent our export competitiveness in agriculture when the Budget 2018 wants to realise annual farm export potential of $100 billion (from $30 billion now).
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The A2+FL formula takes into account actual cost plus imputed value of family labour in the production of a crop. But the C2 formula factors in a lot of costs, including imputed rent on land and interest on capital, which makes the cost of production much higher than the level on which the Commission for Agricultural Costs and Prices bases its recommendations.
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Jaitley said the government’s potential revenue loses could touch Rs 40,000-50,000 crore had he announced the reduction of the corporate tax rate for large companies to 25% without ending various tax exemptions enjoyed by many large firms. The 7,000-odd large companies that will be outside the 25% bracket are in any case paying a 22-23% tax effectively, after factoring in the exemption, he added.
So the relief was restricted to small and medium enterprises with annual turnover up to Rs 250 crore because they are the largest generators of jobs and their effective tax rate is higher than many large manufacturing firms. Using data on key economic indicators — from growth to inflation to current account and fiscal deficit — Jaitley countered charges made by former finance minister P Chidambaram and suggested the economy under the NDA is in a much better shape than under the UPA.
“It has been a journey from policy paralysis to structural reforms, from fragile five to a bright spot and from a basket case to the world’s fastest-growing large economy,” he said, while comparing the performance of the UPA and the NDA.